News

• CIMB announced that it has completed the deal to dispose its 50% stake in CIMB Securities International Pte. Ltd (CSI) to China Galaxy International (CGI). CSI will be renamed as CGS-CIMB Securities once regulatory approvals are obtained.

• Selling price. To recap, the disposal a 50% stake in CSI to CGI was tagged at RM500m, which was arrived at based on a multiple of 1.3 times to the consolidated net assets value of CSI.

• In the similar announcement, CIMB announced that the proposed acquisition of Jupiter Securities Sdn Bhd is still on going. To recap, on 6 September 2017, CIMB proposed to acquire Jupiter with the intention to leverage on Jupiter stockbroking license for the CGS-CIMB Securities to operate in Malaysia. CIMB expects to conclude the deal with Jupiter by 1H18.

• Inclusion of Malaysian stockbroking business into the JV. In its e arlier announcement, CIMB’s domestic stockbroking business was not included into the JV, however CIMB changed its tune as it is now targeting to include the domestic stockbroking business into the JV by 1H18.

Comment

• Positive on the news. The completion of the deal with China Galaxy is in line with CIMB targeted time line of early FY18. We take this as positive news, as the stake disposal will result in over 100bps savings in its cost-to-income ratio (CTI) and circa 10bps uplift to its CET1 ratio in FY18. Nevertheless, financial impact to the group’s earnings will likely be immaterial, given that the entire stockbroking business is not a significant contributor to group’s profit.

Risks

• Slower loan growth, additional impairment in Singapore and Thailand.

Forecasts

• Unchanged as earnings contribution from stockbroking is minimal and the potential cost savings is within our assumption

Rating

BUY ( ↔ )

• We believe FY2018 could be a better year for CIMB as we are encouraged with the various improvements made to achieve its T18 target. Its credit cost remains a wild card due to ongoing improvement in the Niaga and CIMB Thai. Management’s guidance for a sustainable 40%-60% payout should entice shareholders moving forward.

Valuation

• We maintain our TP at RM7.25 . Our TP was derived from i) COE of 11% and ii) ROE of 9.7%. Maintain BUY.

Source: Hong Leong Investment Bank Research - 19 Jan 2018