BIMB’s corporate restructuring exercise and the architecture did not come as a surprise (except timing-wise). Essentially, BIMB will be raising cash to settle its sukuk and ultimately distribute the stake in Bank Islam and Syarikat Takaful to investors. Also, the listing status will be transferred to Bank Islam. Overall, we view this move positively as it helps to unlock value. No changes were made to our forecasts. We believe the stock’s risk-reward profile remains favourable, considering its rosy prospects backed by positive structural drivers. Keep BUY and GGM-TP of RM5.00, based on 1.42x 2020 P/B.

NEWSBREAK

BIMB is undertaking a group restructuring exercise through a series of moves: (i) raise RM800m via placement to pare down its outstanding sukuk (held by Lembaga Tabung Haji) and retire existing warrants (at 26sen/unit), (ii) cash disposal of BIMB Securities and Syarikat Al Ijarah to Bank Islam (priced at net assets, amounting to RM115m), (iii) distributing the stake in Bank Islam and Syarikat Takaful to investors, and (iv) transfer listing status to Bank Islam. The entire exercise is expected to complete in 3Q20.

HLIB’s VIEW

Value unlocking exercise. BIMB finally unveiled its corporate restructuring exercise and the architecture is similar to prior market speculation. In our view, this is a positive move as it helps to unlock value. Assuming a VWAP of RM4.30/share and placement is done at a 5% discount (this cannot be more than 10%), we calculated 195.6m new BIMB shares will issued (share base +11% to 1,959.9m). From this, we estimated that existing shareholders will be entitled to 1.28 of Bank Islam and 0.25 Syarikat Takaful shares for every 1 BIMB share held.

Placement lowers the swap ratio. We will not deep dive into the potential earnings dilution/accretion impact of the placement on BIMB since ultimately the capital base of Bank Islam is unaffected. Furthermore, Bank Islam will eventually assume the listing status. However, we note the swap ratio for Bank Islam and Syarikat Takaful shares will be higher if not for the placement exercise (at 1.42 and 0.28 respectively).

Forecast. Unchanged, pending more details and when approaching closer to exercise completion.

Maintain BUY and GGM-TP of RM5.00, based on 1.42x 2020 P/B with assumptions of 13.7% ROE, 10.8% COE, and 4.0% LTG. This is in line to its 5-year mean of 1.45x but ahead of the sector’s 1.00x. The premium is warranted considering its 4ppt above average ROE generation. Also, from our reverse SOP assessment, we calculated the market is only valuing Bank Islam (100%-owned) at 0.83x P/B with 10-11% ROE vs. peers at 1.00x P/B with 10% ROE, implying there is upside from current levels. The risk-reward profile remains favourable, in our opinion, considering its rosy prospects backed by positive structural drivers (promising demographics and BNM aiming to expand the scope of Islamic financing activities).

Source: Hong Leong Investment Bank Research - 18 Dec 2019