Positively, CIMB’s private placement bolsters its CET1 ratio to almost 10%, and could potentially allow it to cease its DRP. Moreover, it would raise CIMB’s weight on the KLCI from 7.1% to potentially 7.7%.

The impact to earnings and valuations, however, is neutral. Our HOLD is maintained for regional concerns remain a drag to earnings and we see no near-term catalyst to the stock.

What’s New

CIMB has just completed a private placement of 500m new shares at MYR7.10 (+6% to share capital), a 3% discount to its closing price of MYR7.30/share. Total proceeds raised of MYR3.55b will improve the group’s CET1 ratio end-Sep 2013 from 8.2% to 9.7%.

What’s Our View

This placement was a surprise, for management had said it would rely on its dividend reinvestment plan (DRP) to gradually build its CET1 ratio to 10% by 2015. But as stated in the press release, the depreciation of the Rupiah had set back its capital accumulation plan. Positively, we think that with this placement done, CIMB could scrap its DRP, which is dilutive on EPS by about 3% p.a..

Our FY14-15 net profit forecasts are raised by 2-3% to factor in interest savings, but the deal is neutral (-2% for FY14, +1% for FY15) on EPS. ROAEs are lowered to 13.6% from 14.1% for FY14 and from 14.2% to 13.4% in FY15, but supported by a lower P/BV of 1.6x vs 1.7 previously for FY14, 1.5x vs1.6x before for FY15.

We are overall neutral on this move, though positive on the bolstering of the group’s capital base. Near-term interest in the stock could be supported by CIMB’s potential increase in weightage on the KLCI from 7.1% to 7.7%. We maintain a Hold call on the stock with an unchanged TP of MYR8.00, pegged to a FY14 P/BV of 1.8x.  

Source: Maybank Research - 15 Jan 2014