CIMB Group Holdings Bhd
(Jan 3, RM4.54)
Buy call with a target price (TP) of RM5.40: CIMB Group announced the disposal of an 18.21% stake in the Bank of Yingkou (BYK) to Shanghai Guozhijie Investment Development Co Ltd for a consideration of 1.507 billion yuan or RM972 million.

The disposal consideration was determined based on a one-time price-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 a 19.99% stake in BYK for 348.8 million yuan in cash. Based on our estimates, the one-off gain is expected to be about RM760 million.

In addition to disposal agreement of an 18.21% stake in BYK, 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 the 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 financial year 2017 (FY17).

The disposal is in line with meeting the group’s T18 targets which include Common Equity Tier 1 of over 11%, and to achieve higher capital efficiency and optimisation.

Based on the cumulative nine months of FY16, the share of profit from BYK was RM93 million (RM124 million on an annualised basis). This represents about 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.

We maintain “buy” on CIMB Group Holdings Bhd, with an unchanged TP of RM5.40 a share based on FY17 return on equity of 9.2% leading to a price-to-book value of one times.

Our “buy” call is premised on attractive valuations with the share price continuing to trade at 0.8 times our FY17 book value per share, stabilisation of provisions in Indonesia as well as potential further improvements to operating expenditure (opex) from group-wide cost savings initiatives.

Potential sale of 50% of its equity brokerage business to China Galaxy Securities could see CIMB Group’s opex declining further. — AmInvestment Bank Bhd, Jan 3