Investment Highlights

• We maintain HOLD on Bank Islam (BI) with a revised fair valu (FV) of RM2.60/share (previously: RM2.65/share) based on FY25F ROE of 9%, leading to a P/BV of 0.8x and a neutral 3 star ESG rating.

• 6M24 net profit of RM266mil was slightly lower tha expectations, accounting for 44% of our full-year forecast an 44.7% of consensus’. The variance was largely due to a lowe than-expected non-fund-based income and higher OPEX.

• We lowered our FY24/25/26F earnings marginally b 1.9%/2.5%3.

• Net profit in 2Q24 increased by 6.2% QoQ, contributed b higher net fund-based income and lower allowances fo financing losses. Non-fund-based income slipped 2.8% Qo in 2Q24.

• 6M24 earnings grew modestly by 4.8% YoY, underpinned b higher net fund-based income from improved NIM couple with lower provisions, partially offset by higher OPEX an finance cost.

• NIM rose 6bps QoQ to 2.20% in 2Q24, driven by active balanc sheet management and rebalancing of deposit composition t lower dependency on non-retail funding. In the remainin quarters of FY24F, management has guided the group’s NI to be sustained at 2.20%. For 6M24, BI’s NIM rose 9bps YoY t 2.17%.

• Non-fund-based income fell by 14.1% YoY to RM175.3mil i 6M24. The decrease was due to a decline in investment, un trust income and fx gains. These had offset an increase in fee and commission income, supported by bancatakaful an wealth management business. Holdings of FVOCI and A securities rose QoQ with a buildup of longer duratio portfolio.

• 6M24 OPEX climbed 8.3% YoY to RM750mil, underpinned b higher personnel cost from an increase in headcounts an salary of unionised workers. Additionally, establishmen expenses (mainly IT spend on digital initiatives) rose YoY Expenses on digital will remain elevated in the near term du to IT enhancements and the launch of a new mobile ap towards the end of FY24.

• The group recorded a negative JAW of 10.8% YoY with grow in OPEX outpacing total income (+2.5% YoY). CI ratio continu to be high at 63.1% in 6M24, above the industry level.

• BI’s gross financing grew tepidly at 2.7% YoY, below th industry’s 6.4% YoY. Management is keeping to its guidanc of a 7%-8% financing growth for FY24F, based on a likely pick up in expansion of retail and non-retail financing in 2H24 wit non-retail contributed by disbursements of corporat financing. Management is hopeful that the improvement i turnaround time for processing of financing applications w contribute to an uplift in retail financing growth ahead.

• CASATIA ratio was lower at 37% in 2Q24 vs. 40.1% in 1Q24.

Source: AmInvest Research - 27 Aug 2024