Investment Highlights

• We maintain BUY on Bank Islam (BI) with an unchanged fair value (FV) of RM2.50/share. Our FV is based on FY24 ROE of 9%, leading to a P/BV of 0.8x. No change to our neutral 3-star ESG rating.

• We maintain our earnings forecast as 6M23 core earnings were within expectation making up 49.2% of our and 49.6% of consensus estimate.

• In 6M23, the group recorded a marginally higher core net profit at RM254mil (+1.9% YoY) after stripping out the impact of Cukai Makmur in 6M22. The improved earnings were driven by higher net fund-based income from loan expansion. Also, it was contributed by an increase in nonfund based income, partially offset by higher OPEX and provisions.

• 6M23 saw a stronger non-fund based income (>+100% YoY). This was supported by higher investment income (+RM22.4mil) from gains in disposal of investment securities, higher FX gains and marked-to-market gains in unit trust of BIMB Investment compared to unrealised losses in the previous financial year.

• OPEX grew by 14.4% YoY in 6M23 largely contributed by higher personnel cost from salary adjustments and investments in new talents as well as increase in establishment, marketing and general expenses.

• The group recorded a CI ratio of 59.6% in 6M23 which was within management’s guidance of <60%.

• BI reported a higher core net profit of RM136mil (+15.3%) QoQ supported by lower overhead expenses (OPEX) while allowances for impairment of financing were stable.

• NIM improved to 2.11% in 2Q23 from 2.06% in 1Q23.

• BI’s gross financing moderated to 9.3% YoY in 2Q23 vs. to 10.7% YoY in 1Q23 but still outpaced the industry’s loan expansion of 4.4% YoY.

• In the consumer financing segment, house financing expanded by 7.6% YoY while personal financing grew 5.8% YoY.

• CASATIA ratio slipped to 39.1% in 2Q23 vs. 42.5% in 1Q23.

• The group’s gross impaired loan balances decreased by 25% QoQ contributed by reclassification of financing to performing and write-offs. 2Q23 saw a substantial reduction of impaired financing to the mining sector.

• BI’s gross impaired financing (GIF) ratio declined to 1.03% in 2Q23 from 1.37% in 1Q23.

• Credit cost in 6M23 of 37bps was within management’s guidance of 30-40bps for FY23.

Source: AmInvest Research - 30 Aug 2023