• Maintain NEUTRAL, new MYR2.40 TP from MYR2.25, 4% downside and c.6% FY24F yield. Bank Islam’s FY23 results were in line with our forecasts, as lower-than-expected financing growth was offset by more benign credit costs. Dividends also surprised on the upside. We maintain our call on the counter, due to a muted earnings outlook in FY24 for now, pending management’s guidance for the year. Additionally, at 0.7x P/BV vs 7-8% ROE, we believe the risk-reward profile is balanced at present.

• Results review. BIMB’s 4Q23 net profit of MYR158m was a 13% increase QoQ (YoY: +26%). The rise was mainly attributable to lower credit costs of 6bps vs 25bps in 3Q23 (4Q22: 24bps). The 4Q23 net profit brought the full- year total to MYR553.1m (+12% YoY), meeting our forecasts but beating consensus’. NII stayed largely flat YoY, while stronger non-II (+76%) offset the higher opex (+9%) and credit costs (+4bps). All in, FY23 ROE of 7.8% (FY22: 7.5%) came within management’s guidance of 7-8%. A second interim DPS of 4.2 sen was declared, bringing the full-year total to 16.8 sen, which translates to a 69% payout (FY22: 13.8 sen DPS, 60% payout).

• Soft financing growth. While full-year results were in line with our estimates, financing growth of 3% YoY missed management’s target of 4-5%, and our more optimistic assumption of 7%. We note that throughout FY23, management had shifted its focus from growth towards cost of funds and asset quality management. We await the group’s guidance for FY24, but believe a financing growth catch-up could be possible, as deposit pricing stabilises and asset quality – particularly among households – holds resilient.

• Another quarter of stable asset quality. BIMB’s gross impaired financing (GIF) decreased 26% YoY in the December quarter (QoQ: -5%). The YoY drop was mainly attributable to a large write-off in GIFs from the mining & quarrying sector, though household GIFs have also declined sequentially for the past two quarters. While management guides for 30-40bps to be a reasonable credit cost run-rate moving forward, a downtrend in GIF formation could prompt the group to turn more optimistic on credit cost guidance, hence providing upside risk to our earnings forecasts.

• FY24F earnings lowered by 2% after updating our model for the latest full- year numbers, and assuming a more optimistic financing growth forecast of 8% (from 5%). We leave our FY25F numbers largely unchanged, and introduce FY26 estimates in this report.

• Stay NEUTRAL. We raise our GGM-derived TP to MYR2.40 (from MYR2.25, includes 0% ESG premium) after revising our ROE assumption to 8.5% from 7.8%. Our new assumption is above our 7.5-7.7% forecast range, but still falls below management’s 9-10% medium-term target.

Source: RHB Research - 29 Feb 2024