CIMB announced the completion of realignment of ownership stakes with Principal Financial Group in its CIMB-Principal JVs across ASEAN. CIMB will book a gain of RM920m (1/3 of its is actual realised gains with remaining being revaluation gain) and improvement of 15bps in CET1 ratio which will offset the - 50bps impact on Day-1 of MFRS9 implementation. Our forecast is unchanged and we maintain our BUY rating with unchanged TP of RM7.90 (COE: 10%, WACC: 8.7%).

NEWSBREAK

CIMB announced the completion of realignment of ownership stakes with Principal Financial Group in its CIMB-Principal JVs across ASEAN regions. To recap, the realignment of shareholding in CIMB-Principal JVs (involving CIMB-Principal Asset Management Group and CIMB-Principal Islamic Asset Management) would result in Principal holding a 60% stake with CIMB owning the remaining 40%. The exercise will see the CIMB recording a gain of about RM920m and about 15bps increase in its Common Equity Tier 1 (CET1) ratio.

HLIB’s VIEW

Neutral on the news. The completion of the deal is in line with management’s guidance. We are neutral on the latest announcement as the asset management division contributes stable earnings to CIMB’s Group Asset Management and Investment (GAMI) despite the challenging market environment for asset management.

Impact. CIMB will book a disposal gain of approximately RM920m (of which 1/3 of it is actual realised gain, with the remaining being revaluation gain). CET1 is expected to improve by 15bps (as at end-4Q17, CET1 stood at 12.2%), and this will be partly offset the 50bps guidance negative impact on Day-1 of MFRS9 implementation

Forecast. No change to our forecast as we treat the gains as one-off.

Maintain BUY, TP: RM7.90. We are optimistic that CIMB is poised to post another round of improved performance in FY18, benefitting from the tail end of its T18 strategy that ensures further earnings recovery and ROE expansion. We maintain our BUY rating with unchanged GGM based TP of RM7.90 based on (i) COE of 10% and (ii) WACC of 8.7%.

Source: Hong Leong Investment Bank Research - 28 May 2018