BIMB yesterday announced the redemption of RM500m of its RM1.34 sukuk liabilities. We are positive on the partial redemption as it gives a strong signal that any redemption (before maturity) of the RM1.34b sukuk will be executed via internally generated funds. As earnings will likely be accretive due to cost savings, we raised our TP to RM5.05 with OUTPERFORM call maintained.

BIMB yesterday announced a partial redemption of its 10-year unrated Islamic securities (Sukuk Murabahah) of nominal value at RM1.66b (issued in December 2013 and fully subscribed by Lembaga Tabung Haji). The partial redemption amounts to RM609.4m in nominal value. As at 30 Sep 2018, the book value of the sukuk was at RM1.34b thus the redemption of RM609.4m is recorded at a book value of circa RM500m.

Recap, the Islamic sukuk has been a thorn in BIMB ever since the news of a proposed restructuring (with the holding company BIMB to be replaced with Bank Islam taking over the listing status post restructuring), with the redemption of the Sukuk (at the holding company level) will be via proceeds raised from a rights issue (to pay off the RM1.34b debt); hence diluting its shares.

We are positive on this announcement; giving a clear indication that BIMB will not be raising proceeds via a rights issue in redeeming the Sukuk should the restructuring occur. Recap also that we highlighted our view that a rights issue will not likely be raised (to clear the Sukuk) as BIMB’s Capital Ratio and CET1 are recorded at 15.6% and 12.7% respectively (at the bank level), is adequate to repay the RM1.34b Sukuk liabilities. We understand that the above redemption is not via retained earnings but via internal cash and funds. We also understand that with the RM500m redemption, there will be a cost saving of circa RM31m thus improving its bottom-line moving forward.

Earnings revised. Our FY19E NP is revised by 2.5% to RM770m on account of the cost savings.

TP revised and OUTPERFORM call maintained. TP revised slightly to RM5.05 (from RM4.95) based on a blended FY19E PB/PE ratio of 1.5x/11.9x (unchanged) with PB at 1SD-level below the 5-year mean to reflect the risk of uncertainty on the domestic/external front. OUTPERFORM call is maintained as its higher loans target with a forward ROE of >14% (vis-à-vis HLBANK with a forward ROE of 11%) makes it a more attractive proposition. At current price, dividend yield of 4.4% is second only to Maybank (~6.3%)

Source: Kenanga Research - 13 Dec 2018