BIMB Holdings Bhd was one of the better-performing financial institutions in the first half of this year and is a well-liked stock among analysts. However, a long-talked-about restructuring of the group still looms over its shares.

According to sources, a private placement of new shares that the group had been considering to raise RM600 million — prior to a restructuring — will only happen next year. It was initially expected to happen in the second half of this year.

One of the main reasons for the delay is the change in leadership at two of its biggest shareholders, Lembaga Tabung Haji (TH) and Permodalan Nasional Bhd (PNB).

“With the change in leadership, they’ll have to start the engagement process again … in terms of getting approvals, the buy-in and all that. They need approvals not just from the regulators but also from various shareholders and management teams,” a source familiar with the plan tells The Edge.

TH holds a 53.82% stake in BIMB while the Employees Provident Fund and PNB own 12.29% and 5.35% respectively.

Former TH CEO Datuk Seri Zukri Samat ended his contract early due to health reasons, after a year at the helm. Nik Mohd Hasyudeen Yusoff, who is a director in BIMB and Bank Islam Malaysia Bhd, among other companies, took over on Sept 1.

As for PNB, on Oct 1, Jalil Rasheed of fund management firm Invesco will take over as president and group CEO from Datuk Abdul Rahman Ahmad.

BIMB CEO Mohd Muazzam Mohamed declined to comment when asked about the private placement, but acknowledges that a planned reorganisation of the group’s structure is still on the table.

“Based on the realistic timeline that we’re looking at, it is not likely to be completed by the end of this year. It is likely to spill over into next year,” he tells The Edge.

BIMB wants to do the private placement to raise funds to pay a shareholder debt of some RM800 million. It needs to address this debt before it can undertake the restructuring, which will see it collapse its financial holding structure, The Edge reported in January, citing sources familiar with the matter.

The shareholder debt is a 10-year sukuk murabahah that BIMB had issued to TH in December 2013. The debt paper was issued, along with rights and warrants, to fund BIMB’s purchase of the remaining 49% stake in Bank Islam held by Dubai Financial Group (30.5%) and TH (18.5%) for RM2.86 billion. The outstanding amount on the sukuk is around RM800 million currently.

BIMB is a financial holding company that wholly owns Bank Islam and 59% of Syarikat Takaful Malaysia Keluarga Bhd (STMK).

Bank Islam, which accounts for 80% of BIMB’s earnings, is likely to take over the latter’s listing status under the restructuring. It is believed the restructuring will be effected through a share swap between BIMB and Bank Islam.

BIMB’s stock, which had gained 13.5% this year to Sept 5 (RM4.04), nevertheless remains an analyst favourite. Bloomberg data shows that eight analysts have a “buy” call on it while one has a “hold” call. There are no “sell” recommendations. The average target price for the stock is RM4.96.

BIMB recently reported a net profit of RM195.16 million for the second quarter ended June 30, 2019 (2Q2019) — up 30.2 % year on year, but down 3.6% quarter on quarter. Profit fell q-o-q as its margin was affected by the 25 basis-point cut in the overnight policy rate (OPR) in May.

For the cumulative six months, net profit grew a solid 23.5% to RM397.68 million, coming in above expectations, at 53% of an analyst consensus’ forecast for the full year. Operating revenue grew 17% y-o-y to RM1.57 billion.

The growth in earnings was commendable considering that it was generated purely from operations — not from any large one-off gain on disposals or large recoveries, like at a few of the banks in this reporting season.

BIMB’s annualised return on equity of 15.9% on an after-tax basis was one of the highest in the industry.

“At this point in time, I’d describe us as a smooth-sailing ship. No surprises, but it’s always about growing organically,” Muazzam says.

He is, nevertheless, cautiously optimistic about growth prospects in 2HFY2019, considering ongoing concerns about how the economy will be affected by the US-China trade tensions and slowing global growth.

“I’m quite optimistic that our full-year results are going to be better than last year’s. For the second half, I’d be happy if we could at least match the first half in terms of earnings,” Muazzam says.

Some economists think there will be another 25bps cut in the OPR before the year ends, which will impact the group’s net income margin (NIM). “There is downward pressure on the OPR. It really depends on how things pan out, but our economist’s view (currently) is that, if need be, there may be an [OPR] cut in the first quarter of next year. I’m looking to end the year with NIM at above 2.5% ... probably 2.52%. That is likely to be the new NIM level for us going forward,” says Muazzam.

NIM fell 3bps q-o-q to 2.56% in 2Q2019 due to the OPR cut in May.

The group’s gross impaired financing (GIF) ratio as at end-June rose to 1.19% from 0.92% at end-2018 due to the restructuring of several accounts in the commercial segment — but these are understood to be fully secured accounts.

Muazzam says the group is targeting for the GIF ratio to come in at below 1.1% for the full year. “I’m not seeing it getting worse than the numbers here,” he remarks. He guided for financing growth of 6% to 7% this year.

CGS-CIMB Research, the only research house with a “hold” call on BIMB’s stock, cut its target price by 46 sen to RM4.17.

“In our view, BIMB’s earnings are the most sensitive to a rate cut compared with its peers — each 25bps cut would reduce its FY2020 net profit by 5.7%,” it says in an Aug 28 report.

AllianceDBS Research, however, has BIMB as one of its top buys in the sector.

“We continue to like BIMB for its resilient earnings profile, supported by its strong franchise in personal financing and solid contributions from STMK (more than 30% of total revenue). A restructuring is still on the cards and would result in positive gains for shareholders in the short term,” it says in an Aug 29 report.