Earnings forecasts for CIMB Group maintained

PETALING JAYA: Analysts have maintained their earnings forecasts on CIMB Group Holdings Bhd after news that it will acquire the entire equity stake in stockbroking firm Jupiter Securities Sdn Bhd for RM55 million cash.

In a report yesterday, MIDF Research said the research house is “neutral on the announcement but understands the need for such acquisition”.

The acquisition of Jupiter Securities is related to CIMB’s proposed partnership with China Galaxy International Financial Holdings Ltd.

CIMB’s existing stockbroking licence is mainly for its investment banking division, while the Jupiter licence will be utilised by CIMB-Galaxy JV to operate in Malaysia. Jupiter Securities is a 74.43% subsidiary of Olympia Industries Bhd.

While CIMB management had previously estimated there is a potential uplift of 100 basis points to cost-to-income ratio, MIDF Research does not foresee a positive impact in the immediate future.

“We believe the impact will only be felt in FY18 given the time it will take to clear the various jurisdictional issues.”

MIDF Research mainatained its “neutral” call on CIMB with an unchanged target price of RM7.10.

The research house continues to be optimistic of CIMB’s prospects, but is of the view that the positive outlook has already been priced in, thus making no changes to its FY17 and FY18 forecasts.

HLIB Research is also maintaining its forecasts on CIMB as the deal will only be completed in early FY18 after receiving all necessary approvals.

It believes that the purchase consideration will be offset with the huge cost savings from the JV.

“We strongly feel that FY17 will be a year of further tweaking of business operation with priority of cost and capital optimisation. Management’s guidance for a sustainable 40%-60% payout should entice the shareholders moving forward.”

HLIB Research kept its “hold” stance on CIMB with a target price of RM6.90.
At Thursday’s market close, CIMB shares rose 16 sen to RM6.91 on 16.76 million done.

Meanwhile, Olympia gained 1.5 sen or 10.3% to 16 sen, with 100.55 million shares changing hands, being the second most actively traded stock.