Analysts positive on CIMB-China Galaxy deal

PETALING JAYA: Hong Leong Investment Bank (HLIB) Research said it is positive on CIMB’s partnership with China Galaxy International Financial Holdings Ltd as the divestment of its stockbroking stake will enable CIMB to achieve further savings in its overhead expenses.
CIMB’s cost-to-income ratio is expected to improve by 100 to 150 basis points or RM300 million to RM350 million from FY18 onwards based on cost of run-rate about RM600 million to RM700 million, with minimal impact on its cost-to-income ratio in FY17.
“We project modest additional earnings contribution of RM10 million to RM15 million from FY18 onwards,” HLIB Research said.
It has raised FY17 to FY19 earnings forecasts by 2.3%, 3.1% and 2.9% respectively after imputing the cost savings of RM350 million at the best scenario. Post earnings adjustment, it is maintaining a “hold” call on CIMB with a higher target price of RM6.30 from RM5.93.
However, AmResearch, which deems the acquisition price as fair considering the recent transactions for sales and purchase of stockbroking business, has downgraded CIMB from “buy” to “hold” following the strong run-up in its share price.
Meanwhile, HLIB Research said as CIMB will receive RM515 million for the 50% of its stockbroking stake, this will boost its common equity tier 1 (CET1) by 30 basis points to 11.8% from 11.5% as at March 2017, which places the group in a strong position to achieve its targeted 12% CET1 by 2018.