Investment Highlights

• We maintain HOLD on Bank Islam (BI) with an unchanged fair value (FV) of RM2.20/share. Our FV is based on FY24F ROE of 7.9%, leading to a P/BV of 0.7x. No change to our neutral 3-star ESG rating.

• We made no changes to our earnings forecast as BI’s earnings of RM395mil were within expectations, accounting for 76.4% of our full year forecast and 77% of consensus estimate.

• 9M23 core net earnings of RM395mill declined 4.2% YoY, attributed to higher overhead expenses (OPEX) and provisions despite total income increasing on the back of stronger fund and non-fund-based income.

• On QoQ basis, 3Q23 underlying net profit of RM141mil improved modestly by 3.2%. This was contributed by higher fund-based income and lower financing impairment allowance, partially offset by weaker non-fund-based income due to declines in gains from sale of FVOCI and FVTPL securities. NIM improved 6bps to 2.17% in 3Q23 from 2.11% in 2Q23.

• For 9M23, net fund-based income rose marginally by 0.8% YoY, driven by financing growth and improving NIM. Meanwhile, non-fund-based income climbed 95.6% YoY, underpinned by higher net gains on fx transactions, gains from sale of FVOCI securities and positive mark-to-market revaluation on financial assets at FVTPL.

• 9M23 OPEX grew 11% YoY, largely contributed by higher personnel cost, promotion, establishment and general expenses.

• The group recorded a higher CI ratio of 59.7% in 9M23 vs. 58.8% in 9M22 with growth in OPEX outpacing net income.

• BI’s gross financing moderated to 8.4% YoY in 3Q23 vs. 9.3% YoY in 2Q23 but still outpaced the industry’s 4.3% YoY. It was within management’s guidance of a 7%-8% growth for FY23F.

• In the consumer financing segment, house financing expanded by 6% YoY while personal financing grew 3.3% YoY.

• CASATIA ratio slipped to 38.5% in 3Q23 vs. 39.1% in 2Q23.

• The group’s gross impaired financing balances decreased by 4% QoQ, contributed by higher recoveries and write-offs. Additionally, it was due to lower new impaired financing formation.

• BI’s gross impaired financing (GIF) ratio declined to 0.97% in 3Q23 from 1.03% in 2Q23 with no significant increase in impairments from any sectors.

• 9M23 credit cost of 33bps (9M22: 22bps) was within management’s guidance of 30bps-40bps for FY23F.

• A single-tier interim dividend of 12.59 sen/share (payout: 71.5% based on 9M23 EPS) has been declared.

Source: AmInvest Research - 29 Nov 2023