This article first appeared in The Edge Financial Daily on March 27, 2019
BIMB Holdings Bhd
(March 26, RM4.21)
Maintain buy with a reduced fair value (FV) of RM5.10: We maintained our “buy” call on BIMB Holdings Bhd with a revised FV of RM5.10 from RM5.50 a share. The adjustment is due to the change in our valuation methodology from price-to-book value to sum of parts (SOP). There are no changes to our earnings’ estimates, and we continue to project a return on equity of 13.9% for the financial year 2019 (FY19) compared with management’s guidance of 14%.
The rationale for adopting the SOP valuation method is the potential changes to the group’s structure. Recall the press had reported about the group’s plans to undertake a restructuring with Bank Islam Malaysia Bhd as the bank’s holding company. This is compared with the current structure with BIMB as the holding company.
Also, news has been rife that the group could be undertaking a private placement of shares to raise up to RM630 million in the second half of 2019. This is to settle the outstanding sukuk murabahah held by Lembaga Tabung Haji as well as to pay off warrant holders of BIMB, and facilitate the group’s structure reorganisation.
The outstanding amount for the sukuk is now about RM800 million after a partial redemption of RM609.9 million — the book value is RM500 million — on Dec 12, 2018. Dividends from the subsidiaries, Bank Islam and Syarikat Takaful Malaysia Keluarga Bhd (STM), are likely to be streamed to BIMB on the holding company level to partially assist in settling the remaining sum.
Besides, there are 426.7 million warrants outstanding with an exercise price of RM4.72 for a 1:1 conversion to ordinary shares. These warrants, listed in November 2013, will expire on April 12, 2023. The market price is about 25 sen a warrant. The warrants are unlikely to be exercised in the near term as they are out of money.
Nevertheless, the group is still expected to settle the warrant holders based on the warrants’ outstanding market value, necessary to move forward with the restructuring as the warrants had yet to expire. This will require about RM100 million from the proceeds raised through the placement, assuming the warrants’ price remains near the current level.
Subsequent to settling the sukuk and warrants, we in our earlier note dated Jan 22, 2019 highlighted a share swap is likely. As widely expected by the market, BIMB shareholders will swap their shares for Bank Islam shares. One BIMB share will be entitled to 1.3 Bank Islam shares (1.3 times) and 0.3 STM share. The new structure is likely to see all BIMB shareholders becoming direct shareholders of Bank Islam and STM. — AmInvestment Bank, March 26