‘Win-win tie-up for CIMB’

KUALA LUMPUR: CIMB Group Holdings Bhd’s ex-Malaysia stockbroking partnership with China Galaxy Securities Co Ltd is a win-win move for both parties but its direct impact will be felt only next year, says MIDF Research.

The research house said the partnership would give an opportunity for CIMB to have a “toehold” in the Chinese market, including facilitating clients doing business in China, especially with the acceleration of the Chinese led “One Belt One Road” initiatives.

The initiatives include capitalising on China outbound merger and acquisitions (M&As), ChinaAsean cross-border investments and infrastructure funding.

It said China Galaxy would also mutually benefit from the group’s presence in Asean on the back of a solid partner in China.

“We believe the partnership is positive for the group as it will be a booster for its earnings. Additionally, we estimate the group could afford to give an extra fivesix sen dividend based on the proceeds from the share sale,” it said, adding that the group would retain the cash for other investments.

MIDF Research, however, revised its call on CIMB to “neutral”, from “buy”, with unchanged target price of RM7.10.

It said the “neutral” call was not a reflection of its view on the group’s future prospect. But it recommended investors to accumulate CIMB on any weakness.

Meanwhile, Affin Hwang Investment Bank Bhd expects the partnership to result in a potential gain of RM180 million to CIMB.

It will also open the doors to more capital market deals and enhance the group’s level of customer service.

Affin Hwang said the potential gain included a direct realised gain on disposal and revaluation gains from the remaining stake held.

“CIMB will also see a benefit of 100-150 basis point in cost-to-income ratio from our forecast of 51 per cent for 2017-2019 estimates as revenues and costs from CIMB Securities International Pte Ltd will be deconsolidated,” it said.

Affin Hwang maintained a “buy” call with a target price of RM7.50, from RM6.74, based on the valuation ratio multiple of 1.4 times.

This was on the back of improving macro outlook, likely further upside from asset quality movement and synergies from the joint venture with China Galaxy with new investment banking deals, improved trading platform, more extensive equities distribution platform and research coverage. Ayisy Yusof

We believe the partnership is positive for the group as it will be a booster for its earnings.

MIDF RESEARCH