CIMB Group (CIMB) announced the completion of its divestment in the remaining 25% stakes held in the initial CGS-CIMB partnerships, pursuant to the call option exercised by CGS International. CIMB will not be exiting the stockbroking space altogether, having already disclosed plans last year to acquire 100% of KAF Equities Sdn Bhd for an indicative cash consideration of RM147.94m. We remain confident in the Group’s ability to rebuild its stockbroking franchise and are still optimistic over its medium to long-term banking-related prospects as it continues to reap the rewards from its past and ongoing transformative initiatives. Our Outperform call is affirmed with an unchanged dividend-derived target price of RM6.70.

• Disposal of the remaining 25.0% shareholding in CGS-CIMB Securities International Pte Ltd and 25.01% shareholding in CGS-CIMB Holdings to CGS International Holdings Limited (formerly known as China Galaxy International Financial Holdings Limited) was completed as at 29 December, 2023, as the final part of the call option exercised by CGS International to have full (100%) control of the regional stockbroking business which was initially a 50%-50% joint venture. CIMB will receive an estimated RM780m in gross proceeds from this sale, bringing the total proceeds for the sale of its 100% original stockbroking business (since 2018) to about RM2.5bn.

• Acquisition (proposed) of the 100% equity interest in KAF Equities Sdn Bhd was initially disclosed in CIMB Investment Bank’s 1QFY23 financial statement – whereby a sale and purchase agreement was signed with KAF-Seagroatt & Campbell on 7 April last year, for an indicative cash consideration of RM147.94m. The proposed acquisition has since obtained Bank Negara Malaysia on 2 August, with approval from the Securities Commission still pending. While KAF Equities is reported have to registered losses of RM6.0m and RM1.3m in its recent two financial years (2023 and 2022 respectively), the financial impact is inconsequential once eventually consolidated into the CIMB Group. We remain positive over this transaction however, and see the Group reaping synergistic benefits over the medium to longer term from the combination of the two franchises and the eventual rebuilding of its stockbroking business.

Source: PublicInvest Research - 2 Jan 2024