• The Group is acquiring Jupiter Securities.

• The move is in connection of its JV with China Galaxy.

• We are neutral on the news but understand the necessity of the deal.

• No change in earnings forecast.

• Optimism on the Group remains but all have been priced in. Maintain NEUTRAL with unchanged TP of RM7.10, based on 1.3x PBV on FY18 BVPS.

The announcement. The Group announced yesterday that its wholly-owned subsidiary CIMB Group Sdn Bhd has signed a conditional Share Purchase Agreement (SPA) with the shareholders of Jupiter Securities on 6 September 2017. The SPA is to acquire the entire equity interest of Jupiter Securities for RM55m cash.

To tie up the joint venture with China Galaxy. The Group stated that the a strategic initiative taken by CIMB Group in connection with its proposed partnership with China Galaxy International Financial Holdings Limited. We understand that the acquisition was made mainly for Jupiter Securities’ stockbroking licence. This is an essential part to operationalise the CIMB-China Galaxy JV in Malaysia. CIMB has a stock broking licence but it is for its investment bank CIMB Investment Bank Bhd.

Neutral on the news but essential for the JV. We are Neutral on the announcement but understand the need for such acquisition. However, we view positively on the CIMB-China Galaxy JV given the significant benefits. Previously, management estimated that there is a potential uplift of 100bp to CI ratio. Nevertheless, we do not foresee the positive impact in the immediate future. We believe that the impact will only be felt in FY18 given the time it will take to clear the various jurisdictional issues.

Fair price. To put into context, Jupiter Securities group has a combined paid-up capital of RM24.6m. We opine that the price is fair given the necessity to acquire a stock broking license. We do not foresee any difficulties for the Group in relations to the cash consideration.

FORECAST

We make no changes to our FY17 and FY18 forecast.

VALUATION AND RECOMMENDATION

We continue to be optimistic of the Group’s prospects. However, we believe that the positive outlook for the Group have already been priced in. Therefore, we are maintaining our NEUTRAL call with unchanged TP of RM7.10. Our TP is based on pegging its FY18 BVPS to 1.3x PBV.

Source: MIDF Research - 7 Sept 2017