THE BUZZ
CIMB Group announced yesterday that due to certain legal constraints, it will be excluding RBS’ cash equities, equity capital markets and M&A corporate finance business in India from the Sale and Purchase Agreement it entered into with RBS on 2 April 2012. This will reduce the total acquisition cost of RBS’ Asia Pacific Cash Equities and M&A advisory business to RM781m from RM849m previously.
OUR TAKE
Slight setback. We view the exclusion as a slight setback. As depicted in Figure 1 below, RBS’ business in India was one of the countries with the least duplication with CIMB excluding RBS’ regional presence. Outside Asean, where CIMB’s core strength naturally lies, RBS India is also the second strongest market after Australia within RBS’ ex-ASEAN cash equities and M&A portfolio, ranking top 10 in terms of mergers and advisory market share.
Taking the longer route. Nevertheless, given the group’s enlarged presence in other markets, we believe that it has built up sufficient regional franchise value to expand into India on its own via the application of new licences and rebuilding efforts, similar to its strategy in South Korea.
Maintain BUY. We are maintaining our BUY recommendation and leaving our FV unchanged at RM8.53 (2.3x P/BV, 16.7% ROE) as the impact of excluding RBS’ India business is relatively small vis-à-vis the group’s overall earnings and asset base.
Source: OSK
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