Both MIDF Amanah Investment Bank (MIDF Research) and Maybank Investment Bank (Maybank IB) have issued mixed reviews following Bank Islam Malaysia Bhd's third-quarter results for the financial year of 2024 (3QFY24). MIDF Research has maintained its BUY call with an unchanged target price (TP) of RM3.06, while Maybank IB has downgraded its TP to RM2.65 with a HOLD recommendation.

MIDF Research's report highlighted that Bank Islam's 3QFY24 results were weaker than expected, with a core net profit of RM130 million, reflecting a 5% decline quarter-on-quarter (QoQ). The bank's 9MFY24 core net profit totalled RM397 million, which was 66% of both MIDF Research's and consensus' full-year forecasts. Despite this, MIDF Research remains optimistic about Bank Islam's prospect, noting that management anticipates a recovery in the fourth quarter of FY24.

MIDF Research's unchanged TP is based on a price-to-book value (P/BV) of 0.87 times for FY25, with an expected total return of 19.5%. Analysts are confident in the bank's strong gross loan growth, lower provisions, and improved net interest margin (NIM), which increased to 2.15% for 9MFY24. However, the bank faces ongoing challenges, including rising operating expenses (OPEX), which grew 7.9% year-on-year, and a decline in non-interest income (NOII).

In contrast, Maybank IB painted a more cautious picture, noting that Bank Islam's 3Q24 net profit was 8% lower year-on-year (YoY) and 6% lower QoQ. The bank's 9M24 net profit of RM397 million was below Maybank IB's expectations, representing 70% of its full-year forecast. The weaker performance was attributed to slower financing growth of just 1.7% YoY by the end of September 2024, a contraction in non-fund-based income, and a nine-basis point (bps) decline in income spread from the previous quarter.

As such, Maybank IB has revised its earnings forecasts for FY24, FY25 and FY26 downward by 3%, lowering the TP to RM2.65 from RM2.75. The bank's forecasted financing growth has been reduced from 7%-8% to a more conservative 3%-4% for FY24. Despite this, Maybank IB retains its guidance of an income spread greater than 2.1%, credit costs below 30bps and an ROE of at least 8%.

Both research houses noted the importance of Bank Islam's ongoing investments in digital and technology initiatives, which have contributed to the higher operating expenditure. As Bank Islam navigates these challenges, the research houses expect the bank to continue prioritising its core business areas, including retail financing and sustainable growth in its deposit base.