We have added 2,500 CIMB shares @ RM5.92/share into our Thematic portfolio yesterday. The recent news has reported that the country’s proposed mega bank merger (CIMB Group, RHB Capital Bhd and MBSB) are likely to called-off given the merger synergies may not meet the management's expectation in view of the recent market conditions which deteriorated significantly.

 

If this is real, we believe it is a positive development for CIMB. Its share price could attempt to revert back to premerger announcement level. Based on yesterday price close, CIMB is trading at a mere 1.3x FY15 P/B vs. its 5-year average P/B of 2.0x (sector average: 1.6x FY15 P/B). To note, its trough P/B was at 1.0x and that was back in 2008 during the global financial crisis (which we do not think would happen this time around). Foreign shareholding at that point was 32% vs. Dec 14’s position of 32.7%. Hence, we reckon the price downside for the stock is minimal where the risk-to-reward profile favours on the upside, at least in the short term.

 

We are taking a trading view on the CIMB for now, and aiming to take profit at RM6.30-RM6.50 level should the share price performed as per our expectation. Fundamentally speaking, our in-house banking analyst has a target price of RM6.27 with OUTPERFORM rating.

 

 

Source: Kenanga