INVESTMENT HIGHLIGHTS

• It is reported by the media that the Group will be reorganizing its structure

• Bank Islam is proposed to take over the listing status

• We view the move as positive

• No change to earnings forecast as details are yet to be announced

• We reiterate our BUY with unchanged TP of RM4.85

Collapsing the structure. It is reported by the media today that the Group are looking at undergoing a corporate restructuring. This entails that its subsidiary, Bank Islam Malaysia Bhd, will take over the listing status of the Group. This is similar to the reorganization of some of its peers such as RHB Bank Bhd, Affin Bank Bhd and Alliance Bank Bhd.

Details still sketchy. While the potential restructuring have been reported, details of such restructuring have not been announced as yet. We understand that the restructuring exercise will require for the Group to settle its RM1.3b 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.

Reorganization makes good business sense. We believe that the propose restructuring is a good move. In our opinion, the Group will derive tangible benefit should it decide to change its Group structure, whereby its listing status is taken over by its banking subsidiary. Amongst the benefits are the reduction in cost and better capital adequacy. We also believe that shareholders will gain directly from participating in the performance at the bank level.

Strong performance makes it ideal. Furthermore, the strong performance of Bank Islam makes it ideal for it to take over the listing status of the Group. Recall, Bank Islam Group's FY18 PBZT grew +5.6%yoy to RM810.3m due to +19.5%yoy expansions in operating profit to RM946.3m. Its gross financing grew +8.9%yoy to RM45.7b. This follows from robust growth in all segments, namely consumer, commercial and corporate. These expanded +9.6%yoy to RM35.1b, +9.8%yoy to RM6.7b and +4.3%yoy to RM4.6b respectively. Meanwhile, its asset quality remains solid with GIF ratio trended lower to 0.92% as at 4QFY18 from 0.97% as at 3QFY18.

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

Source: MIDF Research - 7 Mar 2019