Kenanga Research ups BIMB target price, retains Outperform

The banking group declared an interim single-tier dividend of 14 sen per share.

KUALA LUMPUR: Kenanga Research has revised its target price slightly for BIMB Holdings Bhd to RM5.05 from RM4.95 and retained its Outperform call.
 
The research house said on Thursday the higher target price was based on a blended FY19E price-to-book value/ price-to-earnings (PB/PE) ratio of 1.5 times /11.9 times (unchanged).

 This was with price-to-book at one-standard deviation -level below the five-year mean to reflect the risk of uncertainty on the domestic/external front.

Kenanga Research said the Outperform call is maintained as its higher loans target with a forward returns on equity (ROE) of more than 14% (vis-à-vis Hong Leong Bank 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%).

On Wednesday, BIMB announced a partial redemption of its 10-year unrated Islamic securities (Sukuk Murabahah) of nominal value at RM1.66bil (issued in December 2013 and fully subscribed by Lembaga Tabung Haji). 

The partial redemption amounts to RM609.4mil in nominal value. As at Sept 30, 2018, the book value of the sukuk was at RM1.34bil,  thus the redemption of RM609.4mil is recorded at a book value of circa RM500mil.

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 RM1.34bil 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 RM1.34bil 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 RM500mil redemption, there will be a cost saving of circa RM31mil thus improving its bottom-line moving forward,” said Kenanga Research.