Highlights

• CIMB Group proposed a special interim dividend-in-specie, which involves the distribution of 1.37bn existing Niaga Class B shares (or 5.44% stake in Niaga) to its existing shareholders, on the basis of 1 dividend share for every 6.39 shares in CIMB Group shares held.

• Shareholders who hold more than 639 CIMB Group Holding shares will receive thei r entitlement in the form of dividend shares, while those who hold less than 639 CIMB Group Holding shares will receive cash in lieu of the actual number of dividend shares.

• Post exercise, CIMB Group’s stake in Niaga will be reduced to 92.5% (from 97.9% currently). CET1 ratio, on the other hand, will be reduced marginally to 10.23% (from 10.31% as at 31 Dec 15).

• The exercise is expected to complete by end Jul-16.

Comments

• Neutral, as the impact is minimal. The latest move is aimed at meeting the requirement under the new IDX rule, which Niaga has not met so far, i.e. minimum of 7.5% of total issued and paid-up shares held by public shareholders.

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.

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 RM4.66 (based on Gordon Growth with ROE of 9.5% and WACC of 10.1%).

Source: Hong Leong Investment Bank Research - 16 Jun 2016