AmInvest Research lowers CIMB Group to Hold after share price rally

  • Banking
  • Wednesday, 07 Jun 2017

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 has downgraded is  call on CIMB Group Holdings, to Hold from Buy, after the strong-run up in share price. 

It said on Wednesday its fair value of RM6.70 a share is maintained based on FY18 returns on equity (ROE) of 10.4%, leading to an unchanged price-to-book value (P/BV) of 1.2 times.

 The group announced that it has entered into a share purchase agreement with China Galaxy Securities (CGS) to formalise its strategic partnership with the latter in stockbroking business. 

It will dispose of 50.0% equity in CIMB Securities International Pte Ltd (CSI), the holding company of CIMB's overseas stockbroking business, consisting of institutional, retail equity brokerage, equities research and associated securities business to CGS.  

CIMB and CGS will become 50:50 shareholders in CSI to operate the ex-Malaysia stockbroking business in India, Indonesia, Singapore, Thailand, Hong Kong, South Korea, India, the UK and the US. 

The 50.0% equity in CSI will be disposed of for S$167mil (RM515mil). The purchase consideration was arrived at based on a 1.3 times multiple on CSI's book value as at Dec 31,  2015 of S$256.9mil. This amount could still be adjusted depending on the outcome of audit.  

“The acquisition price is deemed fair considering the recent transactions for sales and purchase of stockbroking business. Proceeds from the sale is expected to be received in 4QFY17 after all relevant regulatory approvals have been obtained.

“Through this collaboration, CIMB will be able to capitalise on the strong network and business and technological knowhow of CGS. 

“We understand that discussion is still ongoing with regards to both parties’ collaboration in the stockbroking business in Malaysia.  CIMB Group's Malaysia stockbroking business is parked under its investment bank," it said. 

AmInvestment Research also said he media had earlier reported that the group was exploring the option of acquiring another stockbroking licence from Jupiter Securities to facilitate its partnership with CGS for the stockbroking business in Malaysia. 

“The disposal of the 50.0% equity of its stockbroking business to CGS is expected to lower CIMB Group's CI ratio by 100 to 150bps. Cost savings will only be realised starting in FY18. 

“Our CI ratio assumptions of 49.5% and 49.0% in FY18 and FY19 respectively have already factored in the cost savings from this strategic tie-up with CGS. 

“We make no changes to our forecast and maintain our ROE expectation of 9.2%/10.4%/10.7% for FY17/18/19 respectively,” it said. 
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