Sale of remaining stake in CGS-CIMB expected

JAYA: CIMB Group Holdings Bhd’s proposed move to relinquish its remaining 25.01% stake in joint venture CGS-CIMB Securities Sdn Bhd to partner, China Galaxy Securities Co Ltd, will not have a significant impact on its financials.

Kenanga Research stated the proposed sale, expected to be completed by January, would relieve CIMB of associate contributions of about Rm20mil in financial year 2022 (FY22) and will not materially impact the banking group’s long-term earnings.

The disposal would be conducted via call and put option subscriptions but details in terms of price and valuations are lacking.

“We estimate it could be close to an indicative value of Rm270mil, based on an applied 1.05 times price-to-book value (PBV) (also close to recent industry deals) on the past disposal and subject to US dollar rates,” Kenanga Research said in a report on CIMB yesterday.

The Khazanah Nasional Bhd-controlled CIMB sold a 24.99% stake in CGS-CIMB Securities together with its 25% holdings in CGS-CIMB Holdings to China Galaxy International for Us$170.5mil (Rm787.9mil) in December last year.

Kenanga Research added that the proposed sale is not surprising following its release of control of the joint venture entity that was meant to facilitate greater access to the Chinese market.

“We reckon that the timing of the move could be ideal in a softer equities trading landscape as the CIMB group could reallocate resources to higher yielding operations,” Kenanga Research said.

It added the move might not be the last in terms of disposal and consolidation of equities-related businesses for CIMB.

The stake sale in CGS-CIMB also did not suggest CIMB’S complete exit from the stockbroking business as collaborative ventures with CGS-CIMB could still be on the table, the research house added.

Kenanga Research left its FY22/FY23 assumptions for CIMB unchanged, pending completion of the transaction.

The indicative disposal gains of Rm270mil in FY23 would only affect reported earnings by 4%.

Thus, Kenanga Research has maintained its “outperform” call on CIMB with a target price of RM6.35 a share, derived on PBV of 0.88 times.

CIMB remains among its top picks for the final quarter, supported by its regional diversification, double-digit return on equity and better forward earnings growth (26% versus the industry average of 22%) as well as offering an attractive dividend yield of 6% in the medium-term.