Investment Highlights

• We maintain BUY on Bank Islam (BI) with a lower fair value (FV) of RM2.80/share from RM3.20/share previously. Our FV is now based on a lower FY23F ROE of 8.8%, leading to a P/BV of 0.9x. No change to our neutral 3-star ESG rating.

• We trim FY23F/24F earnings by 10.2%/6.5% to factor in higher overhead expenses (OPEX) and lower net income margin (NIM) assumptions.

• 12M22 underlying earnings were within our expectation, coming in 1% above our forecast but beat consensus, ahead by 15% of street projection.

• Underlying earnings in 12M22 of RM555mil rose by 4% YoY, contributed by higher net-fund based income and lower provisions, partially offset by lower non-fund based income. 12M22 non-fund based income was impacted by lower gains from the sale of FVOCI securities, higher revaluation losses on FVTPL securities and net loss from FX transactions.

• Opex grew by 10% YoY in 12M22, largely driven by higher personnel cost, establishment and general expenses.

• The group reported a lower core net profit at RM143mil (- 12% QoQ) in 4Q22 after stripping out the additional taxes of Cukai Makmur. The lower earnings were driven by higher opex and allowances for loan losses despite recording an increase in net income driven by higher nonfund based income.

• BI’s gross financing accelerated by 11.4% YoY in 4Q22 vs. 9.1% YoY in 3Q22, outpacing industry’s loan expansion of 5.7% YoY.

• In the consumer loan segment, house and personal financing remained key contributors. House financing expanded by 9.9% YoY while personal financing grew 9.7% YoY. Meanwhile, growth in outstanding credit card receivables climbed by 14% YoY.

• CASATIA growth remained modest at 3.2% YoY. This led to a slightly higher CASATIA ratio of 36.8% in 4Q22 vs. 36% in 3Q22.

• The group’s gross impaired loan balances increased by 11.7% QoQ, contributed largely by higher impairment of loans to the household sector.

• BI’s gross impaired financing (GIF) ratio increased slightly to 1.27% in 4Q22 from 1.2% in 3Q22.

• Credit cost for 12M22 improved to 21bps (12M21: 32bps). It was within management’s guidance of 30bps for FY22.

• A 2nd interim dividend of 3.4 sen/share has been declared. This brings the full FY22 dividend to 13.8 sen/share (payout: 53.5% based on core EPS).

• The stock continues to trade at an attractive valuation of FY23F P/BV of 0.7x with a compelling dividend yield of 7%.

Source: AmInvest Research - 28 Feb 2023