Affin: BCHB 13 March 2008

CIMB keen in Chinese commercial bank
CIMB may buy up to 10% in Bank of Yingkou
BCHB yesterday confirmed that the CIMB Group is following Hong Leong Bank’s
move to expand into China. According to the announcement on Bursa, CIMB is
currently in discussions to acquire a strategic stake (of up to 10%) in the Bank of
Yingkou. Briefly, Bank of Yingkou is a small to medium-sized commercial bank
operating in the Liaoning province (located in the southern part of China's
Northeast) with total assets and shareholders' funds size of RMB13,915.1m
(RM6,217.6m) and RMB783.4m (RM350.0m) respectively.

Expansion into China will augur well for BCHB’s overseas operations
Details of this potential acquisition remain sketchy at this juncture. CIMB’s
intention to expand into the fast-moving China market will augur well for the
Group’s overseas operations – by allowing CIMB to tap onto Bank of Yingkou’s
network. Nevertheless, we believe this acquisition – if it materialises – will not
significantly impact the Group’s earnings due to Bank of Yingkou’s smallish asset
size vis-à-vis BCHB’s total assets of RM183.5bn as at Dec 2007. BCHB’s
overseas operations charted a 15% growth last year with contributions
accounting for 13% and 11% of FY07 operating revenue and PBT.
Hot on an M&A trail
News of this potential acquisition does not come as a surprise. Management had
earlier indicated that they are keen to expand into China and India. In addition to
the Bank of Yingkou, BCHB is also in the midst of conducting feasibility studies
to merge Bank Niaga with Khazanah’s Bank Lippo to create Indonesia’s 6th
largest bank. Taking together BCHB’s active management policies – to buy back
and cancel up to RM1bn worth of BCHB shares and potential dividends
amounting to RM826m - we believe the Group remains well capitalised to finance
the Bank of Yingkou’s purchase.

Buy maintained; target price RM13.35
More details on the potential acquisition of Bank of Yingkou are expected next
week. Meanwhile, we are maintaining our FY08 estimates. Core net profit is
estimated to grow by 26% in FY08, anchored by (i) stronger consumer banking
operations, (ii) loans growth of 7.3% (below management’s guidance of 12%), (ii)
higher contribution from NII, (iii) cost savings from CIMB-SBB and CIMB-PT
Bank Niaga synergy programmes, (iv) lower LLP and (v) decline in loan charge.
Maintain BUY on BCHB with a target price of RM13.35.