- We maintain our HOLD rating on CIMB Group Holdings (CIMB), with a higher fair value of RM 5.60/share (from RM5.40/share previously). This is based on a normalised (excluding one-off costs) FY15F ROE of 10.5% (previously 10.4%) and an unchanged fair P/BV of 1.2x.

- CIMB announced that both the group and its Indonesian subsidiary PT CIMB Niaga TBK (CIMB Niaga) have completed their Mutual Separation Scheme (MSS) exercise and a total of 3,599 applications (1,891 from Malaysia and 1,708 from Indonesia) were approved, representing rationalisation of 11.1% of the total workforce in Malaysia and Indonesia.

- While the group will incur approximately RM443.3mil in MSS cost, the resultant savings from the headcount reduction is estimated to be RM291.6mil per annum, which translates to an 18.2 months payback.

- The MSS cost from this recent exercise of RM443.3mil is higher than our assumption of RM250mil. We have therefore adjusted our assumption accordingly, leading to a net earnings downgrade of 4.4% for FY15F.

- In terms of the annual cost savings of RM291.6mil, this is also higher than our earlier estimated RM200mil.

- However, the overall figures are below the earlier reported target of RM400mil, and targeted 4,000 employees as reported by the press.

- Total estimated cost savings from these two MSS exercises are estimated at RM491.6mil, taking the RM202mil cost savings from its investment banking operations and the RM291.6mil cost savings from this MSS.

- All in, the restructuring costs are therefore at the midrange of the group’s earlier articulated cost savings target of RM400mil to RM600mil per annum.

- Given that this is within expectations, we do not expect major impact to share price.

- We believe the next major catalyst to share price would be the evidence of stabilisation in CIMB NIaga over the next few quarters.

- We maintain HOLD rating.

Source: AmeSecurities Research - 2 Jul 2015