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Tuesday, November 12, 2013

BIMB Holdings - Adjusting for rights issue

Source: http://klse.i3investor.com/blogs/cimbresearchklse/40807.jsp

Target RM5.75 (Long Term: Out Perform)

BIMB's 2-for-5 rights issue went ex on 8 Nov 13. Recall that the purpose of the exercise is to finance its proposed acquisition of the remaining 49% stake in Bank Islam, which, in our view, will enhance its FY14-15 EPS by 18-19%.

We are introducing ex-rights earnings forecasts and DDM-based end-2014 target price (COE of 13.5%; LT growth of 4%). In our numbers, we factor in (1) a 100% stake in Bank Islam, and (2) 426.7m new shares issued from the rights issue. We are reiterating our Outperform call on the stock given the (1) EPS-accretive deal to purchase the additional stake in Bank Islam, and (2) swift loan and fee income growth.

What Happened
BIMB's proposed 2-for-5 rights issue went ex last Friday. A total of 426.7m new shares will be issued (at a rights price of RM4.25) to raise a total of RM1.81bn to partly finance the acquisition of the remaining 49% stake in Bank Islam that it does not own - 30.5% from Dubai Financial Group (DFG) and 18.5% from Lembaga Tabung Haji. The total purchase consideration is US$884.6m. For the financing, BIMB will also issue a sukuk of RM1.47bn.

What We Think
Based on our estimate, the deal is expected to lift EPS by 18-19% for FY14-15. The accretion is due to (1) decent ROI of 10-11%, and (2) about 30%+ financing from the issuance of sukuk, which carries an interest rate of only 6.25%. The transaction will have limited impact on Bank Islam's operations as it only involves BIMB buying additional stakes in a bank that it has been running all the while. There will also be minimal effect from the exit of DFG as it is a passive shareholder. Hence, we do not expect these to affect its strong expansion in loans and fee income.

What You Should Do
We advise investors to accumulate the stock given the EPS-accretive deal to purchase the remaining 49% stake in Bank Islam. We are also positive on the group's swift expansion in loans and fee income, which has enabled it to turn into one of the strongest topline growth stories among the local banks in the past few quarters.

Source: CIMB Research, Full PDF Report

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