BIMB (5258) - BIMB Holdings - A possible merger with MBSB?
Target RM4.25 (Stock Rating: HOLD)
News over the weekend of a possible merger between BIMB and MBSB was a positive surprise for us as it is estimated that the exercise could enhance BIMB’s FY16 EPS by 3,2%. The potential synergies would be from the improvements in margins and efficiency. We retain our EPS forecasts but cut our DDM-based target price (COE of 13.5%; LT growth of 4%) as we lower our assumed growth rate for the interim phase by 0.5% pt to 6.5% given the poorer outlook for loan and fee income growth. The industry’s loan growth eased from 9.3% yoy in Dec 14 to 8.6% yoy in Jan 15 as announced by BNM last Friday. Despite its above-industry loan growth, BIMB remains a Hold in view of a slowdown in fee income expansion. We prefer RHB Capital.
What Happened
Over the weekend, The Star newspaper, quoting unnamed sources, reported that plans are being drawn up for a merger between BIMB’s 100%-owned Bank Islam and Malaysia Building Society Bhd (MBSB) at the shareholder level of both companies – EPF for MBSB and Lembaga Tabung Haji (LTH) for BIMB.
What We Think
We are surprised that BIMB and MBSB have plans for a merger as described in the article in the StarBiz section of the newspaper, as management had not previously guided any such M&A plans for Malaysia. In our view, there is a reasonable chance of this happening, as both are government-linked entities. We take a positive view on a possible BIMB-MBSB merger as we envisage synergies for (1) mobilising BIMB’s cheaper-cost deposits to fund MBSB’s higher-yielding assets, (2) better operating efficiency by MBSB, and (3) cross-selling opportunities for MBSB’s customer base among the government staff. Based on our simulation, it is estimated that the deal would enhance BIMB’s FY16 EPS by about 3.2%.
What You Should Do
Although we are positive on the potential merger of BIMB and MBSB, we advise investors not to accumulate the stock now because it is still uncertain whether the deal will happen. Furthermore, the valuation for the deal is unknown and BIMB’s earnings growth would be dragged down 1-2 years following any potential merger because of the related integration costs and the distraction to management’s attention from growing the existing business. However, we would review our call on the stock should the merger materialise.
Source: CIMB Daybreak - 02 March 2015
Target RM4.25 (Stock Rating: HOLD)
News over the weekend of a possible merger between BIMB and MBSB was a positive surprise for us as it is estimated that the exercise could enhance BIMB’s FY16 EPS by 3,2%. The potential synergies would be from the improvements in margins and efficiency. We retain our EPS forecasts but cut our DDM-based target price (COE of 13.5%; LT growth of 4%) as we lower our assumed growth rate for the interim phase by 0.5% pt to 6.5% given the poorer outlook for loan and fee income growth. The industry’s loan growth eased from 9.3% yoy in Dec 14 to 8.6% yoy in Jan 15 as announced by BNM last Friday. Despite its above-industry loan growth, BIMB remains a Hold in view of a slowdown in fee income expansion. We prefer RHB Capital.
What Happened
Over the weekend, The Star newspaper, quoting unnamed sources, reported that plans are being drawn up for a merger between BIMB’s 100%-owned Bank Islam and Malaysia Building Society Bhd (MBSB) at the shareholder level of both companies – EPF for MBSB and Lembaga Tabung Haji (LTH) for BIMB.
What We Think
We are surprised that BIMB and MBSB have plans for a merger as described in the article in the StarBiz section of the newspaper, as management had not previously guided any such M&A plans for Malaysia. In our view, there is a reasonable chance of this happening, as both are government-linked entities. We take a positive view on a possible BIMB-MBSB merger as we envisage synergies for (1) mobilising BIMB’s cheaper-cost deposits to fund MBSB’s higher-yielding assets, (2) better operating efficiency by MBSB, and (3) cross-selling opportunities for MBSB’s customer base among the government staff. Based on our simulation, it is estimated that the deal would enhance BIMB’s FY16 EPS by about 3.2%.
What You Should Do
Although we are positive on the potential merger of BIMB and MBSB, we advise investors not to accumulate the stock now because it is still uncertain whether the deal will happen. Furthermore, the valuation for the deal is unknown and BIMB’s earnings growth would be dragged down 1-2 years following any potential merger because of the related integration costs and the distraction to management’s attention from growing the existing business. However, we would review our call on the stock should the merger materialise.
Source: CIMB Daybreak - 02 March 2015
