‘Buy’ call on CIMB stays: AmInvestment

PETALING JAYA: AmInvestment Bank is maintaining its “buy” call on CIMB Group Holdings Bhd, following the group’s recent announcement to dispose of an 18.21% stake in Bank of Yingkou (BYK) to Shanghai Guozhijie Investment Development Co Ltd for RM972 million.
“Our ‘buy’ call is premised on attractive valuation with the share price continuing to trade at 0.8 times to our FY17 book value/share, stabilisation of provisions in Indonesia as well as potential further improvements to opex (operating expenditure) from group wide cost savings initiatives,” its analyst Kelvin Ong said in a report yesterday.
It has an unchanged fair value of RM5.40 per share based on FY17 return on equity of 9.2% leading to a price-to-book value of one time for CIMB Group.
The disposal consideration was determined based on one time price-to-book ratio of BYK and will be settled by cash. BYK is an associate company of CIMB Group.
Ong said the disposal is in line with meeting the group’s T18 targets which includes CET1 ratio of more than 11%, and to achieve higher capital efficiency and optimisation.
“Based on 9MFY16, the share of profit from BYK was RM93 million (RM124 million on annualised basis). This represents circa 3.4% of our estimate for CIMB Group’s net profit for FY16,” he said.
The group completed the acquisition of 19.99% stake in BYK in April 2009, for RMB348.8 million in cash. “Based on our estimates, the one-off gain is expected to be about RM760 million,” Ong said.
In addition to the disposal agreement, Ong said the group has also inked a long term collaboration agreement with BYK, where both entities will continue collaborating in areas of staff exchange, product development, training and sharing of market intelligence.
The disposal is expected to be completed in 2017 and 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."