PETALING JAYA: CIMB Group Holdings Bhd
may generate over RM800mil by paring down ownership in its Indonesian arm if the republic’s stock exchange proceeds with raising the minimum free float requirement.
In a note, Hong Leong Investment Bank (HLIB) Research said CIMB faces a plausible 7.4% stake divestment in PT Bank CIMB Niaga TBK, from its 92.4% equity control currently.
Indonesian regulators are reportedly set to implement new frameworks, following MSCI’s recent warning regarding the Indonesia Stock Exchange’s investability and transparency.
These include increasing the minimum free float requirement from 7.5% to 15% across the bourse.
A final resolution is anticipated by May this year, ahead of an MSCI reassessment.
“While Indonesian regulatory changes and the rupiah volatility have raised concerns, we believe that the impact is manageable.
“The potential stake reduction is expected to generate about RM810mil for CIMB, providing a robust capital buffer for loan growth and/or special dividends.
“In terms of earnings reduction from the possible stake sale, we estimate this to be minimal at 1.2% (FY26) and 2% (FY27) profit before tax (PBT) cut.
“Separately, every 1% depreciation in the rupiah versus the ringgit from the year-to-date average is estimated to shave off 0.3% of CIMB’s PBT,” stated HLIB Research.
Historically, CIMB Niaga has contributed about 25% to the group’s PBT.
Looking ahead, HLIB Research pointed out that CIMB’s optimistic dividend outlook remains intact. Notwithstanding the negligible earnings contraction, CIMB’s balance sheet should remain robust, it added.
“Post-divestment, we anticipate that about RM810mil proceeds will be deployed to enhance shareholder returns.
“Our scenario analysis suggests the group may leverage these proceeds for loan book expansion.
“Alternatively, we do not rule out a special dividend distribution if the stake reduction happens.
“This would be in addition to the RM2bil capital return plan by 2027, potentially lifting FY26 to FY27 dividend payout ratio and yield to about 70% and 6.5%, respectively.”
HLIB Research has maintained its “buy” call on the CIMB stock, with a target price of RM9.50 per share.
The research house also noted that the stock is trading below Malayan Banking Bhd but near two standard deviations above its pre-Covid-19 mean, which is well-justified.
“As Malaysia’s second-largest bank, CIMB’s regional footprint now delivers a return on equity of about two percentage points above its 2015 to 2019 average.
“With a projected yield of more than 6%, it remains an attractive large-cap pick, bolstered by a RM2bil capital reduction programme through 2027,” stated HLIB Research.
