- We maintain our HOLD rating on CIMB Group Holdings Bhd (CIMB) with an unchanged fair value of RM6.85/share. This is based on an ROE of 11.2% for FY15F, and an estimated book value of RM7.93/share for the enlarged merged entity. Our fair P/BV is unchanged at 1.2x FY15F for the merged entity, assuming the merger goes through.

- The press reported that there is a high chance the proposed mega merger between CIMB, RHB Capital (RHB Cap) and Malaysia Building Society Bhd (MBSB) may be called off. This is a surprise to us.

- The press cited sources as saying that the economic landscape is highly different from when the merger was first proposed in July 2014, and therefore the merger may not be palatable for the parties involved.

- One of the reasons given for the possible call-off is that RHB is seeking a revision of the terms, as CIMB’s share price has fallen substantially since the merger was first proposed in July 2014.

- It was reported that RHB Cap may now require a shares and cash combination as consideration, instead of an all shares deal.

- This means that CIMB may have to fork out more cash, and that valuation may go up and the deal may therefore no longer be feasible for CIMB.

- In addition, the economic climate in both the domestic and regional markets have turned more challenging since the merger was first proposed.

- Sources to the press added that, given the current operating landscape, the merger is unlikely to achieve the desired synergies, estimated at over RM1bil (our projection is RM1.2bil).

- Without the merger, we estimate CIMB’s fair value at RM5.70/share, based on an ROE of 10.7% and a fair P/BV of 1.2x, for FY15F on standalone book value of RM4.69 FY15F. Without the merger scenario, the stock is currently trading at close to our estimated fair value.

Source: AmeSecurities