Indonesian bill delay buys time for CIMB and Maybank

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CIMB Group Holdings Bhd
(Oct 7, RM6.98)
Maintain “hold” with an unchanged target price (TP) of RM7.60:
The press has reported that Indonesia’s House of Representatives has dropped discussions on the draft of a proposed banking bill to cap foreign ownership in Indonesian banks at 40%. The proposal also called for the retroactive application of the 40% cap with a 10-year grace period for banks to pare down their holdings. It will now be up to the new government to decide whether it wants to reinitiate the bill and this could take several years since it would have to do so from scratch.

This development is positive for both CIMB (which holds a 96.9% stake in PT Bank CIMB Niaga Tbk) and Malayan Banking Bhd or Maybank (80% stake in PT Bank Internasional Indonesia Tbk), but more so for the former, whereby CIMB Niaga contributes to about 30% of CIMB group’s pre-tax profits versus just 3% to 4% for Maybank. This at least clears one of the prevailing uncertainties over the stock and ensures that the status quo in shareholding is preserved. The focus will now be on CIMB’s announcement today pertaining to the CIMB-RHB Capital Bhd-Malaysia Building Society Bhd merger. Judging from developments in the press of late, this merger sounds more complicated than initially perceived and it is likely that the announcement today could be a non-event, with a possible extension in the negotiation deadline, in our view.

We maintain our “hold” call on CIMB with an unchanged TP of RM7.60 (calendar year 2014 price-to-book value of 1.7 times). — Maybank IB Research, Oct 7


This article first appeared in The Edge Financial Daily, on October 8, 2014.