- CIMB Group Holdings (CMB) announced that it has received Bank Negara Malaysia (Bank Negara)’s approval for its proposed disposal of its insurance units, which was first announced on 17 January 2013.

- CIMB further provided further details on the transaction. There is no change to the main points from the earlier announcement, which is the proposed sale of CIMB’s 51% stake in its insurance units, CIMB Aviva Assurance Bhd and CIMB Aviva Takaful Bhd (both referred hereafter as CIMB Aviva) to Khazanah Nasional Bhd’s subsidiary Renggis Ventures Sdn Bhd (Renggis). Recall the insurance units are 51%-owned by CIMB, while the remaining 49% was held by Aviva International Holdings Ltd (Aviva).

- The purchase consideration is unchanged at RM1,110mil for CIMB’s 51% stakes, to be satisfied with cash of RM1,066.5mil and RM43.5mil ordinary shares in Renggis. As a result, CIMB will maintain an effective 2% stake in CIMB Aviva.

- However, CIMB has now announced that the estimated gain on disposal is RM515.1mil assuming the proposed disposal is completed on end-FY12, indicating that the book value of the insurance units is RM512mil then.

- The extraordinary gain of RM512mil is in line with our forecast of RM500mil and earlier indication of RM500mil gain from the analysts’ briefing in February 2013.

- To recap, earlier it was also reported that Sun Life Financial Inc’s (Sun Life) and Khazanah’s total purchase consideration of the effective 98% stake in the insurance unit would be RM1.8bil, with Sun Life and Khazanah eventually acquiring an effective 49% stake. The overall acquisition price of RM1.8bil is also higher than earlier reported RM1.7bil.

- To recap, we have earlier estimated that the effective P/BV (after taking into account the deconsolidation gain RM250mil reported by CIMB for FY11) is 2.4x, which is higher than the reported 1.8x in AIA’s acquisition of ING’s Malaysian business.

- Thus, the announcement confirms bumper gain of RM515mil for CIMB from the sale of the insurance units. Maintain BUY on CIMB.

Source: AmeSecurities