Mixed views on CIMB’s divestment of CPAM and CPIAM

KUCHING: CIMB Group Holdings Bhd’s (CIMB) proposed divestment of CIMB- Principal Asset Management Group (CPAM) and CIMB- Principal Islamic Asset Management ( CPIAM) to Principal Financial Group ( Principal) has garnered mixed views from analysts.

CIMB noted in a press release that once complete, Principal will increase its ownership stake to 60 per cent with CIMB retaining 40 per cent ownership in the entities.

The group further noted that the joint ventures would continue to be co-managed by both companies.

“This transaction is expected to be completed in the second quarter of 2018 and is subject to the relevant regulatory approvals,” it said.

“Principal will pay CIMB up to RM470.3 million for the additional ownership stake.”

CIMB went on to highlight that the group is expected to recognise a gain of approximately RM950 million and a Common Equity Tier 1 (CET1) ratio improvement of approximately 18 basis points ( bps) upon completion of the proposed divestment.

The research arm of Hong Leong Investment Bank Bhd ( HLIB Research) was not entirely surprised with the transaction as this was in line with the group’s Target 2018 (T18) targets which included CET1 ratio of 12 per cent.

HLIB Research pointed out that CIMB already hit a 12 per cent CET1 target during the first nine months of 2017 (9M17) results, and along with the potential uplift from the disposal of Bank of Yingkuo, this would put CIMB in a much stronger capital position due to the MFRS9 implementation that could impact the group’s CET1 as high as 50bps.

“Overall, the disposal of assets will not have any material impact on the group’s earnings,” it said.

AmInvestment Bank Bhd (AmInvestment Bank), which viewed the gains of RM950 million as one- offs, also did not factor this development into its estimates.

Thus, this did not affect AmInvestment Bank’s estimates of the return on equity ( ROE) for FY18 of 10.5 per cent, which was based on recurring earnings.

HLIB Research was neutral on the announcement as asset management provide stable earnings to the group.

Given the favourable market performance for the assets under management (AUM) market in 2018, the research arm felt that the proposed divestment is quite offtiming as it believed both entities are able to provide stable income to the CIMB.

Meanwhile, the research arm of Public Investment Bank Bhd (PublicInvest Research) was positive on this deal, with improvements to capital ratios and a possibly stronger-than- expected improvement in CIMB’s core bankingrelated earnings mitigating any potential loss in earnings (approximately RM20 million) from the dilution in these stakes.

“There also remains scope for further earnings upside should the group’s regional exposures make quicker-than- expected turnarounds,” PublicInvest Research said.

“This current CIMB-Principal transaction is another value accretive move, improving its capital ratios with no significant impact to earnings from the dilution in stakes.”

The research arm lauded management’s initiatives and are growing increasingly optimistic of CIMB’s medium to longer-term prospects.

“The anticipated worst- case 50bps negative impact from the adoption of MFRS9 on its CET-1 is more than likely inconsequential, we think.”