Malaysia Company Guide BIMB Holdings
Version | Bloomberg: BIMB MK | Reuters: BIMB.KL Refer to important disclosures at the end of this report
DBS Group Research . Equity 12 Dec 2019
BUY Gains in the immediate term Last Traded Price ( 11 Dec 2019): RM4.28 (KLCI : 1,563.19) Price Target 12-mth: RM5.16 (21% upside) (Prev RM5.65) Restructuring pushes forward. BIMB Holdings (BIMB) has disclosed further details of its proposed restructuring, which Analyst was largely within our expectations. The group will redeem its CHIN Jin Han, CFA +60 326043974 [email protected] outstanding sukuk held by Lembaga Tabung Haji and reorganise this around Bank Islam. Its takaful business will be decoupled What’s New from the group structure, resulting in a more streamlined bank. Pushing ahead with restructuring with completion At BIMB and Syarikat Takaful Malaysia Keluarga Berhad expected in 3Q20 (STMKB)’s current share prices, the exercise implies that Bank Islam is valued at 1.04x book value, which is relatively attractive Takaful business to be decoupled from group in our view. Bank Islam is still resilient despite industry The exercise implies that Bank Islam is valued at 1.04x headwinds, maintaining high net financing margins and strong book which is relatively attractive in our view loans growth from its retail franchise. Even though there was Maintain BUY with lower RM5.16 TP some deterioration in 3Q19, asset quality remains fairly solid at
around 1.1%.
Price Relative Where we differ. Our earnings forecasts are above consensus, likely due to more optimistic views on BIMB’s financing growth outlook, net financing margins (NFMs) and credit costs.
Potential catalysts. We think there will be growing interest in the stock led by the group’s ongoing restructuring due to the prospects of entry into a fast-growing takaful player
demonstrating strong earnings growth and profitability.
Valuation: Forecasts and Valuation We ascribe a value of RM5.16 to the stock, premised on an FY Dec (RMm) 2018A 2019F 2020F 2021F indicative 1.4x P/BV valuation for Bank Islam and STMKB’s Pre-prov. Profit 1,290 1,493 1,616 1,798 market value of RM5.85. Our previous target price was based Net Profit 682 822 883 993 Net Pft (Pre Ex.) 682 822 883 993 on BIMB retaining its takaful business. Net Pft Gth (Pre-ex) (%) 10.0 20.5 7.4 12.5 EPS (sen) 40.9 48.5 52.1 58.6 Key Risks to Our View: EPS Pre Ex. (sen) 40.9 48.5 52.1 58.6 Asset quality deterioration amid challenging operating EPS Gth Pre Ex (%) 7 19 7 12 Diluted EPS (sen) 40.3 48.5 52.1 58.6 environment could result in higher-than-expected provisions. PE Pre Ex. (X) 10.5 8.8 8.2 7.3 Net DPS (sen) 15.5 16.0 17.4 19.6 At A Glance Div Yield (%) 3.6 3.7 4.1 4.6 Issued Capital (m shrs) 1,764 ROAE Pre Ex. (%) 14.3 15.5 15.0 15.3 Mkt. Cap (RMm/US$m) 7,551 / 1,813 ROAE (%) 14.3 15.5 15.0 15.3 Major Shareholders (%) ROA (%) 1.2 1.3 1.3 1.4 Lembaga Tabung Haji (%) 50.8 BV Per Share (sen) 297 329 364 403 EPF (%) P/Book Value (x) 1.4 1.3 1.2 1.1 12.4 KWAP (%) 5.5 Earnings Rev (%): 8 6 6 Free Float (%) 21.1 Consensus EPS (sen): 42.8 45.3 49.0 3m Avg. Daily Val (US$m) 0.75 Other Broker Recs: B: 8 S: 0 H: 1 GIC Industry : Financial / Banks Source of all data on this page: Company, AllianceDBS, Bloomberg Finance L.P.
