BIMB/Bank Islam - likely to take over

Bank Islam Malaysia Bhd is likely to take over the listing status of its parent company, BIMB Holdings Bhd, in an exercise that could improve valuations.

Sources say the move is likely to happen now (Aug 2013) that BIMB is poised to own 100% of the unlisted Bank Islam by end 2013.

LTH controls BIMB with its 51.2% stake while the EPF owns 9.6%. BIMB controls 51% of Bank Islam.

Bank Islam would pay as much as rm2.96 billion for LTH’s 18.5% and DFG 30.5% equity stake. The deal is to be funded by a rights issue and the sale of Islamic bonds will boost its profitability and allow it to implement more coherent wide strategies.

BIMB is targeting to complete the transaction by end of 2013.

Investors buy into BIMB’s stock mainly for exposure to the fast growing Islamic bank’s operations. About 85% of BIMB’s earnings come from Bank Islam, with the rest mainly from its listed Islamic insurance entity STMB. BIMB owns 65.2% stake of STMB.

By having Bank Islam take over the listing status, investors would get direct exposure to the banking operations rather than through the holding company. This will improve the bank’s valuations as there is a tendency to attach a holding company discount to it.

BIMB will raise about rm1.54 billion from the sale of rights issue shares that come with free warrants and as much as rm1.47 billion from the sale of a 10 year Islamic bonds.

BIMB dated July 2012

It is the only pure exposure for a play on the Islamic banking theme, as it is the only listed Islamic bank in Malaysia .

 

The Islamic banking business only accounts for about 20% of the bottom lines of other listed banking groups such as Maybank and CIMB,

 

Furthermore, BIMB’s plans to acquire a stake in Bank Muamalat Indonesia will lend a hand in boosting its presence. Its management had indicated that it was still in talks with the Indonesian banking group.

 

If an acquisition materializes, it will provide the group with a foothold in the underpenertrated and fast growing Indonesian banking system.

 

Other catalysts are BIMB is awaiting response from an Indonesian Islamic bank on its proposed offer to acquire 30% to 40% stake;

 

BIMB (LTH owned 18.5% & 30% by Dubai Investment Group) could be an M&A proposition either on its own, or through Bank Islam (BIMB owned 51%) or Takaful Malaysia ;

 

DRBHicom is exploring potential merger of Bank Muamalat (DRBHicom owned 70% and 30% by Khazanah);

 

Reports of a potential change in the ownership of the DIG stake in BIMB;

Sources say BIMB may assume the listing status of its parent company BIMB Holdings Bhd;

 

Syarikat Takaful Malaysia Bhd, although much smaller than BIMB’s banking business, may be one of the major growth engines for the group on the back of swift expansion in the general and family Takaful segments and anticipated market share gains.

 

Even though, it is already one of the largest players in the market, Syarikat Takaful has managed to raise its market share in the overall Takaful market to 21% in 2011 from 15% in 2010.

 

However, despite its bright prospects for the group, stiffer competition for deposits and fee income may result in thinner net interest margins. This has only affected BIMB but all banks in Malaysia .

 

Previously, BIMB was afflicted with weak loan growth and the highest non-performing loan ratio among the local banks. However, there are significant improvements in the group over the past three to five years (prior to 2012). In fact, its organic loan growth was the fastest and its gross impaired loan ratio the third-lowest among the local banks in March 2012.

BIMB has shown significant improvements in the following areas over the past two years (prior to 2012): firstly, a fall in its gross impaired loan ratio from 12.7% in 2009 to 2.6% in 2011; secondly, a surge in loan growth from 2.5% to 18.6%, and, thirdly, a jump in return on equity from 3.1% to 15%.

Bank Islam Malaysia is the third-largest Islamic bank in Malaysia with total assets worth RM29.9bil as at end-December 2011.

BIMB recorded a net profit of RM203.3mil in FY12/11, representing 32.1% growth from the annualised FY12/10, which covers an 18-month period due to a change in financial year-end from June to December.

The growth was achieved on the back of an 18.5% expansion in total operating revenue to RM1.56bil in FY11.

At the topline, the banking operations contributed about 77.7% of operating revenue while 16.9% came from the takaful business.

Likewise at the bottomline, the banking business was the biggest contributor, accounting for 70% of the group's FY11 profit before tax versus 15% for takaful.

The significant improvements in the financial performance in the past three to five years reflect the quality of the management, especially for Bank Islam.

Bank Islam is helmed by Datuk Seri Zukri Samat, who was appointed as the managing director on June 9, 2006. Banking statistics show that the Islamic banking segment is growing faster than the banking system as a whole. BIMB is the only listed Islamic bank in Malaysia while the Islamic banking business only accounts for more than 20% of other listed banking groups' top- and bottomlines.

The group has a dividend policy of 50% payout.