CIMB’s mutual separation scheme to aid efficiency

KUALA LUMPUR: Maybank Investment Bank Research is retaining its Sell call on CIMB Group with an unchanged target price of RM5.70.

It said on Monday the target price is based of 1.2 times FY15 price-to-book value and return on equity of 10.2%.

Maybank Research said the mutual separation scheme (MSS) for CIMB’s employees in Malaysia and Indonesia announced last Friday did not come as a surprise.

The MSS is purely voluntary and is aimed at enhancing efficiency levels across the board. With this being a mutual scheme, management will have a say on whether to accept or reject an application.

The MSS should aid in the group’s cost saving initiatives. CIMB’s Malaysian operations have over 19,000 employees while its Indonesian operations have over 15,000.

“The group’s restructuring initiative aims to reduce group costs by about RM400mil to RM600mil per annum with about MYR300m emanating from the investment banking (IB) business.

“The rationalisation of the IB business, which kicked off this year with the closure of the Australian office, is about 70%-80% complete, and is expected to be 100% completed by 2Q15.

“The balance of the about RM100mil to RM300mil of the cost savings is expected to emanate mainly from the restructuring of CIMB’s Malaysian and Indonesian operations.

“The bulk of this cost reduction is expected to be realised this year, with a small portion (related mainly to the regionalisation of businesses) to be more medium term in nature,” Maybank Research said.