ed: JS/ sa: WMT, PY, CS Company Guide
BIMB Holdings
WHAT’S NEW One step closer to fruition
Becoming more of a reality. BIMB Holdings (BIMB) announced Substantial short-term gains to BIMB shareholders. At the end a slew of proposals yesterday for its long awaited of the exercise, BIMB shareholders will have separate stakes in restructuring exercise, namely the redemption of its both Bank Islam and STMKB, resulting in a total potential outstanding sukuk and cancellation of warrants, an internal gain of c.20% for every BIMB share held. This may change reorganisation of BIMB’s subsidiaries to Bank Islam, and a subject to market prices. While this provides attractive near- distribution-in-specie of Bank Islam and Syarikat Takaful term upside for investors, we believe this comes at a cost to Malaysia Keluarga Berhad (STMKB) shares to BIMB the overall group’s longer term prospects given STMKB’s shareholders. Eventually, BIMB’s listing status will be substantial role in driving earnings – BIMB’s takaful business transferred to Bank Islam. The exercise is targeted for segment contributed more than 35% of its overall pre-tax completion by 3Q20 and will result in the decoupling of profit in 9M19. STMKB has also been instrumental in lifting BIMB’s takaful business with the rest of its operations. BIMB’s ROE to more than 15% – Bank Islam’s ROE was 11.7% against STMKB’s 33.7%. Sukuk redemption not particularly helpful for Bank Islam: To recap, BIMB currently has outstanding sukuk of RM800m Bank Islam still solid. Bank Islam’s fundamentals, on its own, (held by major shareholder Lembaga Tabung Haji) at the are fairly resilient, showing solid loans growth of 8.9% y-o-y holding company level after partially redeeming RM500m in in 3Q19 on the back of its retail franchise. Although net December 2018. The funds will be raised by way of an financing margins have come down in the past four quarters indicative RM800m share placement to prospective investors due primarily to high funding costs, it is still solid at more on top of internally generated funds (mainly for accrued than 2.5%. Asset quality has also deteriorated in line with the profit payments). Based on the five-day volume weighted overall market, mainly arising from its corporate and average market price (VWAP) of RM4.09, BIMB will issue commercial book, but still at a relatively decent 1.1% 195.6m new BIMB shares. The group expects to save compared to the industry’s 1.6%. RM52.8m in finance costs on a yearly basis with the
redemption of this sukuk, though this would not benefit Bank Islam’s net financing margin. Repayment of warrants to be borne by BIMB: Cancellation of BIMB’s outstanding warrants is expected to cost RM110.9m based on the five-day VWAP price of RM0.26 on 426.7m warrants, which will be satisfied by BIMB’s internally generated funds. We do not expect warrant holders to exercise their warrants as they are significantly out of the money (strike price of RM4.72 against current share price of RM4.28). Bank Islam will acquire BIMB’s stakes in subsidiaries BIMB Securities Holdings, Syarikat Al Ijarah Sdn Bhd and BIMB Securities in exchange for cash from Bank Islam’s internally generated funds. The purchase consideration will be pegged to the respective subsidiaries’ book values totaling RM115.1m (if based on FY18 audited financial statements). STMKB distribution on 1-for-4 basis. To align Bank Islam’s share base with BIMB’s, Bank Islam will consolidate its share base of 2.5m shares by a factor of 1.28, with no changes to Bank Islam’s share capital. Following this, Bank Islam shares will be distributed to BIMB shareholders on a 1-for-1 basis, while BIMB’s 59.5% stake in STMKB (491.6m shares) would be distributed to entitled BIMB shareholders. The distribution would be 0.25 STMKB shares for every BIMB share held.
