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CIMB: Bank Islam Malaysia Bhd – Add Target Price RM3.23 (Previous RM3.48)

Posted on September 1, 2022September 1, 2022 By alanyeo No Comments on CIMB: Bank Islam Malaysia Bhd – Add Target Price RM3.23 (Previous RM3.48)
Likely recovery in NFBI in 2H22F
  • At 44% of our full-year forecast, Bank Islam’s 1H22 net profit was below our estimate due to lower-than-expected non-fund-based income (NFBI).
  • We project growth of 6.6% hoh and 31.2% yoy for 2H22F net profit, driven by a recovery in NFBI and further qoq expansion in net financing margin.
  • Reiterate Add as we view Bank Islam as the biggest beneficiary of the expected OPR hike. Its loan growth is also one of the highest in the sector.
1H22 net profit below expectation

Bank Islam’s 1H22 net profit was below expectations, accounting for 44% of our full-year
forecast and 46% of Bloomberg consensus estimate. The variance to our forecast mainly
came from the lower-than-expected NFBI. 1H22 net profit dwindled by 36.8% yoy, dented
by a 51.9% yoy drop in NFBI and 69.1% yoy jump in financing loss provisioning (FLP).

2Q22 net profit dragged down by weak NFBI

2Q22 net profit plummeted by 39.7% yoy, dampened by the 59.1% yoy plunge in NFBI
(partly due to adverse investment income). Meanwhile, net financing income climbed a
healthy 6.3% yoy in 2Q22 on the back of swift loan growth of 8% yoy at end-Jun 22. 2Q22
net profit rose by 10.7% qoq, thanks to a 21.9% qoq drop in FLP and 5.7% qoq increase
in net financing income.

Expecting a recovery in net profit growth in 2H22F

We are projecting net profit of RM237.8m for Bank Islam in 2H22F, representing a hoh
growth of 6.6%. The potential catalysts are a recovery in NFBI and further qoq expansion
in net financing margin arising from the hikes in overnight policy rate (OPR). The yoy
growth would even be higher at 31.2% for 2H22F net profit given the lower base in 2H21.

Lowering net profit forecasts and target price

We factor in another 25bp hike in OPR in our earnings forecasts, on top of the two 25bp
hikes we had already factored in. However, this is offset by the increase in our projected
cost of fund, in view of the pick-up in deposit competition in the banking industry. We cut
our FY22-24F net profit forecasts by 7-9% as we slash our projection for FY22-24F NFBI
by 20-25%. This lowers our DDM-based target price from RM3.48 to RM3.23.

Reiterate Add on Bank Islam

We reiterate Add on Bank Islam as we view the bank as the largest beneficiary of the OPR
hikes given its floating rate financing ratio of 91.6% at end-Jun 22 was the highest in the
sector. Potential re-rating catalysts include wider expansion in net financing margin (NFM)
relative to its peers during the current interest rate upcycle, its loan growth rate (one of the
highest in the sector) and our expected recovery in NFBI in 2H22F.

Bank-Islam-Malaysia-BhdClick here to Download Full Report in PDF

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Research - Equities Tags:Bank Islam Malaysia Bhd, BIMB

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