KUALA LUMPUR (Oct 29): Hong Leong IB Research (HLIB) has upgraded CIMB Group Holdings Bhd to a Trading Buy with an unchanged target price of RM7.22 and said that the key challenges to teh banking group’s synergy extraction and long-term ROE enhancement were overlaps and integration.

In  a note Wednesday, the research house said although still early, it had better understanding of the deal and took comfort from CIMB’s merger integration track record.

HLIB said that post-merger, the structure enables CIMB to transfer some duplication to the non-wholly-owned Islamic subsidiary. 

It added that coupled with VSS and closing down some branches, low yielding cost synergy can be achieved.

HLIB said the enlarged entity would reflect CIMB as acquirer with goodwill at 0.4x RHB Cap book while CET1 of 9% has taken this into consideration.

“Target price remained at RM7.22 (Gordon Growth with ROE of 12.1% and WACC of 9.8%).

“Despite merger dilution and uncertainties in Indonesia, recent selldown to 1.4x FY14 book over exaggerated.  Moreover, it is now a cheaper proxy to the merged entity. 

“Upgrade to Trading Buy as values emerged amid uncertainties,” it said.