CIMB GROUP HOLDINGS BHD

Target price: RM7.50

MAYBANK Investment Bank Research (Maybank IB) is maintaining its “buy” call on CIMB, with a target price of RM7.50.

It said Mitsubishi UFJ Financial Group’s (MUFC) Bank of Tokyo-Mitsubishi UFJ Ltd (BTMU) disposal of its 4.6% stake in CIMB at a discount to market price had caused some near term share price weakness, adding however that the group’s fundamentals remain intact, with the prospect of improving return on equity (RoE) into 2018.

“CIMB is one of only two financial institutions in our portfolio that are expected to see improved RoEs into 2018 and this in itself, warrants a re-rating of the group. Its 2017 dividend yield of 4.1% provides support.

BTMU had disposed off its entire 4.6% stake of 412 million CIMB shares via an overnight block trade at price of RM6.20 per share – this being a 4% discount to last Tuesday’s closing price of RM6.46 and raising proceeds of about RM2.56bil.

“According to MUFG’s announcement, the group is looking to optimise capital management and is conducting a review of existing strategic investments by MUFG group of companies from the viewpoint of strategy, capital efficiency and profitability of investment, among others.

“BTMU’s Common Equity Tier 1 (CET1) ratio was 11.3% as at the end of June and we estimate a slight enhancement to 11.4% from this sale.”

Maybank IB pointed out that CIMB’s share price has weakened by about 6% from last Monday’s close of RM6.69.

“This enhances the attractiveness of the stock, in our view, especially since fundamentals remain intact.

“We continue to forecast an expansion in RoE to 10.6% in 2018 from 9.6% in 2017 and this justifies the re-rating of the group.”