PURE Islamic bank BIMB Holdings Bhd has received thumbs up from CGS-CIMB Research which has raised its rating to “add” from “hold” on the back of its strong focus on sustainable financing which shall ultimately translate to a healthy long-term bottom line.
Among its environment, social and governance (ESG) initiatives, the research house is impressed with BIMB’s plan to increase the proportion of its green financing (over total financing) from 4% in FY2020 to 10-12% in the next three years.
This would translate into a three-year compound annual growth rate (CAGR) is of 45-54% for green financing in 2020-2023F.
“It (BIMB) is also working on embedding the ESG evaluation into its credit scoring system which could be fully implemented by 2Q-3Q 2022F,” opined analyst Winson Ng in a company update following a virtual conference call with the company’s chief financial officer Azizan Abd Aziz.
“We concur with BIMB’s view that the focus on lending to companies with higher ESG standards would reduce credit risk in the longer term.
“This is because these companies (i) would face lower reputational/legal risks from non-compliance; (ii) are able to attract new customers and reduce costs by cutting usage of electricity and paper; and (iii) would enjoy greater productivity and lower staff turnover by focusing on employee welfare.”
Commenting on the banking group’s proposed private placement entailing 222.2 million new BIMB shares (12% of tis share base), CGS-CIMB Research expects the exercise to dilute BIMB’s earnings per share (EPS) by 4.2% for FY 2021F, 6.5% (FY2022F) and 6.7% (FY2023F).
These numbers are larger than its earlier estimated dilution of 3.8% for FY2021F, 5.8% (FY2022F) and 6% (FY2023F) in the research house’s report on BIMB dated March 29.
To re-cap, the issue price has been fixed at RM3.58/placement share which represents a discount of about 9.4% over the volume-weighted average price of RM3.95 for the five market days up to April 12. BIMB is expected to raise gross proceeds of RM795.6 mil from the exercise.
While maintaining BIMB’s target price at RM4.55, CGS-CIMB Research views the banking group’s 10.5% decline in its share price since March 26 as a buying opportunity, especially when it is embarking on a reorganisation exercise that could unlock Bank Islam’s value.
“As such, we upgrade BIMB from “hold” to “add” predicated on the potential re-rating catalyst of higher valuation for Bank Islam shares (to be distributed to BIMB shareholders) when it takes over the listing status of BIMB in August,” justified the research house.
“BIMB may be one of the biggest beneficiaries of any OPR (overnight policy rate) hikes in 2022F as every 25 basis points hike could raise its FY2022F net profit by circa 6%.”
At 10.48am, BIMB was up 2 sen or 0.51% to RM3.91 with 120,400 shares traded, thus valuing the company at RM7.25 bil. – April 15, 2021
