News

• CIMB announced that the group and CIMB Niaga has 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 rationalization of 11.1% of total workforce in Malaysia and Indonesia.

• The Group will incur approximately RM443.3m in MSS cost but the resultant savings from the headcount reduction is estimated to be RM291.6m per annum, which translates to an 18.2 months payback.

Comment

• Together with reduction of 164 staff in its regional IB platform and closure of Australia operations earlier, the group has cut its workforce by 3,763.

• Total staff attrition cost of RM645.3m (including RM202m from regional IB) would hit FY15 earnings.

• However, more important is the significant reduction in annual running cost which amounted to RM491.6m (including RM200m from regional IB) or circa 11% of our FY16 earnings forecast.

• With the completion of the MSS, it has largely achieved its T18 aspiration of RM400-600m cost down.

• We are positive on the move given that the group would be operating from a leaner base from FY16 onwards. However, short-term share price performance would still be dictated by uncertainties in Indonesia and subdued business volume from capital markets.

Catalysts

• Gaining more traction in cost rationalization, better than expected non-interest income growth, turning into an APAC universal bank and more active capital management.

Risks

• Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income if there is a slowdown in capital markets.

Forecasts

• Unchanged.

Rating

HOLD

Positives

• Proxy to economic growth and capital markets as well as growing regional universal bank platform, new core banking system (1Platform) and new T18 initiatives.

Negatives

• Impact on non-interest income when capital markets soften, impact of asset quality deterioration in Indonesia and legacy high cost structure.

Valuation

• Target price maintained at RM6.02 based on Gordon Growth with ROE of 11% and WACC of 10%.

Source: Hong Leong Investment Bank Research - 2 Jul 2015