CIMB Group Holdings - Bumper gain from sale of insurance units BUY

- CIMB Group Holdings (CIMB) has announced an implementation agreement to sell its 51% stake in its insurance units, CIMB Aviva Assurance  Bhd and CIMB Aviva Takaful Bhd (both referred hereafter as CIMB Aviva) to Khazanah Nasional Bhd’s subsidiary Renggis Ventures Sdn Bhd (Renggis). Recall the insurance units are 51%-owned by CIMB. 

- Under the agreement, the purchase consideration is RM1,110mil for CIMB’s 51% stakes, to be satisfied with cash of RM1,066.5mil and RM43.5mil ordinary shares in Renggis. As a result, CIMB will maintain an effective 2% stake in CIMB Aviva. CIMB’s sale consideration of its insurance units at RM1,110mil is thus far higher than our earlier estimated RM867mil. 

- Sun Life Financial Inc’s (Sun Life) and Khazanah’s  total purchase consideration of the effective 98% stake in the insurance unit would be RM1.8bil, with Sun Life and Khazanah eventually acquiring an effective 49% stake. The overall acquisition price of RM1.8bil is also higher than earlier reported RM1.7bil. 

- The effective P/BV (after taking into account the deconsolidation gain RM250mil reported by CIMB for FY11) is 2.4x, which is higher than the reported 1.8x in AIA’s acquisition of ING’s Malaysian business. 

- We had earlier estimated a book value for CIMB’s 51%-stake in the insurance units to be circa RM194mil before the deconsolidation gain recognised of RM250mil in FY11. Taking into account the deconsolidation gain, we estimate the book value now at RM444mil. The net gain to CIMB is thus RM666mil, still far higher than our earlier-estimated RM423mil. The sale is subject to regulatory approvals, which are expected by 2Q13. 

- With the sale, we estimate group common equity Tier 1 (CET1) will now increase by 20bps. Recall the group CET1 was at 7.7% in September 2012, before the completion of Bank of Commerce and RBS which is expected to shave off 35bps to 40bps from the group CET1. On a net net basis, we estimate proforma group CET1, including the insurance, to increase to 7.5% from 7.3% post the M&As. The gain will likely be included in FY13’s net earnings although we expect the group to also take the opportunity to increase its loan loss cover in FY13F. Still, in a nutshell, a bumper gain for CIMB in our view. Maintain BUY.

Source: AmeSecurities