PETALING JAYA: CGS International Research (CGSI Research) has a positive outlook on Bank Islam Malaysia Bhd
due to its financing growth and higher return on equity (ROE).
The research house said it expects a recovery in its financing growth in financial year 2025 (FY25) and an expansion in ROE from 7.6% in FY24 to 8.3% in FY27.
ROE measures a company’s profitability in relation to shareholders’ equity.
The bank’s financing growth had tumbled from 8.4% year-on-year (y-o-y) as of end-September 2023 to 2.6% y-o-y as of end-December 2023 due to high repayment in corporate financing repayments, according to the bank.
Since then, financing growth remained sluggish, with y-o-y expansion below 3%, until it rebounded from 1.7% y-o-y as of end-September 2024 to 3.8% y-o-y as of end-December 2024, as corporate financing repayments eased.
The bank projects financing growth of 7% to 8% in FY25, compared to the research house’s forecast of 7%.
Bank Islam also aims to achieve the following targets in FY25: a gross impaired financing ratio of below 1%, a net income margin of more than 2% and an ROE of more than 7.5%.
“Its target for net income margin reflects a potential contraction in net income margin in FY25 (from 2.13% in FY24), in our view,” CGSI Research noted.
In terms of earnings, the research house said Bank Islam’s FY24 net profit was within expectations at 101% of its forecast and 103% of Bloomberg consensus estimate.
“However, the FY24 dividend per share of 15.1 sen was slightly higher than our forecast of 14 sen,” it said.
Its net profit grew by 3.2% in FY24, underpinned by a 46% plunge in its financing loss provisioning.
The research house is maintaining its “add” call the bank, premised on potential re-rating catalysts from expected pick-up in financing growth in FY25 and expansion in ROE from 7.6% in FY24 to 8.3% in FY26.
“Downside risks to our call include weaker-than-expected financing growth in FY25 and a material increase in its gross impaired financing ratio,” said the research house.
