The group has
finalised the sale of its 51% interests in both CIMB Aviva & CIMB Aviva
Takaful to Khazanah Nasional Berhad at a total consideration of RM1,110m
(RM1,066.5m in cash and RM43.5m in shares in a new insurance holding company,
Renggis Ventures S/B). We are positive
on these sales as they are seen as unlocking the group’s value as the increase
in equity from the oneoff sales gain above will further support the group’s
balance sheet growth over the next 12-24 months. We are maintaining our target price
of RM8.20, which translates to a 2.0x FY13 PBV. Our TP also implies a FY13 PER
of 12.7x. We reaffirm our OUTPERFORM rating on CIMB.
Disposing CIMB Aviva. CIMB has reached an agreement with Khazanah Nasional
Berhad to sell its 51% stake in CIMB Aviva Assurance Berhad (a life insurance
company) and 51% stake in CIMB Aviva Takaful Berhad for a total consideration
of RM1.1b in a move to exit its non-core businesses. The sale price translates to an effective
valuation of 3.7x the combined 30 June 2012 BV of both companies of RM310m (for
51% stake) or 49.4x PER of their FY11 net earnings of RM22.5m (for 51% stake).
This is the second biggest transaction locally in the insurance sector after
ING’s sale of its Malaysian life insurance unit for USD1.68b. We believe the
valuation of the sale is attractive due to the interest of both Khazanah and
SunLife to want to forge a long-term strategic alliance in the insurance sector
and thus are willing to pay a higher price to land a good asset in the sector
to kick-start their partnership. The sale will see CIMB enjoying an estimated one-off transaction gain of
RM800m.
Our View. We are
positive on these sales as they are seen as unlocking the group’s value. The
sale proceeds will enable CIMB to replenish its capital after its two major
acquisitions made early last year. Note that those acquisitions are earnings
accretive only over the medium to long term.
Meanwhile, we believe the cash proceeds from the stake sales above to likely
go to rewarding the shareholders. The group is targeting to complete the sale
of CIMB Aviva by 2Q13 and is highly likely to offer a one-off Dividend
Reinvestment Plan to its shareholders investors as part of its capital
management plan. This will enable the group to comply with BNM’s new
consolidated supervision and capital framework
under the new Financial Service Bill.
In addition to that, the group could also take the opportunity to
further clean up its balance sheet by increasing its provisioning coverage.
However, we understand that more details on this would only be shared by
management in its 4QFY12 result announcement due in mid-February 2013.
Note that CIMB is one of the two groups in our stock coverage
that does not report consolidated capital ratios. However, we understand that
the group’s double leverage ratio is at 117%, which shows that the equity capital
of some of its subsidiaries is funded by debt issued by the parent company.
CIMB’s management has estimated the group’s CCR at around 8.0% as at June 2012
and is considering earnings retention via a one-off Dividend Reinvestment Plan
(DRP). Management has further stated that its earnings retention plan together
with asset divestments would be sufficient to boost its capital ratio if needed
and there is no urgency to issue new equity.
Source: Kenanga
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