Bank Islam to face earnings pressure in FY23 and FY24

Kenanga Research said it is cutting its FY23 and FY24 forecast earnings for Bank Islam by 9% each, mainly to incorporate higher operating spend and investments amid the group’s digitalisation efforts.

PETALING JAYA: Bank Islam (M) Bhd is expected to face earnings pressure for financial year 2023 (FY23) and FY24 amid downside risks which include margin squeeze, lower financing growth and slowdown in capital market activities.

Maybank Investment Bank (Maybank IB) Research said Bank Islam’s first quarter 2023 (1Q23) earnings were below its expectations and more so against consensus.

Hence, it is lowering its FY23 and FY24 earnings forecast on the lender by 4% and 6% respectively, as well as lowering its target price of its share to RM2.05 a share from RM2.20 previously.

In 1Q23, Bank Islam posted a net profit of RM118.09mil, up from RM105.92mil a year ago. Its earnings per share rose to 5.33 sen from 4.95 sen in the comparative quarter. Revenue grew to RM1.1bil from RM773.97mil.

The group’s total capital ratio remained strong at 21.2%.

Maybank IB Research said against earlier targets, the bank’s management maintains its financing growth target of 7% to 8% for FY23, but net interest margins (NIMs) are estimated to compress to about 2.15% from an earlier guidance of 2.2% (from 2.31% in FY22).

The research house lowered its NIM forecast for the bank to 2.13% for FY23 from 2.18% previously, but maintained its credit cost estimate of 35 basis points (bps) for the year.

“Our FY23 and FY24 estimated earnings are cut by 4% and 6% respectively as a result,” it noted .

Kenanga Research said post results, it is cutting its FY23 and FY24 forecast earnings for Bank Islam by 9% each, mainly to incorporate higher operating spend and investments amidst the group’s digitalisation efforts.

It said risks to its call include higher-than-expected margin squeeze, lower-than-expected financing growth, worse-than-expected deterioration in asset quality, slowdown in capital market activities, unfavourable currency fluctuations, and changes to the overnight policy rate.

Kenanga Research lowered its target price for Bank Islam to RM2.25 a share (from RM2.30) but has upgraded the stock to “outperform” from “market perform”.

It added Bank Islam’s dividend yield of 8% could be attractive to yield-seeking investors.

The stock also provides a syariah-alternative against conventional players, hence is more accessible to certain institutions, it noted.

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