Highlights

• CIMB Group entered into a conditional sale and purchase agreement to divest its 51% stake in PT CIMB Sun Li fe (an Indonesian life insurance company) to Sun Life Financial for Rp550bn (RM169m).

• To recap, PT CIMB Sun Life, a JV between CIMB Group (51%, through CIG Bhd and CIMB Niaga) and Sun Life Financial (49%, through PT Sun Li fe Indonesia Services) was launched in Jul 2009, to provide li fe, accident and health insurance products in Indonesia.

• Subject to regulatory approvals and customary closing conditions, the disposal is expected to complete by end - 3Q16.

Comments

• We are mildly positive on the latest development .

• The divestment allows the group to streamline its insurance port folio (by exiting the non-core business and focus on its distribution capabilities), hence a step closer to its T18 aspirations. Nevertheless, impact arising from the latest development will likely be insignificant, gi ven the group’s large earnings base.

Risks

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

Forecasts

• Maintained. Impact arising from the latest development will likely be insignificant, given the group’s large earnings base.

Rating

• Trading Buy

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 RM5.17 (based on Gordon Growth with ROE of 10.1% and WACC of 10.1%).

Source: Hong Leong Investment Bank Research - 24 Mar 2016