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Wednesday, December 7, 2016

Brokers Report: CIMB - Non-Core Disposals

Retain NEUTRAL with unchanged target price (TP) of RM5.25

The Group made an overnight announcement that its 99.99%-owned subsidiary CIMB Bank has entered into a sale and purchase agreement with the Employees Provident Fund (EPF) for the sale of equity interests in two private equity closed end real estate funds (AOF1 and AOF2) for a collective amount of AUD37.1m (c. RM122.8m). While this move is positive from a cash-raising standpoint, impact to earnings is negligible. With cost and asset quality management being the key priorities in the near to medium term, coupled with the challenging market environment, we are not likely to see overly exciting growth numbers in the near term. Our Neutral call is maintained with an unchanged target price of RM5.25 on expectation of trading still being range-bound amid the lack of near-term catalysts. We see fundamentals of the Group improving over the longer given its on-going initiatives but would only suggest accumulation on significant market and share price weakness however. Valuations are relatively inexpensive.
  • AOF1 and AOF2 have the primary objective of investing in Grade A and Grade B+ commercial office assets in Central Business Districts (CBDs) of Melbourne, Sydney and Canberra, with secondary focus on Brisbane and Perth. The Group is disposing the 12.42% it owns in AOF1 and 13.70% in AOF2, to be satisfied by cash in RM. Completion of the transaction is expected within 10 days from fulfillment of conditions precedent, amongst which include trustees’ consents and Bank Negara’s approval, by the end of this quarter.
  • Proceeds will be utilized to pare down existing bank borrowings and for future working capital requirements, while rationale cited for the transaction is so that it can further streamline and focus on its core banking business. The disposal is expected to generate a net gain of AUD8.2m (c. RM27.1m), though immaterial (+0.8%) to our net profit expectations. We view this move positively however, in line with its rationale as this is a non-core investment, while also benefitting from relatively stronger foreign currency exchange rates at this juncture.

Source: PublicInvest Research - 07 December 2016

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