Price: RM13.28
Target Price: RM11.60
Recommendation: TRADING SELL
· The group is proposing to undertake an initial public offering of up to 35mn share to investors in Thailand with a dual listing of its share in Stock Exchange of Thailand. Proceeds amounting to RM466mn (based on last trading price of RM13.30) will be raised with minimal dilution to existing shareholders. Estimated Core Capital Ratio will be raised by 0.3% to 11.7% from existing 11.4%. Mgmt has previously guided they are comfortable with CAR of 10.0%
· Time after time, we are impressed with CIMB’s ability to read the market so well and its capability in obtaining high valuations for deals that it enters. To recap, in Feb 2007, the group issued 117m new CIMB shares (or 3.64% of share base) to Bank of Tokyo-Mitsubishi UFH (BTMU) at RM11.41/share or premium of 17% to the last traded price of RM9.75 valuing CIMB at 2.8x P/BV vs. our valuation of 2.5x P/BV. The proposed equity placement enabled CIMB to de-gear and raise RM1.34b in cash, after it raised RM990m from the sale of its insurance business in Jan 07.
· Today, we believe the proposed listing of 35mn CIMB shares in SET is no different to the deal 3 years ago. The group is taking the opportunity of elevated valuation to raise cash for its working capital and de-gear itself. We remain cautious about the stock and maintain our price target of RM11.60 based on 2.0x FY10 BV of RM5.70/share with a Trading SELL rating. We believe CIMB should trade at best 2x book, as its revenue contribution is heavily skewed to fees income compared with its peers. Both PBV band (figure 1) and PER (figure 2) band indicate that CIMB is trading at a demanding multiple equivalent to the peak of the banking cycle. Thus, the current valuation probably represents good selling opportunity. Trading SELL maintained as we see possible pricing in of valuation expansion and ROE of 18% (Figure 3) which is significantly above management guidance of 12-16% ROE objective for FY09-10.
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