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Company Guide
BIMB Holdings
BIMB: Illustration on gain to shareholders Amount to redeem sukuk RM'm 800 Accrual costs related to sukuk redemption RM'm 122
Amount to buy out warrants RM'm 111
Less: amount paid for BIMB subsidiaries RM'm (115) Total amount to be raised RM'm 800
Total amount incurred by Bank Islam RM'm 115
Total amount incurred by BIMB RM'm 233 BIMB shares to be issued (at 5% discount) m 196 Restructured entity's BVPS RM 2.71 Restructured entity's PB valuation x 1.4
Restructured entity's fair value (RM) RM 3.69
Share swap
Bank Islam shares for 1 BIMB share shares 1.0 STMKB shares for 1 BIMB share shares 0.3
Cost for 1 BIMB share (RM) RM (4.28)
Gain for Bank Islam share (RM)* RM 3.69 Gain for Syarikat Takaful share (RM)** RM 1.47 Upside/(Downside) (RM) RM 0.88 Upside/(Downside) (%) % 20% Note: *Bank Islam’s implied P/BV valuation is based on the Gordon’s growth model using 3% long-term growth, 11.7% return on equity and 9.7% cost of equity. This implies 1.36x book value. ** STMKB’s current share price x STMKB-BIMB distribution ratio Source: Company, AllianceDBS
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Company Guide
BIMB Holdings
CRITICAL DATA POINTS TO WATCH Margin Trends
Resilient NFMs despite funding cost pressures. BIMB’s funding costs have been rising q-o-q in line with industry trends, though improving asset yields have helped stem NFMs from declining more than expected. The group’s relatively high current account savings account (CASA) ratio of 30-33% has also helped mitigate significant increases in funding costs. While the group is guiding for higher NFMs in 2019 on the back of the full year impact from an increase in the group’s base rates and growth in its higher-yielding personal financing, we adopt a more conservative view of flat NFMs. Gross Loan& Growth
Moderating financing growth. We forecast 8% financing growth for BIMB in FY19F. Targeted areas of growth include mortgages as well as personal financing, which have grown strongly at double-digit rates. Among its banking peers, BIMB has one of the strongest financing growth outlook.
Targeting to grow investment accounts. A mandate to distinguish Islamic deposits and Islamic investment accounts was declared in 2013, requiring the transition to commence in June 2015. BIMB does not expect this transition to have any Customer Deposit & Growth significant earnings impact. The higher cost of funds is expected to be offset by the benefits reaped by BIMB from the favourable treatment of these accounts in terms of statutory reserve requirement, liquidity and capital.
Owns 60% of STMB, a key takaful player. Syarikat Takaful Malaysia Keluarga Berhad (STMKB) provides insurance protection based on Shariah principles. Its main distribution channel is its agency workforce which currently boasts 2,700 agents. Contribution from STMKB makes up around 70% of BIMB’s non-fund-based income. However, completion of its Loan-to-Deposit Ratio Trend restructuring exercise would decouple STMKB from BIMB and Bank Islam.
At the forefront of Islamic finance. As the pioneer of Islamic banking in Malaysia, BIMB is poised to leverage on the robust growth potential of Islamic finance with the large Muslim population within the region. On top of opportunities arising from the Malaysian government’s initiatives in developing Islamic banking, another potential growth area for BIMB is Indonesia, the world's most populous Muslim nation. Although BIMB has expressed interest in making its mark in Indonesia, nothing substantial has materialised yet. Cost & Income Structure
Source: Company, AllianceDBS
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Company Guide
BIMB Holdings
Balance Sheet: Asset Quality Stable asset quality. BIMB has improved its asset quality over the years, exemplified by the lowering of its gross impaired financing ratio to less than 1% from 13% back in 2009. Management aims to keep asset quality deterioration at bay and maintain its gross impaired financing ratio at around the current level, though it had inched up in 3Q19 mainly from corporate and commercial exposures. BIMB’s coverage ratio is high, at more than 140%.
High capital ratio. Capital ratios are robust, comfortably above Capitalisation (%) the minimum required CET-1 of 9.5% (inclusive of conservation and countercyclical buffers) by 2019 as per Basel III regulatory requirements. To ensure sustainable levels of capital, BIMB rolled out its Dividend Reinvestment Plan in Aug 2014. Separately, STMKB’s capital ratio is well above the minimum requirement of 130%.
Share Price Drivers: Trading lower than mean P/BV multiple. BIMB is trading at 1.2x FY20F BV, which is below the 5-year mean valuation of 1.6x. ROE (%) The stock’s valuation is compelling but would warrant a reassessment post-restructuring.
