This article first appeared in The Edge Financial Daily on January 23, 2019

BIMB Holdings Bhd
(Jan 22, RM3.78)
Maintain buy with an unchanged fair value (FV) of RM5.40: Our FV is based on a financial year ending 2019 return on equity of 13.2%, leading to a price-to-book value of 1.7 times. There has been no change to our estimates for now.  

Recall that the press has reported on the group’s plans to undertake a restructuring with Bank Islam as the bank holding company. This will replace BIMB Holdings Bhd, which is presently the holding company. We understand that there is no deadline to convert to a bank holding company structure similar to Affin Bank Bhd and RHB Bank Bhd.

On Dec 12, 2018, the group made an early partial redemption of RM609.9 million (book value: RM500 million) on a sukuk murabahah (sukuk) fully subscribed by Lembaga Tabung Haji. The sukuk, carrying a profit rate of 6.25%, was issued at a discount on Dec 12, 2013, with a nominal value of RM1.66 billion. Outstanding on the sukuk as of end-Sept 2018 was RM1.34 billion. The partial settlement reduces the outstanding on the sukuk to about RM800 million.

News has been rife that the group could be undertaking a private placement of shares to raise up to RM630 million to settle the outstanding of the sukuk held by Tabung Haji and facilitate the reorganisation of the group structure.

Assuming a 10% discount on the new shares to be placed out, this could enlarge the share capital of BIMB Holdings from 1,693 million to 1,882 million shares.

It has been reported that there is likely to be a swap between the shares in BIMB Holdings and Bank Islam Malaysia Bhd. Each BIMB share will be entitled to 1.3 Bank Islam shares (1.3 times) and 0.3 Syarikat Takaful Malaysia Keluarga Bhd (STM) share. Currently, BIMB holds a 59% stake in STM. The corporate exercise could see the entire 59% of STM shares distributed to BIMB shareholders. Hence, there will not be a deterioration of BIMB shareholders’ interest in STM. Eventually, all BIMB shareholders will become direct shareholders of Bank Islam and STM.  

The restructuring could see BIMB’s securities business parked under Bank Islam, but the latter will not hold any shares in STM directly. Based on our preliminary assessment, the current shareholders of BIMB will not be worse off by these changes that could be taking place in the second half of 2019. — AmInvestment Bank, Jan 22