HLIB: Bank Islam's Net Financing Margin Expected To Improve In 3Q 2024

KUALA LUMPUR, Aug 27 (Bernama) -- Bank Islam Malaysia Bhd’s (BIMB) net financing margin (NFM) is expected to continue to broaden in the third quarter of 2024 (3Q 2024) on the back of faster financing growth, benign fixed deposit competition, and the move to lower its board fixed deposit rates in August 2024. 

In a note today, Hong Leong Investment Bank Bhd (HLIB) opined that the potentially quicker credit growth would help to optimise the fixed deposit rate and widen the NFM as well.

BIMB’s management shared that its corporate lending pipeline is robust and should trickle through in the second half of 2024 (2H 2024) while the retail segment is seen to regain steam on seasonally stronger demand.

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“Separately, net credit cost (NCC) is anticipated to be stable at current levels given steady asset quality.

“In any case, we are generally reassured by the bank’s financing loss coverage of over 100 per cent as this provides the buffer to pad any potential deterioration in asset quality,” it said. 

Therefore, HLIB has upgraded BIMB to a “Buy” call with a higher target price (TP) of RM3.10 per share. Its earnings forecast for BIMB is unchanged since its second-quarter 2024 results were broadly in line.

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 In a filing with Bursa Malaysia yesterday, Bank Islam posted a slightly higher net profit of RM137.16 million in the second quarter ended June 30, 2024 (2Q 2024) compared to RM136.13 million a year ago. 

Revenue in the quarter increased to RM1.14 billion against RM1.12 billion previously.

Meanwhile, Maybank Investment Bank Bhd has lowered BIMB’s earnings estimate for the financial year 2024-2026 (FY2024-2026E) by five per cent respectively as the bank’s 2Q 2024 results were below expectations. 

“We maintain a ‘Hold’ call and roll forward valuations to FY2025 on an unchanged price to book value (PBV) of 0.8 times [FY2025E return on equity (ROE): 7.9 per cent]. Our TP of RM2.75 per share is maintained,” it said. 

MIDF Amanah Investment Bank Bhd has maintained its forecast as BIMB is subject to seasonal effects, and usually reports stronger earnings in the 2H 2024, although the first half of 2024 (1H 2024)’s earnings came in on the weaker side. 

“We maintain a ‘Buy’ call with a revised TP of RM3.06 per share. We revise our valuation upward as benefits from civil servant rate hike, increased development outside the Klang Valley, GEAR-Up programme, and revamp of its brick-and-mortar outlets should benefit investor sentiment.

“With an ROE level of 7-8 per cent, we believe BIMB qualifies as a comparatively lower ROE bank. We feel that its inability to hit former pre-pandemic ROE levels does not necessarily prevent its valuations from reaching former highs,” it said. 

At 12.30 pm, BIMB's share price decreased 9.0 sen to RM2.65, with 1.89 million shares traded.

-- BERNAMA