MAYBANK IB Research expects BIMB Holdings Bhd, the first Islamic financial holdings company in Malaysia, to have a 5-6% loan growth this year following several considerations.
It said BIMB Holdings’ deposit growth is targeted at between 3-5% from the estimated 5-7% previously.
“Net interest margins (NIMs) are expected to compress and every 25 basis points (bps) overnight policy rate (OPR) cut affects income by RM60 mil to RM70 mil,” it said in a note today.
On lowering earnings estimates, Maybank IB said prior to this estimation, it had already forecast a 4% year-on-year decline in financial year 2020 (FY20) earnings.
“This was premised largely on a steep decline in Syarikat Takaful Malaysia Keluarga Bhd’s (STMB) earnings with the potential loss of Bancatakaful earnings contributions when the RHB Islamic contract ends in June 2020, and the cut in Wakalah fees as imposed by Congress of Union of Employees in the Public and Civil Services Malaysia (Cuepacs) for Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) accounts,” said the research firm.
Since then, Maybank IB has revised upwards its earnings forecasts for STMB on expectations that the Cuepacs Wakalah fee revision comes into effect only from 2021.
“We now forecast an earnings growth of 1% in FY20 and a contraction of 6% in the financial year 2021 (FY21) from the decline in Wakalah fees,” it said.
The research firm had also revised down its earnings estimates for Bank Islam premised on lower FY20 financing growth of 4% versus 6% previously, a larger FY20 NIM compression of 12bps, a decline in fee income and higher credit cost of 27/29bps for FY20/21 vs 19/20bps previously.
“All in, we now cut BIMB’s earnings by another 8% for FY20 and expect group net profit to fall 14% this year, with a growth of 4% in FY21.”
BIMB’s key catalyst continues to be its restructuring exercise which is still proceeding but Maybank IB expects the pace to be more protracted, now that approval processes are slower.
“Nevertheless, we do still take the view that the restructuring is positive in unlocking the value of Bank Islam, which we believe is undervalued at this stage and continue to maintain a buy on the stock,” said Maybank IB.
To recap, BIMB’s proposed restructuring scheme involves the placement of shares to raise up to RM800 mil to partially settle an outstanding sukuk to Lembaga Tabung Haji; a scheme of arrangement to pay warrant holders; an internal reorganisation that will see the disposal by BIMB of its shareholdings in BIMB Securities and other subsidiaries to Bank Islam; a distribution of BIMB’s stake in Bank Islam and STMKB by way of a distribution-in-specie; and a transfer of BIMB’s listing status to Bank Islam.
The research firm has a buy call for BIMB Holdings with a 12-month target price of RM4, an 18% increase from the current share price of about RM3.40. — April 20, 2020, Bernama
