Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on December 14, 2018

BIMB Holdings Bhd
(Dec 13, RM3.56)
Maintaim outperform with a higher target price (TP) of RM5.05:
BIMB Holdings Bhd announced on Wednesday the redemption of RM500 million of its RM1.34 billion sukuk liabilities. We are positive on the partial redemption as it gives a strong signal that any redemption (before maturity) of the RM1.34 billion sukuk will be executed via internally generated funds. As earnings will likely be accretive due to cost savings, we raised our TP to RM5.05 with our “outperform” call maintained.

 

BIMB announced a partial redemption of its 10-year unrated Islamic securities (sukuk murabahah) of nominal value at RM1.66 billion (issued in December 2013 and fully subscribed by Lembaga Tabung Haji). The partial redemption amounts to RM609.4 million in nominal value. As at Sept 30, 2018, the book value of the sukuk was at RM1.34 billion. Thus, the redemption of RM609.4 million is recorded at a book value of about RM500 million.

The Islamic sukuk has been a thorn in BIMB ever since the news of a proposed restructuring (with the holding company BIMB to be replaced with Bank Islam taking over the listing status post restructuring), with the redemption of the sukuk (at the holding company level) to be via proceeds raised from a rights issue (to pay off the RM1.34 billion debt), and hence diluting its shares.

We are positive on this announcement as it gives a clear indication that BIMB will not be raising proceeds via a rights issue in redeeming the sukuk should the restructuring occur.

We highlighted our view that a rights issue will not likely be raised (to clear the sukuk) as BIMB’s capital ratio and common equity tier 1 (CET1) are recorded at 15.6% and 12.7% respectively (at the bank level), which is adequate to repay the RM1.34 billion sukuk liabilities.

We understand that the above redemption is not via retained earnings but via internal cash and funds. We also understand that with the RM500 million redemption, there will be a cost saving of about RM31 million, thus improving its bottom line, moving forward.

Our FY19 estimate net profit is revised by 2.5% to RM770 million on account of the cost savings.

Our “outperform” call is maintained as its higher loans target with a forward return on equity of more than 14% makes it a more attractive proposition. At the current price, dividend yield of 4.4% is second only to Maybank (6.3%). — Kenanga Research, Dec  13

      Print
      Text Size
      Share