News

• CIMB Group Holdings Bhd announced that it will acquire the entire equity stake in dormant stockbroking firm Jupiter Securities Sdn Bhd for RM55m.

Comment

• About Jupiter… Jupiter Securities is a 74.43% subsidiary of Olympia Industries Berhad, is a participating organisation of Bursa Malaysia Securities Berhad and engages in the business of dealing in securities.

• Price tag in line with market expectation... Price tag of RM55m was already expected by market as the purchase consideration was arrived after taking into consideration the consolidated net assets of Jupiter Securities and the realisable benefit of the unutilised tax losses and unabsorbed capital allowances carried forward of Jupiter Securities and its subsidiaries,

• The license is for China Galaxy JV… CIMB’s existing stockbroking license is mainly for its investment banking division. The Jupiter license will be utilized by CIMB-Galaxy JV to operate in Malaysia.

• Partnership with China Galaxy… To recap, on Jun-17 CIMB formalized the deal to sell 50% of CIMB Securities stake (ex-Malaysia) to China Galaxy amounting RM515m. CIMB is expected to save RM600m per annum (including the sale of Malaysia operation) on running the stockbroking. Nevertheless, the financial impact to the group’s earnings would likely be immaterial, given that the entire stockbroking business is not a significant contributor to group profit.

Risks

• Further impairment in Singapore and Thailand, especially exposure in the oil & gas sector and not meeting CET1 ratio target.

Forecasts

• Unchanged as the deal will only be completed in early FY18 after receiving all necessary approvals. Nevertheless, the purchase consideration will be offset with the huge cost savings from the JV.

Rating

HOLD ( ↔ )

• We strongly feel that FY17 will be a year of further tweaking of business operation with priority of cost and capital optimization. Management’s guidance for a sustainable 40%-60% payout should entice the shareholders moving forward.

Valuation

• We maintain our TP at RM6.90 , derived from GGM based on i) WACC of 9.0% ii) ROE of 9.8%. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 7 Sept 2017