Investment Highlights

• We value Bank Islam at RM3.80/share based on FY22 ROE of 11.5% leading to P/BV of 1.1x. This compares to our earlier valuation on BIMB Holdings of RM4.80/share based on SOP in which we have penciled in an ROE of 24.8% for FY22 for Syarikat Takaful Malaysia Keluarga (STMK).

• The valuation is at a slight premium after taking into consideration that Bank Islam is the only listed Islamic bank.

• On 8 Oct 2021, Bank Islam Malaysia (Bank Islam) was listed on the Main Board of Bursa Malaysia. It took over the listing status of BIMB Holdings after the completion of a corporate restructuring.

• Shares in Bank Islam and STMK were distributed to shareholders of BIMB Holdings to complete the corporate restructuring.

• Based on the new corporate structure, Bank Islam will now be evaluated on its own earnings (stand-alone entity) without the contribution of takaful income from STMK.

• With the completion of the corporate restructuring, its finance cost will be lower moving forward with the sukuk murabahah at BIMB Holdings (company level) fully redeemed. A total of RM1.05bil in nominal value of the sukuk murabahah equivalent to a redemption sum of RM988.4mil was fully settled through proceeds from a private placement as part of the restructuring exercise.

• We estimate the finance cost to be reduced from circa RM140mil p.a. under BIMB Holdings to RM88mil p.a. in Bank Islam’s P&L. This is based on a remaining outstanding of only RM1.71bil in subordinated sukuk murabahah in Bank Islam’s balance sheet.

• Nevertheless, the benefits from a lower finance cost will be offset by the removal of income recognised from STMK. Typically, the ROE from STMK exceeds 20.0% p.a.

• As of 2Q21, Bank Islam’s asset quality remained stable with GIL ratio of 0.72% vs. the banking industry’s 1.62%. Meanwhile, its financing loss coverage ratio stood at a healthy 235.5% vs. the industry’s 111.8%.

Source: AmInvest Research - 26 Oct 2021