News According to media reports, Prudential Plc,
Sun Life Financial Inc and Manulife Financial Corp have made final offers to
buy the business from CIMB and Aviva, quoting unidentified sources. The sale
of CIMB Aviva Assurance may fetch about
US$1.0b according to the reports.
Comments We
reckon that the sale of CIMB Aviva could fetch a good valuation as well as
coming on top of a potential one-off goodwill payment by the winning bidder
willing to forge a long term strategic alliance.
This could be the
second biggest transaction after ING sold its Malaysian life insurance unit to
AIA recently for USD1.68b (at a valuation of 2.2x 2Q12 BV or 16.9x FY11 net
earnings).
The group will enjoy
a one-off transaction gain and raise capital as well if the sale goes through.
As such, together with the fact that there are limited dilutions from the BoC
and RBS acquisitions, the possibility of new equity issuance in CIMB to raise
funds is small.
In its briefing to
analysts recently, management said that the cash proceeds from its stake sale
in Avivawould likely go towards rewarding shareholders.
The group is
targeting to complete the sale of Aviva by 1Q13 and is highly likely to offer a
one-off Dividend Reinvestment Plan to investors as part of its capital
management plan. This will also enable the group to comply with BNM’s new
consolidated supervision and capital framework.
Outlook With regards to CIMB outlook in 2H2012, we are
still positive on the group’s prospect, including its recent acquisition
strategies. CIMB is now one of the biggest proxies to ride the ASEAN region
resurgence if the economic growth in the region remains resilient over the next
2-3 years.
Its recent
acquisitions are earnings accretive over the medium to long term. This will
give CIMB a full ASEAN banking coverage. Together with the RBS IB Asset
acquisition, the group is positioning itself
for the next Asia’s recovery cycle in our view.
Forecast We are maintaining our FY12-13E PAT estimates
of RM4,511.4m- RM4,820.1m for CIMB.
Rating MAINTAIN OUTPERFORM
Our OUTPERFORM rating
on CIMB is maintained.
Valuation We are
maintaining our target price at RM8.20 being 2.0x its FY13 book value.
Risks Tighter lending rules and a margin squeeze.
Source: Kenanga
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