Restructuring of BIMB will allow proper re-rating of Bank Islam

BIMB’s restructuring moves closer towards completion, having recently raised close to RM800mil from its private placement exercise.

PETALING JAYA: The restructuring of BIMB Holdings Bhd may allow for a proper re-rating of Bank Islam besides enabling the latter’s stronger financial position upon completion of the exercise.

BIMB owns the entire stake in Bank Islam and 59.5% stake in the country’s oldest Islamic insurer Syarikat Takaful Malaysia Keluarga Bhd (STMB).

Upon completion of the exercise, Bank Islam would assume the listing status of BIMB. The exercise at the moment is still ongoing.

Analysts are upbeat that besides allowing Bank Islam to assume the listing status post restructuring, it would also strengthen the bank’s financial metrics and put it on a stronger footing to face mounting competition in the Islamic banking space.

Maybank Investment Bank Research said the main positive of this restructuring exercise is that it would allow for a proper re-rating of Bank Islam, which it thinks is undervalued.

“The bank generated a net return on asset and equity (ROAE) of 11.4% in financial year (FY)19 and 9.4% in FY20, which is higher than the average of 10.2% and 7.0% for its conventional peers.

“We forecast an FY21 return on equity (ROE) of 10.3% for Bank Islam, against a peer average of 8.6%. Bank Islam’s common equity tier 1 (CET1) ratio was a very comfortable 14.7% end-2020, higher than that of BIMB’s 13.0% and comparable to the industry average of 14.8%, ” it said.

CET1 is a capital measure that shows a bank’s ability to weather a financial downturn.

Following from BIMB’s restructuring, existing shareholders of BIMB would own shares in both Bank Islam and STMB.

Based on its computations, Maybank IB said each BIMB share would receive one Bank Islam share and 0.24 STMB shares.

BIMB’s restructuring moves closer towards completion, having recently raised close to RM800mil from its private placement exercise.

On May 7, an application to obtain the sanction of the High Court of Malaya for the scheme of arrangement (SOA) to pay its warrant holders was filed. Once this is sorted out, what remains is the distribution-in-specie of BIMB’s stake in Bank Islam and STMB to BIMB shareholders.

The exercise would also see sustained decent dividend yields. Bank Islam currently has an internal policy of paying out about 50% of its profits as dividends to the holding company.Maybank IB estimated that dividend per share in FY21 from both Bank Islam and STMB could be about 15 sen, which translates to a still decent dividend yield of 3.9%.

However, Maybank IB cautioned that as one of the largest Islamic banks in Malaysia in terms of asset size, any economic slowdown in the country would have a knock-on effect on Bank Islam’s operating performance.

At STMB, slower economic growth and domestic consumption would reduce demand for family and general takaful, it noted.

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