CIMB upgraded after announcing Jupiter Securities acquisition
News that Kuala Lumpur-based bank CIMB Group is set to acquire Jupiter Securities has been welcomed by Hong Leong Investment Bank Research (HLIB), which has upgraded its target price on CIMB to MYR5.60 ($1.27). In a report, it said the deal would allow CIMB to leverage Jupiter's stockbroking license in a joint venture with China Galaxy Securities.
KUALA LUMPUR: Hong Leong Investment Bank Research (HLIB) is positive with news that CIMB Group was looking at acquiring Jupiter Securities Sdn Bhd, as it would enable the former to leverage on the stockbroking license owned by Jupiter.



“While Jupiter has been loss making for several years, we are positive on the new development as this will enable CIMB to leverage on the stockbroking license owned by Jupiter, and place all stockbroking businesses in the region under the joint venture (JV) with China Galaxy Securities Co Ltd,” HLIB said in a report.



The research house noted that CIMB owned a stockbroking license parked under its investment banking arm, and the JV would need a new stockbroking license to operate in Malaysia.



Through the JV with China Galaxy, it allows CIMB to tap on China Galaxy’s experience. Post-acquisition, CIMB will focus its efforts in investment banking, capital market products and services whilst the China Galaxy JV will be positioned as a pure play stockbroker with universal bank client base.



“While the JV may boost CIMB’s presence outside Asia, we believe the deal is primarily targeted to further reduce CIMB’s opex and drive its CIR to below 53% (reduction of circa RM300mil per annum). To note, the stockbroking business posted about RM30mil loss in FY15.



“However, it turned around to a profit of around RM20m in FY16, chiefly from its Malaysian and Indonesian operations,” HLIB said.



“While the monetary benefits remain sketchy at this point, we are optimistic the JV with China Galaxy will be able to turn around CIMB’s stockbroking business outside the Asian regions as the lacking of commercial bank presence has hampered the stockbroking opportunity



Due to favourable outlook, HLIB has upgraded its target price on CIMB to RM5.60. It has revised higher its parameters based on Gordon Growth (ROE 9.3% and P/BV of 1.0x). It has maintained a “hold” rating on the stock.