The combined value of one Bank Islam share and 0.3 STMK share of circa RM4.80 still provides some upside from the present share price of BIMB at RM4.28 per share.
KUCHING: BIMB Holdings Bhd’s (BIMB) key proposals to undertake the restructuring with Bank Islam eventually becoming the listed entity and the bank holding company has confirmed the long awaited news that has been rife in the market on the group’s restructuring plans, analysts note of this latest development.
With BIMB disposing of the group’s 100 per cent shareholdings in BIMB Securities Holdings (BIMB Sec Holdings), 49 per cent in BIMB Securities and its subsidiaries (BIMB Sec) and its 100 per cent stake in Syarikat Al Ijarah Sdn Bhd (SASB) to Bank Islam for a total of RM115.1 million, AmInvestment Bank Bhd (AmInvestment Bank) deemed the total purchase consideration at one-fold price to book value (P/BV) as fair.
“The restructuring will see BIMB’s securities business parked under Bank Islam as highlighted in our note on January 22, 2019,” AmInvestment Bank said.
“Current shareholders of BIMB will be receiving shares of Bank Islam and Syarikat Takaful Malaysia Keluarga Bhd (STMK) in specie. Eventually, all BIMB shareholders will become direct shareholders of Bank Islam and STMK.”
“There will be a swap between the shares of BIMB and Bank Islam. Based on the enlarged share capital of BIMB after the share placement of 1.96 billion shares and BIMB shares of 2.5 billion, one BIMB share will entitled to 1.3 Bank Islam shares.
“However, the shares Bank Islam will be consolidated. This will see every 1.28 Bank Islam shares consolidated into one Bank Islam share, thus lowering the number of shares in Bank Islam by 550 million to 1.96 billion shares from 2.5 billion.”
“For simplicity’s sake, one BIMB share will then be swapped with one Bank Islam share.”
The proposed group restructuring and consolidation of Bank Islam shares are expected to enhance the research firm’s estimated financial year 2020 (FY20) BV per share for Bank Islam to RM2.96 from RM2.30.
AmInvestment Bank also noted that with BIMB holding a 59 per cent stake in STMK, one BIMB share will be entitled to 0.25 STMK share.
“With the strong earnings of STMK, the new structure will now allow investors to ride on the potential upside in STMK’s shares as its direct shareholder.
“After the completion of the proposed distribution of Bank Islam and STMK shares in specie, BIMB will cease to be shareholders of Bank Islam and STMK.
“However, BIMB will issue two new shares to Bank Islam for it to become a wholly-owned subsidiary of the latter.”
Based on the research firm’s estimates and current share price of STMK of RM5.82, the combined value of one Bank Islam share and 0.3 STMK share of circa RM4.80 still provides some upside from the present share price of BIMB at RM4.28 per share.
“However, profit opportunity from acquiring STMK shares indirectly at a cheaper entry price to STMK compared to the current market price is much narrower now than the beginning of this year.
“This is in view of the appreciation in BIMB’s share price of RM4.28 per share versus a low of RM3.48 per share on January 2, 2019.”
According to AmInvestment Bank, BIMB is now trading at 1.2-fold of FY20 BV. It noted that this implies that the market is still undervaluing Bank Islam at circa 1.1-fold BV despite an expected return on equity (ROE) of 11.6 per cent for FY20.
Overall, the research firm said that the proposed group restructuring is expected to unlock the value of Bank Islam.
“In the event of certain key shareholders not taking up the new shares through the private placement, there will be a dilution of their stakes in BIMB. Should this occur, we expect liquidity of BIMB shares to improve.”