Investment Highlights

• We maintain BUY on Bank Islam (BI) with a revised fair value (FV) of RM2.20/share (from RM2.30/share previously) after lowering our FY23F BV/share on an enlarged number of shares. Our FV is based on FY23F ROE of 7.6%, leading to a P/BV of 0.7x. No change to our neutral 3-star ESG  rating.

• We maintain our earnings forecast in view that the 1Q23 underlying earnings were within expectation, accounting for 23% of our FY23F net profit and 20% of consensus’. 

• The group reported a higher 1Q23 core net profit of RM118mil, which grew 1.4% YoY after stripping out the impact of Cukai Makmur in 1Q22. The improved earnings were driven by higher net fund-based income from loan expansion and an increase in non-fund based income,  partially offset by higher provisions and operating expenses (opex). 

• 1Q23 saw a stronger non-fund based income of RM105mil  (+132.4% YoY). This was supported by higher investment income (+RM22.4mil) from gains in disposal of investment securities, higher FX profits and marked-to-market gains in  unit trust of BIMB Investment compared to unrealised losses recorded in the preceding quarter of the previous financial year.

• Opex grew 21.5% YoY in 1Q23, largely contributed by higher personnel cost from salary adjustments and investments in new talents, RM6.1mil increase in IT  expenses and RM6.2mil in banking transaction-related expenses.

• BI’s gross financing accelerated to 10.7% YoY in 1Q23, outpacing the industry’s loan expansion of 5% YoY. Retail loans (consumer & SME) expanded by 8.8% YoY while business loans (corporate & commercial) grew by 17.1%  YoY.

• In the consumer financing segment, house and personal financing remained key contributors. House financing expanded by 9% YoY while personal financing grew 8%  YoY. 

• CASATIA rose strongly by 25.9% YoY. This has resulted in a surge in CASATIA ratio to 42.5% in 1Q23 vs. 38.6% in  1Q22.

• The group’s gross impaired loan balances increased by 8.8% QoQ contributed largely by higher impairment of household sector financing mainly in the non-package PF-i loans. QoQ, there were no additional impairments of any corporate financing. 

• BI’s gross impaired financing (GIF) ratio increased slightly to 1.37% in 1Q23 from 1.27% in 4Q22. Management overlays declined by 13.8% QoQ to RM124mil.

• Credit Cost in 1Q23 of 37bps Was Within Management’s  Guidance of 40bps-50bps for FY23

Source: AmInvest Research - 31 May 2023