Key Risks: Softer consumer financing growth. Consumer financing makes up over 60% of BIMB’s financing portfolio, with the bulk being personal and housing financing. Given the high proportion of consumer financing, softer growth in this segment would be unfavourable for BIMB.
Company Background Forward PE Band (x) BIMB Holdings Berhad provides all aspects of Islamic banking services and is the only Shariah-compliant bank listed in Malaysia. Through its subsidiaries, the bank also underwrites family and general takaful (Islamic insurance), as well as providing stockbroking and other related services.
PB Band (x)
Source: Company, AllianceDBS
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Company Guide
BIMB Holdings
Key Assumptions FY Dec 2017A 2018A 2019F 2020F 2021F
Gross Loans Growth 7.1 8.9 8.0 8.0 8.0 Customer Deposits Growth 1.6 9.3 6.0 6.0 6.0 Yld. On Earnings Assets (%) 4.2 4.4 4.5 4.5 4.5 Avg Cost Of Funds (%) 2.4 2.6 2.6 2.6 2.6
Income Statement (RMm) FY Dec 2017A 2018A 2019F 2020F 2021F
Net Interest Income 1,476 1,644 1,763 1,866 2,024 Islamic Income 0.0 0.0 0.0 0.0 0.0 Non-Interest Income 1,038 1,181 1,411 1,514 1,625 Operating Income 2,513 2,826 3,174 3,380 3,649 Operating Expenses (1,465) (1,535) (1,681) (1,764) (1,851) Pre-provision Profit 1,048 1,290 1,493 1,616 1,798 Provisions 15.4 (81.4) (108) (114) (122) Associates (115) (144) (120) (122) (125) Exceptionals 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 948 1,065 1,265 1,379 1,551 Taxation (245) (264) (291) (359) (403) Minority Interests (83.8) (119) (152) (138) (155) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 620 682 822 883 993 Mainly driven by STMKB Net Profit bef Except 620 682 822 883 993
Growth (%) Net Interest Income Gth 3.4 11.4 7.2 5.8 8.5 Net Profit Gth 7.4 10.0 20.5 7.4 12.5 Margins, Costs & Efficiency (%) Spread 1.8 1.8 1.9 1.9 1.9 Net Interest Margin 2.3 2.4 2.4 2.4 2.4 Cost-to-Income Ratio 58.3 54.3 53.0 52.2 50.7 Business Mix (%) Net Int. Inc / Opg Inc. 58.7 58.2 55.6 55.2 55.5 High net financing Non-Int. Inc / Opg inc. 28.8 31.1 34.1 34.6 34.6 margins from retail Fee Inc / Opg Income 7.8 7.3 6.8 6.7 6.5 franchise Oth Non-Int Inc/Opg Inc 4.7 3.4 3.6 3.5 3.4 Profitability (%) ROAE Pre Ex. 14.7 14.3 15.5 15.0 15.3 ROAE 14.7 14.3 15.5 15.0 15.3 ROA Pre Ex. 1.1 1.2 1.3 1.3 1.4 ROA 1.1 1.2 1.3 1.3 1.4 Source: Company, AllianceDBS
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Company Guide
BIMB Holdings
Quarterly / Interim Income Statement (RMm) FY Dec 3Q2018 4Q2018 1Q2019 2Q2019 3Q2019
Net Interest Income 423 424 419 417 415 Non-Interest Income 321 318 382 353 391 Operating Income 744 742 801 770 806 Operating Expenses (389) (419) (425) (400) (420) Pre-Provision Profit 355 323 376 370 386 Provisions (26.1) (19.5) (22.4) (34.6) (33.9) Associates (32.9) (45.3) (34.1) (34.4) (34.8) Exceptionals 0.0 0.0 0.0 0.0 0.0 Pretax Profit 296 258 320 301 318 Taxation (64.0) (60.1) (78.0) (72.8) (63.3) Minority Interests (33.8) (36.7) (39.1) (33.1) (46.2) Driven by STMKB Net Profit 199 161 203 195 208
Growth (%) Net Interest Income Gth 4.6 0.2 (1.2) (0.4) (0.4) Net Profit Gth 32.5 (18.7) 25.5 (3.6) 6.8
Balance Sheet (RMm) FY Dec 2017A 2018A 2019F 2020F 2021F
