The Group announced paring down further the stakes in its stock-broking entities to its existing partner China Galaxy Securities, though it did not disclose any financial details. While it has been disclosed that China Galaxy International had exercised a call option that was included in the JV agreement, we think this move also makes sense from CIMB’s standpoint as it re-purposes and redefines its financial goals, underpinned by its F23+ initiatives. These include re-shaping its portfolio (accelerate profitable growth areas, fix and turn around underperforming businesses) and undertaking focused investments (facilitate intra-ASEAN wholesale banking business, CASA, fee income and transaction banking, amongst others). Likely to result in only marginal loss to earnings (<1%), we keep earnings estimates unchanged. We remain optimistic over CIMB’s longer-term prospects, reflected by ongoing improvements in its core operational numbers. We retain our Neutral call given limited upside to our target price of RM5.50 however.

• The transaction will see CIMB Group Sdn Bhd, a wholly-owned subsidiary of the Group, disposing 24.99% and 25% of its shareholding in CGS-CIMB Securities International Pte Ltd and CGS-CIMB Holdings Sdn Bhd respectively to China Galaxy International Financial Holdings Limited (CGI), upon receiving regulatory approvals. Post-completion of the sale, the Group’s interest in both entities will fall to 25.01% and 25% respectively while CGI’s interest will increase to 74.99% and 75%. The entities are the holding companies of the Group’s stockbroking joint venture with China Galaxy Securities known as CGS-CIMB Securities.

• Financial details were not disclosed in the current announcement. Back in June 2017 however, the Group did announce that the initial 50% stake sale was transacted at SGD167m (~RM515m), which was based on 1.3x the consolidated net asset value of CIMB Securities International as at 31 December 2015. Both Groups (CIMB and CGI) have been operating the regional stockbroking business in Asia under a joint venture (JV) arrangement.

Source: PublicInvest Research - 8 Dec 2021