-  We are maintaining our BUY rating on CIMB Group Holdings Bhd (CIMB), with an unchanged fair value of RM9.50/share. This is based on an unchanged ROE of 15.4% FY13F, taking into account a dividend reinvestment scheme (DRS). This leads to a fair P/BV of 2.2x.

-  CIMB announced that it is not proceeding with its proposed acquisition of a 60% stake in the Philippines’ Bank of Commerce (BoC) from the San Miguel Corporation (SMC) group.

-  The proposed acquisition was first announced more than a year ago in May 2012. The proposed acquisition price then was PHP12.2bil or about RM881mil, to be funded via internal funds.

-  To recap, BoC is the 16th largest bank in the Philippines, with a total asset size of PHP95.6bil (USD2.2bil) or RM6.93bil. The acquisition P/BV was 1.14x based on BoC’s FY11 financials. But CIMB indicated that following a post-merger alignment of accounting and provisioning policies, the P/BV would increase to about 1.3x.

-  We have not included BoC’s net earnings in our forecasts given the delay in completion period. At that time, CIMB indicated that the increase to net earnings would be about 0.6%, while the enhancement to total assets would have been 2.3%, gross loans at 1.2% and deposits at 2.3%.

-  Thus, the news is expected to be neutral for CIMB’s share price, as earnings impact is relatively neutral.

-  The vendors for the stake were the San Miguel Corporation (SMC) group. The SMC group holds an effective 80.37% stake in BoC currently. Thus, the vendors are entities related to the SMC group, i.e Q-Tech Alliance (currently 1.08% stake), San Miguel Properties (39.25% stake), SMC Retirement Plan (39.94% stake).

-  SMC’s president was quoted recently in the press as saying that the delay was due to “small issues” related to the bank's IT infrastructure and property holdings. Foreigners are not allowed to own real estate in the Philippines.

-  We expect CIMB’s share price to continue to be driven by sustainability of its group non-interest income. Thus we do not foresee a major impact to share price from the termination of the BoC deal. Overall, we expect the following re-rating catalysts for CIMB:- (a) better-thanexpected non-interest income with further evidence of rising income from RBS operations; (b) stable overhead costs; (b) stable asset quality.

Source: AmeSecurities