AmInvestment retains Buy on CIMB as more upside seen

CIMB Group Holdings Bhd is said to be hiring Rafe Haneef from HSBC Amanah Malaysia Bhd to lead its Islamic banking unit.

KUALA LUMPUR: AmInvestment Research is keeping its Buy call on CIMB Group Holdings after it announced the sale of its entire stake in a Chinese banks for RM972mil..

In its report issued on Tuesday, it pointed out to the CIMB's attractive valuation, improvement in its operating expenditure (Opex) and potential sale of its brokerage business.

“We maintain Buy on CIMB Group Holdings with an unchanged fair value of RM5.40 a share based on FY17 return on equity of 9.2% leading to a price-to-book value of one time.

“Our Buy call is premised on attractive valuation with the share price continuing to trade at 0.8 time to our FY17 book value/share, stabilisation of provisions in Indonesia as well as potential further improvements to Opex from group wide cost savings initiatives.

“Potential sale of 50.0% of its equity brokerage business to China Galaxy Securities could see CIMB Group’s Opex declining further,” it said.

Last Friday,  CIMB Group announced the disposal of 18.21% stake in Bank of Yingkou (BYK) to Shanghai Guozhijie Investment Development Co., Ltd for 1.507bil renminbi or RM972mil. The sale price based on one time price-to-book ratio of BYK and will be settled by cash.

BYK is an associate company of CIMB Group. Recall in April 2009, CIMB completed the acquisition of 19.99% stake in BYK for 348.8mil renminbi in cash.  “Based on our estimates, the one-off gain is expected to be about RM760mil,” it said.

AmInvestment Research said CIMB Group has also inked a Long Term Collaboration Agreement with BYK. This is for both entities to continue collaborating in areas of staff exchanges, product development, training and sharing of market intelligence.

“The disposal is expected to be completed in 2017 and it is not expected to have any impact on CIMB Group's 2016 earnings. In any case, we will treat gains from the disposal of the stake in BYK as one-off and this will be excluded from our core earnings estimate for FY17.

“The disposal is in line with meeting the Group's T18 targets which includes CET1 ratio of more than 11.0%, and to achieve higher capital efficiency and optimisation.

“Based on 9MFY16, the share of profit from BYK was RM93mil (RM124mil on annualised basis). This represents circa 3.4% of our estimate for CIMB Group's net profit for FY16.

“Overall, the disposal of assets will not have any material impact on the group’s earnings. We therefore maintain our forecast of the group's net profits,” said AmInvestment Research.