CIMB  Group  announced  a  Mutual  Separation  Scheme  (MSS)  offered  to employees in Malaysia and Indonesia. The exercise, which is on a voluntary basis (with submissions expected by 29 May 2015), was initiated in order to cut  operating  costs  as  well  as  enhance  efficiency  across  the  board.  The exercise is consistent with CIMB Group’s ROE and cost-to-income plans for the future. (Source: Bursa Announcements)

Comments: The announcement of the exercise does not come as a surprise to  us  as  management  has  communicated  before  on  its  cost-restructuring initiative for Malaysia and Indonesia, subsequent to the lay-off exercises at its Australia, North Asia and India offices. Management aims to reduce the Investment  Banking  (IB)  costs  by  about  30-40%  (about  RM400-600m) through rationalizing the IB unit. For 2015, management  aims to lower its cost-to-income ratio from 59% in 2014 to circa 55%, largely to be driven by right-sizing the workforce and reorganizing/reshuffling key personnel (under the T-18 initiative).

These initiatives, meanwhile, are part of the longer-term Target  2018  (T-18)  plan.  At this juncture,  we still  do  not  foresee  a strong rerating catalyst for CIMB – the outlook in 2015 does not appear compelling for either the financing or capital markets. We reiterate our  SELL  rating on CIMB Group, at an unchanged price target of RM5.50 (based on an implied P/BV target of 1.0x).

Source: Affin Hwang Capital Research - 18 May 2015