KUALA LUMPUR: CIMB Group Holdings Bhd's 94.83 per cent-owned indirect subsidiary, CIMB Thai Bank PCL, is set for growth following the establishment of a new coalition government in Thailand, contributing to a more stable political climate.
Hong Leong Investment Bank Bhd (HLIB Research) foresees sustained private consumption along with a recovery in tourism and export activities to anchor economic growth.
"As such, loan growth is anticipated to improve as well. That said, the net interest margin (NIM) should remain steady at current levels since the Bank of Thailand is likely to leave its key policy interest rate unchanged.
"On a separate note, we are still not overly worried about asset quality, considering CIMB Thai has already made heavy pre-emptive provisions to cushion any jump in the gross non-performing loan (NPL) ratio.
"Loan loss coverage (LLC) is now greater than 120 per cent, compared to the pre-pandemic level of around 100 per cent," it said in a note.
Overall, HLIB Research said the forecast remains unchanged despite CIMB Thai's earnings miss, as its contribution to the overall group's profit before tax (PBT) is immaterial, at less than five per cent.
The investment bank has maintained a "hold" call on CIMB Thai, with a target price (TP) of RM6.20.
Nevertheless, HLIB Research also maintains its belief that CIMB's risk-reward profile is balanced, even after the significant share price increase in recent months.
In the large-cap space, its preference is to invest in Public Bank Bhd (TP: RM4.80), given its superior asset quality and multi-year low foreign shareholding.
In the fourth quarter of 2024 (4Q23), CIMB Thai reported a net loss of -THB131 million, compared to -THB367 million in 3Q23 and -THB99 million in 4Q22.
For the financial year FY23, the total net loss was THB1.6 billion, a 45 per cent year-on-year (YoY) decrease, missing estimates by 80 to 83 per cent.
CIMB Thai's contribution to the group's profit before tax is less than five per cent, with the variance attributed to a higher-than-expected loan loss provision.
Quarter-on-quarter (QoQ), the bottom line turned to losses due to a significant increase in the allowance for bad loans.
However, positive jaws were observed with an expanded net interest margin (NIM) and strong non-interest income (NOII) growth, cushioning some of the damage.