KEY INVESTMENT HIGHLIGHTS

• Details of the long awaited restructuring have been announced

• Bank Islam will finally take over the listing status

• Split of the Group, between Bank Islam and STMB

• Shareholders will get the chance to own STMB directly

• Maintain earnings forecast for now as some details yet to be determined

• Maintain BUY with unchanged TP of RM5.05

Finally some details on the much awaited restructuring. It has been well known that the Group has been planning to restructure itself. Yesterday, the Group finally announced the details of the restructuring as follows:

No immediate impact except for dilution. The propose exercise is targeted to be completed by 3QFY20. As such, there will be no immediate impact to the Group’s financials as yet. We believe that the financial impact from proposals (2) and (3) will be minimal. However, there will be a dilution to the existing shareholders and the share price from the placement of the new shares. We estimate that it will cause a downward readjustment of -10% to its existing share price and to our target price.

Significant impact will be after the “split”. We were surprised by the proposal to distribute both Bank Islam and STMB shares to the Group’s shareholders. This is due to the fact that we expected that the Group’s stake in STMB will be transferred to Bank Islam, i.e. the collapse of the Group to Bank Islam. Instead, the distribution of both subsidiaries shares effectively will lead to a split with both being a standalone entity. The impact will be significant in sense that Bank Islam’s earnings (as the new “Group” after the transfer listing) will not be able to enjoy the strong earnings from STMB.

As illustrated above, once the transfer listing of the Group to Bank Islam is complete, we estimate that RM1.92 or 38% of the value per share will have to be taken out, representing the “split”.

Do not rush out just yet. Nevertheless, we believe that the restructuring will be positive for Group, as it will likely release its capital. Besides, Bank Islam has also been performing resiliently and will still be the only Islamic bank listed. Recall, net income in 9MFY19 at Bank Islam expanded +7.5%yoy to RM1.54b with gross financing as at 3QFY19 growing +8.7%yoy to RM49.0b. As an added incentive, existing shareholders will be given the chance to own stake in STMB during the distribution phase.

No revision for now. We are maintaining our forecast for now as a few details in the proposal still yet to be determined.

Valuation and recommendation. We view positively at the proposal especially as shareholders will be given the chance to own a stake in STMB directly after the distribution phase. Operationally, we believe that the Group's profitability indicators are likely to remain intact despite the challenging economic environment. Therefore, we maintain our BUY call with unchanged TP of RM5.05. Our TP is based on PBV of 1.5x pegged against its FY20 BVPS.

Source: MIDF Research - 12 Dec 2019