BIMB finally announced its long-awaited restructuring plan with Bank Islam taking over its listing status and Syarikat Takaful Keluarga Malaysia Bhd to be stripped off from the new entity. Post restructuring, we estimated that our FY20E earnings of the listed Bank Islam will be shed by 29% due to absence of Takaful’s contribution. The combined book value of Bank Islam and Syarikat Takaful share will be unchanged at RM3.01. Ascribing a PBV of 1.2x to Bank Islam as a pure Islamic bank, we revised down our TP for BIMB Holdings to RM4.70 based on SOP valuation but maintain our OUTPERFORM call.

BIMB to be a subsidiary of Bank Islam. BIMB finally announced details of its long-awaited restructuring exercise which entails the transfer of its listing status to its subsidiary Bank Islam Malaysia Bhd (BI). The details which was announced on Bursa yesterday will also encompass; (i) proposed placement of new ordinary shares in BIMB to raise gross proceeds of RM800m; (ii) proposed payment of outstanding 2013/2023 BIMB warrants; (iii) proposed disposal of its subsidiaries – BIMB Securities Holdings Sdn Bhd, BIMB Securities Sdn Bhd and Syarikat AL Ijarah Sdn Bhd (SASB) to Bank Islam, and (iv) distribution of entire shareholdings of BIMB in BI and Syarikat Takaful Keluarga Malaysia Bhd (STMKB) by way of distribution-in-specie via a reduction and repayment of the entire share capital of BIMB.

Post-restructuring – (i) Proceeds from the Placement of Shares. From yesterday’s announcement, the estimated total redemption of the outstanding Sukuk (by 30 June 2020) is RM922m with proceeds raised from the placement of shares at RM800m. The remaining RM122m will be funded by its internally generated funds. The proposed Sukuk redemption will results in finance cost savings of RM53m/annum; (ii) Outstanding Warrants. Amount paid to the outstanding Warrant holders are expected at RM111m to be paid by BIMB from internally generated funds; (iii) Disposal of the subsidiaries will cost BI around RM115m to be settled by using internally generated funds; (iv) Upon completion of the above matters, BIMB’s entire shareholdings in BI and STMB will be distributed by way of distribution-in-specie to the shareholders of BIMB. Prior to the proposed distribution, BIMB will undergo capital reduction and BI will undertake a share consolidation (amount to be consolidated; 550.1m shares) enabling distribution of BI shares at a 1-for-1 basis. These proposals are expected to be completed in 3QCY20 with the Proposed Placement and Proposed Distribution and Capital Repayment to be completed in 2Q and 3Q of CY20, respectively. An illustrative post-restructuring impact is highlighted in Table 1 below.

Losing out on Takaful contribution. Post-restructuring, the new entity will lose a chunk its top-line (9MFY19 contribution from Syarikat Takaful (STM) is 34%) as Bank Islam will become a full-fledged banking entity with STMKB to be stripped of from the new entity. Assuming the exercise is completed by end 3QCY20, we estimate that our FY20E earnings will be shed by ~29%. At a book value of RM5.32b and shares of Bank Islam at 1.96b (post-restructuring), we estimated that ROE of the new entity will be at 10.5% with a book value of RM2.71 per share. The combined book value of Bank Islam (on 1:1 share swap ratio) and STMKB (0.25:1 share swap ratio) will be at RM3.01 similar to the current book value of BIMB.

TP revised but call Maintained. Our TP for BIMB now is RM4.70 based on FY20E PBV of 1.2x. to Bank Islam. While this is higher versus most mid-sized conventional banks, we feel this justified given; i) The scarcity value as the only listed shariah compliant Bank currently; ii) The existing structure of BIMB implies a 1.0x book value to Bank Islam where it could be higher after the holding company discount is removed post distribution. As potential total returns are >10%, we maintained our OUTPERFORM call.

Source: Kenanga Research - 12 Dec 2019