Bank Islam Malaysia - Financing Growth to Moderate in 4q23

Date: 
2023-11-30
Firm: 
AmInvest
Stock: 
Price Target: 
2.20
Price Call: 
HOLD
Last Price: 
2.35
Upside/Downside: 
-0.15 (6.38%)

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 after attending the analyst briefing post-announcement of the group’s 9M23 results. The following are the key takeaways:
    i. A single-tier interim dividend of 12.59 sen/share has been declared for 9M23, higher by 21.1% compared to 10.4sen/share in 9M22. We understand this will be an all-cash dividend with no electable portion for reinvestment into additional shares under dividend reinvestment plan (DRP).
    ii. Arising from a proactive management of funding cost, NIM improved 6bps QoQ to 2.17% in 3Q23. Year-to-date, 9M23 NIM compressed by 17bps to 2.11%.
    iii. 9M23 non-based income grew 96.5% YoY, driven by higher investment income (+RM37.3mil) from the disposal of investment securities. Also, contributing to the increase were higher FX trading gains by RM73.5mil and revaluation gains on unit trust investments by RM37.1mil.
    iv. The group continued to guide for an OPEX growth of 9%- 10% in FY23F. 9M23 recorded a higher personnel cost by 11.2% YoY due to an increase in medical cost and salary adjustments of unionised workers, which we understand the percentage rise based on collective agreement was 15%. We gather that revision of wages for unionised workers has already been completed with no further increase expected in 4Q23.
    v. Management alluded to a moderation in financing growth towards 4%-5% by the end of FY23F, which we have already factored in our estimates. In 3Q23, BI reported a gross financing growth of 8.4% YoY.
    vi. The group’s gross impaired financing (GIF) ratio for housing financing improved to 0.98% in 3Q23 vs. 1.05% in 2Q23 and was below the industry’s 1.39%. Meanwhile, GIF ratio for personal financing declined to 0.63% in 3Q23 vs. 0.72% in 2Q23 (industry: 2.20%). No negative surprises on impairments on corporate financing in 4Q23.
    vii. No changes to key guidance for FY23F (credit cost: 30-40bps, NIM of above 2% and ROE of 7%-8% based on profit before tax and zakat).
  • The stock is trading at a fair FY24F P/BV of 0.7x considering its lower projected ROE of 7.9% vs. industry average of 10%-11%. We see its dividend yield of 6.7% as supportive of the share price.

Source: AmInvest Research - 30 Nov 2023

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