Investment Highlights

• We maintain our BUY call on BIMB Holdings (BIMB) with a revised FV of RM5.10/share from RM5.50/share. The adjustment is due to the change in our valuation methodology from P/BV to sum of parts (SOP).

• There are no changes to our earnings’ estimates, and we continue to project an ROE of 13.9% for FY19 compared with management’s guidance of 14.0%.

• Rationale for the adoption of the SOP valuation method is the potential changes to the group structure. Recall that the press has reported on the group’s plans to undertake a restructuring with Bank Islam as the bank holding company. This compares with the present structure with BIMB Holdings as the holding company.

• Also, news has been rife that that the group could be undertaking a private placement of shares to raise up to RM630mil in 2H19. This will be for settling the outstanding sukuk murabahah (sukuk) held by LTH as well as to pay off warrant holders of BIMB, and facilitate the reorganization of the group structure. Outstanding for the sukuk is now a circa RM800mil after a partial redemption of RM609.9mil (book value: RM500mil) made on 12 Dec 2018. Dividends from the subsidiaries, Bank Islam and Syarikat Takaful are likely to be streamed to BIMB (holding company level) to partially assist in settling the remaining sum. Besides, there are 426.7mil warrants outstanding with an exercise price of RM4.72 for a 1:1 conversion to ordinary shares. These warrants were listed in Nov 2013 and will expire on 12 April 2023. Market price is circa RM0.25/warrant. The warrants are not likely to be exercised in the near term as they are out of money. Nevertheless, the group is still expected to settle off the warrant holders based on the outstanding market value of the warrants. This is necessary in order to move forward with the restructuring as the warrants have yet to expire. This will require circa RM100mil from the proceeds raised through the placement exercise, assuming that the warrants’ price remains near current level.

• Subsequent to the settlement of the sukuk and warrants, we have highlighted in our earlier note dated 22 Jan 2019 that there is likely to be a share swap. As widely expected by the market, shareholders of BIMB Holdings will swap their shares for Bank Islam shares. One BIMB share will be entitled to 1.3 Bank Islam shares (1.3x) and 0.3 Syarikat Takaful Malaysia Keluarga (STM) share. The new structure is likely to see all BIMB shareholders becoming direct shareholders of Bank Islam and STM.

Source: AmInvest Research - 26 Mar 2019