CIMB’s divestment reflects strategy to focus on core business

PETALING JAYA: CIMB Group Holdings Bhd’s move to pare down its stakes in its asset management joint ventures is part of the group’s strategy of focusing on its core banking business, said MIDF Research.

“We opine that the latest divestment is part of the group’s strategy of focusing on its core banking business, given the recent trend such as the partnership with China Galaxy. We believe that the group’s earnings going forward will not be significantly impacted by the divestment. This is due to the fact that group asset management and investment contributes about 2% to 3% of group’s pre-tax profit,” MIDF Research said.

The research house is tweaking upwards its FY18 net profit forecast by +15.1% to take into account the potential gains but it is maintaining its FY18 core net profit because of the one-off nature of the transaction.

“Overall, we do not foresee any negative impact for this divestment. We believe that it is part of the group’s overall strategy to focus on its core banking business as highlighted by previous other transactions. We opine that robust loans growth and stable margins will be the group’s growth drivers for this year,” added MIDF.

CIMB is expecting an improvement of +18bps to its common equity tier 1 (CET1) ratio, which MIDF estimated would be about 12% after the divestment.

“While we believe that the group is sufficiently buffered for the impact of MFRS 9, we opine that this divestment will have provided additional cushion.”

It maintained its “buy” call on CIMB and is adjusting its target price to RM7.17 (from RM7.10) to take into account slightly higher book value of equity per share due to this transaction.

Meanwhile, HLIB Research said it is not entirely surprised with the transaction as this in line with the group’s T18 targets, which includes CET1 ratio of 12.0%.

“To note, CIMB already hit a 12% CET1 target during 9M’17 results, and along with the potential uplift from the disposal of Bank of Yingkuo, this will put CIMB in a much stronger capital position due to the MFRS9 implementation that could impact its CET1 as high as 50bps. Overall, the disposal of assets will not have any material impact on the group’s earnings,” said HLIB.

Overall, HLIB is neutral on the announcement as asset management provides stable earnings to the group.

It believe FY2018 could be a better year for CIMB as it is encouraged with the various improvements made to achieve its T18 target. HLIB added that CIMB’s credit cost remains a wild card due to ongoing improvement in the CIMB Niaga and CIMB Thai.

HLIB maintained a “buy” call on CIMB and upgraded its target price to RM7.25 (from RM6.90).