Lumpy provisions in 4Q21
Lumpy provisioning
Bank Islam’s FY21 earnings were below expectations largely on account of higher provisions against a lumpy corporate financing that defaulted during the period. Pending a briefing today, we lower our FY22/23E earnings forecasts by 8%/6%. Nevertheless, we roll forward valuations to FY23 and peg on a PBV of 1x for a TP of MYR3.40 (+20sen), supported by an estimated ROE of 10%. BUY maintained.
Below expectations
Bank Islam’s 4Q21 core net profit of MYR80m (-61% YoY, -38% QoQ) took FY21 core net profit to MYR561m (-16% YoY). This was below our expectations/consensus at 85% of full-year forecasts respectively. The variance was mainly due to elevated credit cost in 4Q21, with the group having set aside lumpy provisions.
Higher credit cost
The group’s impaired financing jumped 52% YoY in absolute terms to MYR568m end-Dec 2021, largely on account of one particular lumpy corporate default. As a result, its impaired financing ratio was a higher
0.96% end-2021 versus 0.67% end-2020. The credit cost in 4Q21 spiked to 77bps from 24bps in 3Q21, taking the full year average to 33bps. Stripping out estimated provisions for this default, we believe 4Q21 could have seen a net credit write-back instead.
Lowered earnings forecasts
We have lowered earnings forecasts by 8%/6% for FY22/23E on account of lower non fund-based income assumptions. Excluding the impact of Cukai Makmur in FY22, we estimate a normalized earnings growth of 7% in FY22E.