Stronger growth from restructuring expected for BIMB Holdings

This article first appeared in The Edge Financial Daily, on March 8, 2019.
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BIMB Holdings Bhd
(March 7, RM4.25)
Reiterate buy with an unchanged target price (TP) of RM4.85:
The media reported yesterday BIMB Holdings Bhd was looking at undergoing a corporate restructuring.

This entails that its unit, Bank Islam Malaysia Bhd, will take over the group’s listing status. This is similar to that of its peers such as RHB Bank Bhd, Affin Bank Bhd and Alliance Bank Bhd.

While the potential restructuring has been reported, the details have not been announced yet. We understand the exercise will require the group to settle its RM1.3 billion sukuk first.

According to the management, the fund required may be raised through equity financing. However, we do not rule out debt financing as well.

We believe the proposed restructuring is a good move. In our opinion, the group will derive tangible benefits should it decide to change its group structure, whereby its listing status is taken over by its banking unit.

Among the benefits are the reduction in cost and better capital adequacy. We also believe the shareholders will gain directly from participating in the performance at the bank level.

Furthermore, the strong performance of Bank Islam makes it ideal for it to take over the listing status of the group.

Bank Islam group’s financial year 2018 (FY18) profit before zakat and taxation grew by 5.6% year-on-year (y-o-y) to RM810.3 million due to 19.5% y-o-y expansion in operating profit to RM946.3 million.

Its gross financing grew by 8.9% y-o-y to RM45.7 billion. This follows the robust growth in all segments — consumer (+9.6% y-o-y to RM35.1 billion), commercial (+9.8% y-o-y to RM6.7 billion) and corporate (+4.3% y-o-y to RM4.6 billion).

Meanwhile, its asset quality remains solid with gross impaired financing ratio trended lower to 0.92% as at 4QFY18 from 0.97% as at 3QFY18.

We make no change to our earnings forecast as the details of the proposal are yet to be announced.

We are optimistic of the group’s prospects. A good example will be some of the results of its peers that have went through the same restructuring. We strongly believe the group presents an attractive investment case.

In addition, Takaful Malaysia seems to be able to solidify its position as the leading syariah-compliant insurance provider.

We are reiterating our “buy” call on the stock with an unchanged TP of RM4.85 based on price-to-book value of 1.5 times pegged at its financial year 2019 book value per share. — MIDF Research, March 7