• CIMB Group Holdings Bhd (CIMB) will be acquiring 100.0% equity stake in Jupiter Securities (JS) for a cash consideration of RM55mil from Olympia Industries and other shareholders of JS. The disposal price was in line with the amount reported by the media earlier. We understand that 76.55% of the stake in JS will be acquired from Olympia Industries for RM42.1mil with the remaining balance purchased from the other shareholders for RM12.9mil. The disposal will result in a gain of RM24.6mil to Olympia group.

• The acquisition price was arrived at based on the net assets of Jupiter securities as at 31 December 2015 and the realisable benefit of unutilised tax losses and unabsorbed capital allowances brought forward of JS and its operating subsidiaries. The acquisition price of RM55mil could still be adjusted depending on the outcome of an audit.

• This deal is expected to be completed by the first quarter of 2018.

• Recall that the group's stockbroking business in Malaysia has been parked under its investment bank.

• The group has earlier announced that it sold 50.0% stake in CIMB Securities International Pte Ltd (CSI) to China Galaxy Securities (CGS) for RM515mil was based on 1.3x net asset value of CSI. The disposal was to a form a JV with CGS for its stockbroking business in Indonesia, Singapore, Thailand, Hong Kong, India, South Korea, the United Kingdom and US.

• We believe that JS was acquired mainly for its stockbroking licence in Malaysia. This will then allow the JV entity of CIMB and CGS to operate the equity business in both international markets and Malaysia. We expect JS to eventually be parked under the JV entity.

• Earnings accretion from the acquisition is expected to be minimal in the near term looking at the small franchise of JS as well as the financial services segment under Olympia Industries which reported a loss of circa RM0.4mil for 1HFY17.

• Cost saving from the sale of 50.0% stake in CSI to CGS is expected to be realised only in FY18 after the completion of the deal by 4QFY17. Improvement to the group’s CI ratio from this deal is a circa 100 to 150bps, and we have already factored in this in our earnings’ estimates.

• The group’s provisions for loan impairment are likely to remain elevated in the near term.

• We make no changes to our forecast.

• We continue to see the stock as fairly valued, trading at 1.2x to our FY18 BV/share with positives already priced in by the market. Maintain our HOLD call on the stock with an unchanged fair value of RM6.70/share based on FY18F ROE of 10.4% leading to a P/BV of 1.2x.

Source: AmInvest Research - 7 Sept 2017