PETALING JAYA: To own its unlisted banking unit Bank Islam Malaysia Bhd in its entirety, BIMB Holdings Bhd may have to fork out RM2.7bil for the remaining 49% stake it does not already own.
According to Maybank Investment Bank Research, the price tag, based on a 1.8 times price-to-book value, may also lead to a rights issue.
“Assuming a 60:40 debt and equity funding structure, we estimate a one-for-three rights issue by BIMB, at RM3.22 per share, which is a 20% discount to the current share price, and new debt of RM1.6bil,” analyst Desmond Ch’ng said. Ch’ng was positive on the move, seeing it as earnings and return-on-equity (RoE)-accretive.
“Factoring in additional contributions from the additional 49% stake in Bank Islam net of funding cost at 5%, we expect this move to be earnings per share (EPS) and RoE-accretive – enhancing BIMB’s financial year 2014 (FY14) EPS by 17%, while raising the group’s FY14 RoE to 14.7% from 14.1%.”
BIMB already owns 51% in Bank Islam. A 30.5% stake is with the Dubai Financial Group (DFG) while 18.5% is held by Lembaga Tabung Haji (LTH). It is believed that BIMB’s acquisition of DFG’s 30.5% stake is almost completed.
“That BIMB is to commence negotiations over LTH’s stake in Bank Islam would imply that its negotiations with DFG are likely to have been successful,” Ch’ng reasoned.
If both talks with DFG and LTH come through, then BIMB would fully own Bank Islam. On Tuesday, BIMB announced that it had received Bank Negara’s consent to negotiate to purchase LTH’s stake in Bank Islam. LTH also owns a 51.5% stake in BIMB.
Maybank forecasts Bank Islam’s FY14 net profit to be RM558mil. Assuming a payout ratio of 50%, the bank’s dividend flow to BIMB would be RM279mil when wholly owned by the latter.
“BIMB has a 50% holding company payout ratio and would thus retain about RM140mil of the RM279mil, which would be sufficient to fund the interest cost arising from the RM1.6bil debt of about RM82mil per annum.”
HwangDBS Vickers Research, meanwhile, noted that assuming the deal would be funded by equity, there would be EPS dilution.
The acquisitions, however, would “plug the minority interest leakages and boost BIMB’s earnings by an incremental amount of approximately RM290mil or 82% in FY14, before accounting for acquisition costs,” the research house said. Bank Islam is BIMB’s main earnings driver, contributing about 80% of the group’s pre-tax profit.
BIMB closed one sen down to RM3.99 yesterday.