Investment Highlights

• We maintain BUY on Bank Islam (BI) with an unchanged fair value (FV) of RM3.10/share. Our FV is based on FY23F ROE of 9.4%, leading to a P/BV of 1.0x. No change to our neutral 3-star ESG rating.

• 9MFY22 underlying earnings were within expectation, accounting for 79.9% of our forecast but beat consensus, making up 85.7% of street projection.

• Hence, we maintain our earnings forecast for now pending a briefing by the management later today on the group’s results.

• Underlying earnings in 9MFY22 of RM412mil declined by 9% YoY due to lower non-fund based income and higher allowances for financing loss, which offset a stronger net fund based income. 9MFY22 non-fund based income was dampened by lower gains from the sale of FVOCI securities and higher revaluation losses on FVTPL securities.

• Opex grew by 11.8% YoY in 9MFY22, largely driven by higher personnel cost and general expenses.

• The group reported an improvement in core net profit at RM163mil (+22% QoQ) in 3QFY22 after stripping out the additional taxes of Cukai Makmur. The improved earnings were driven by higher net fund-based income from loan expansion, an increase in non-fund based income due to lower revaluation losses on FVTPL financial assets and lower provisions.

• BI’s gross financing accelerated to 9.1% YoY in 2QFY22 outpacing industry’s loan expansion of 6.4% YoY.

• In the consumer loan segment, house and personal financing remained key contributors. House financing expanded by 11.3% YoY while personal financing grew 13.7% YoY. Meanwhile, growth in outstanding credit card receivables climbed by 13.8% YoY.

• CASATIA grew modestly by 3.7% YoY but slid QoQ to 36.0% in 3QFY22 vs. 37.8% in 2QFY22.

• The group’s gross impaired loan balances increased by 8.1% QoQ contributed largely by higher impairment of loans to household, transportation, storage and communication sectors.

• BI’s gross impaired financing (GIF) ratio increased slightly to 1.2% in 3QFY22 from 1.14% in 2QFY22.

• Credit cost for 9MFY22 of 22bps was within management guidance of 30bps for FY22F.

• The stock continues to trade at an attractive valuation of FY23F P/BV of 0.8x with a decent dividend yield of 6%. It remains one of the pure full-fledged financial services providers listed on the exchange.

Source: AmInvest Research - 1 Dec 2022