KUALA LUMPUR (March 30): CGS-CIMB Research has upgraded BIMB Holdings Bhd to "hold" at RM4.36, with a higher target price (TP) of RM4.55 (from RM3.47).

This followed the group’s proposed internal organisation exercise to unlock significant value for shareholders and transfer its listing status to its subsidiary Bank Islam Malaysia Bhd.

“Despite potential EPS (earnings per share) dilution from the share placement, we upgrade BIMB from 'reduce' to 'hold' as we think that Bank Islam would fetch higher valuations after it takes over the listing status of BIMB.

“Furthermore, BIMB could be one of the biggest beneficiaries of any hike in the OPR (overnight policy rate) in 2022F (every 25 basis point [bps] hike could raise FY22F net profit [for the financial year ending Dec 31, 2022] by about 6%). We prefer Public Bank Bhd for exposure to the sector,” said analyst Winson Ng in a note yesterday.

CGS-CIMB noted that BIMB plans to undertake a private placement of new shares to raise RM800 million to repay its sukuk under the organisation.

“Based on our simulation, we estimate that the share placement will dilute our projected EPS for BIMB by 4%-6% for FY21-FY23F based on an assumed issue price of RM3.87 (a 10% discount to BIMB’s price of RM4.30 on March 22, 2021).

“The internal reorganisation exercise also includes the distribution of Bank Islam shares to BIMB shareholders based on a ratio of 1:1. Based on the share price of RM4.30 for BIMB and RM4.85 for Syarikat Takaful Malaysia Keluarga Bhd on March 22, 2021, we arrive at an estimated theoretical share price of RM3.11 for Bank Islam (post placement of BIMB shares).

“This translates into a P/BV (price-to-book value) of 1.05 times based on end-September 2020 BV/share. We see this as attractive as it is below the CY20 (calendar year 2020) P/BV of 1.16 times for the banking sector on March 22, 2021,” said Ng.

The research house raised its FY21-FY22 EPS forecasts by 6%-7% as it reversed out the 25bps cut in the OPR (which did not materialise).

As for its sum-of-parts (SOP) valuation, CGS-CIMB made several changes to its dividend discount model (DDM).

The changes were removing the 15% discount for credit risk from Covid-19 as the research house factored in a 48% spike in FY21 loan loss provisioning, as well as updating its beta for Bank Islam from 1.1 to 0.95, on a par with the beta for BIMB.

At the time of writing today, BIMB had fallen eight sen or 1.83% to RM4.28, giving the group a market capitalisation of RM7.93 billion.