CIMB Group : Minimal impact from sale of securities BUY

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CIMB Group : Minimal impact from sale of securities       BUY

CIMB Group announced the signing of Sales and Purchase Agreement (SPA) by its 99.99% owned subsidiary, CIMB Bank to dispose of 2 private equity, close end real estate funds in Singapore to EPF which holds 13.98% shares in CIMB Group. 12.42% interest in CIMB-Trust Capital Australian Office Fund No. 1 LP (AOF1) and 13.70% units in CIMB-Trust Capital  Australian Office Fund No. 2 LP (AOF 2) of CIMB Bank will be disposed for a total consideration of AUD37.1mil (RM122.8mil). The disposal consideration was based on AOF1 and AOF2’s net asset value of RM171.4mil and RM102.7mil respectively as at 30th June 2016. AOF1 and AOF2 invest in Grade A and B+ commercial office assets, primarily in Melbourne, Sydney and Canberra while Brisbane and Perth are secondary in terms of locations to invest.

The proceeds from the disposal will utilised to pare down the Group’s borrowings and for working capital. There will be a slight enhancement to CIMB Bank Group’s CET1 ratio to 10.74% from 10.68% upon receipt of the proceeds from the disposal. Overall, the disposal of assets will not have any material impact on the Group’s earnings, net asset value and share capital. We maintain BUY on CIMB Group Holdings (CIMB), with an unchanged fair value of RM5.40/share based on FY17 ROE of 9.2% leading to a P/BV of 1.0x. Our BUY call is premised on attractive valuation with the share price continuing to trade at 0.8X to our FY17 book value/share, stabilization of provisions in Indonesia as well as potentially further improvements to OPEX from Group wide cost savings initiatives. Potential sale of 50.0% of its equity brokerage business to China Galaxy Securities could see CIMB Group’s OPEX declining further.

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