CIMB gets nod to form local JV with China Galaxy

This article first appeared in The Edge Malaysia Weekly, on August 13, 2018 - August 19, 2018.
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CIMB Group Holdings Bhd has obtained regulatory approval to proceed with the final piece of its two-part joint-venture partnership with China Galaxy Securities Co Ltd (CGS), a development that is expected to eventually provide it with some profit uplift and improve costs.

The final piece relates to CIMB’s stockbroking business in Malaysia.

In a filing with Bursa Malaysia late last Friday, the banking group announced that it had obtained Bank Negara Malaysia’s nod to incorporate a Malaysia-based joint-venture outfit that will be the holding company of Jupiter Securities Sdn Bhd — the platform that will be used for the Malaysia stockbroking business of CIMB and CGS.

Recall that CIMB had last September said it would be acquiring stockbroking firm Jupiter Securities from Olympia Industries Bhd for RM55 million. This was to enable it to have a separate stockbroking licence to facilitate the JV with CGS. CIMB already has a stockbroking licence under its investment bank.

CIMB and CGS are to have equal stakes in the Malaysian JV through their respective wholly-owned subsidiaries — CIMB Group Sdn Bhd and China Galaxy International Financial Holdings Ltd.

“This deal will strengthen CIMB financially with some profit uplift from the partial disposal and improvement in our cost-to-income ratio (CIR), which supports our T18 target to achieve a 

CIR of less than 50% by end-2018,” CIMB group CEO Tengku Datuk Zafrul Aziz tells The Edge. Its CIR stood at 49.8% as at March 31.

The first part of CIMB’s partnership with CGS, which relates to CIMB’s stockbroking business outside Malaysia, was completed on Jan 18.

In that deal, CIMB had sold a 50% stake in its international stockbroking business — which analysts say was effectively loss-making — to CGS for S$167 million based on a multiple of 1.3 times the latter’s consolidated net asset value as at end-2015.

Nomura Research banking analyst and head of Malaysia equity research Tushar Mohata notes that the valuation of CIMB’s Malaysia stockbroking business should be higher than that of the international one as the former is profitable. Additionally, the business is in CIMB’s home market.

“The disposal gain and CET-1 improvement to CIMB will depend on the valuation to be decided later,” he says.

Meanwhile, Zafrul says CIMB will continue to originate investment banking deals, such as initial public offerings and share placements, and will leverage the JV to provide research and distribution.

“With CGS as a shareholder, the distribution strength of the JV will be expanded to include China. Given the strengths and established capabilities of CIMB and CGS, this JV is well poised to become the preferred Asean equity platform. 

“CGS, with its established digital capabilities in serving 9.3 million brokerage customers in China, will also be a great partner in helping our Malaysia business reap the benefits of going digital, to enable it to scale up,” he adds.

Zafrul voiced hopes of harnessing the benefits of shared expertise, digital innovation and market access to raise the game for Malaysia’s stockbroking industry.

CIMB’s Malaysia stockbroking business comprises institutional and retail brokerage, share margin financing for broking clients, equity financing services and equity research, as well as exchange-listed derivatives broking under CIMB Futures Sdn Bhd.

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