Cash/Bank Balance 4,808 2,650 3,464 3,672 3,893 Government Securities 1,407 1,602 1,732 1,836 1,946 Inter Bank Assets 1,159 3,637 1,506 1,626 1,756 Total Net Loans & Advs. 42,113 45,681 49,334 53,281 57,544 Investment 14,621 17,090 17,944 18,841 19,783 Associates 0.0 0.0 0.0 0.0 0.0 Fixed Assets 408 426 448 470 494 Financing growth Goodwill 154 243 243 0.0 0.0 stronger than industry Other Assets 435 383 395 407 419 level Total Assets 65,785 72,389 75,762 80,851 86,574
Customer Deposits 49,840 54,471 57,739 61,204 64,876 Inter Bank Deposits 0.0 1,501 867 1,426 2,300 Debts/Borrowings 2,236 2,103 2,103 2,103 2,103 Others 1,828 1,380 1,341 1,305 1,271 Minorities 384 469 621 759 914 Shareholders' Funds 4,534 5,026 5,577 6,165 6,827 Total Liab& S/H’s Funds 65,785 72,389 75,762 80,851 86,574
Source: Company, AllianceDBS
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Company Guide
BIMB Holdings
Financial Stability Measures (%) FY Dec 2017A 2018A 2019F 2020F 2021F
Balance Sheet Structure Loan-to-Deposit Ratio 84.5 83.9 85.4 87.1 88.7 Net Loans / Total Assets 64.0 63.1 65.1 65.9 66.5 Investment / Total Assets 22.2 23.6 23.7 23.3 22.9 Cust . Dep./Int. Bear. Liab. 95.7 93.8 95.1 94.5 93.6 Interbank Dep / Int. Bear. 0.0 2.6 1.4 2.2 3.3 Asset Quality Well capitalised NPL / Total Gross Loans 0.9 0.9 0.9 0.9 0.9 NPL / Total Assets 0.6 0.6 0.6 0.6 0.6 Loan Loss Reserve Coverage 143.7 185.4 185.0 187.0 189.0 Provision Charge-Off Rate 0.0 0.2 0.2 0.2 0.2 Capital Strength Total CAR 16.4 17.8 17.0 17.0 17.0 Tier-1 CAR 12.7 13.3 13.2 13.2 13.2
Source: Company, AllianceDBS
Target Price & Ratings History
Source: AllianceDBS Analyst: CHIN Jin Han, CFA
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Company Guide
BIMB Holdings
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AllianceDBS recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame) *Share price appreciation + dividends
Completed Date: 12 Dec 2019 00:42:24 (MYT) Dissemination Date: 12 Dec 2019 08:56:56 (MYT)
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Company Guide
BIMB Holdings
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BIMB Holdings
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Company Guide
BIMB Holdings
Financial by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the Centre DFSA rulebook) and no other person may act upon it.
United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as Emirates defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
United States This report was prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''). DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
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Company Guide
BIMB Holdings
DBS Regional Research Offices
HONG KONG MALAYSIA SINGAPORE DBS (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 18 Westlands Road, Capital Square, Marina Bay Financial Centre Tower 3 Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 3668 4181 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E
THAILAND INDONESIA DBS Vickers Securities (Thailand) Co Ltd PT DBS Vickers Sekuritas (Indonesia) Contact: Chanpen Sirithanarattanakul Contact: Maynard Priajaya Arif 989 Siam Piwat Tower Building, DBS Bank Tower 9th, 14th-15th Floor Ciputra World 1, 32/F Rama 1 Road, Pathumwan, Jl. Prof. Dr. Satrio Kav. 3-5 Bangkok Thailand 10330 Jakarta 12940, Indonesia Tel. 66 2 857 7831 Tel: 62 21 3003 4900 Fax: 66 2 658 1269 Fax: 6221 3003 4943 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand
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