KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) has raised its profit forecasts and target price for CIMB Group Holdings Bhd after its third quarter results for the financial year ended Sep 30, 2024 (3Q24) beat expectations.
The profits for the financial years 2024 to 2026 (FY24-FY26) were raised 4 per cent to reflect higher assumptions for net interest income (NOII) and net credit cost (NCC).
HLIB Research retained its 'Hold' call on the banking group, but attached a higher target price of RM8.80 from RM8.40 to the stock.
CIMB posted 3Q24 earnings of RM2.0 billion, bringing the nine-month period ended Sep 30, 2024 earnings to RM5.9 billion, beating estimates.
It formed 77-79 per cent of HLIB Research and consensus full-year forecasts.
Its performance was helped by stronger-than-expected non-interest income (NOII) along with lower-than-expected loan loss provision.
The research firm anticipates a weakness in CIMB Group's net interest margin (NIM) in the fourth quarter of 2024 (4Q24) though due to intensified competition for fixed deposits (FDs) during the October to December period.
Nonetheless, HLIB Research highlighted that this impact would be mitigated by CIMB's firm pricing strategy for both loans and deposits.
"As such, loan expansion is anticipated to chug along, backed by its small and medium enterprises (SME) and consumer franchises."That said, better forex translation (from sequentially weaker ringgit) would help to lift headline performance in the next quarter," the investment bank said.
Separately, HLIB Research said it anticipates NCC to remain stable at 25-30 basis points, as guided, given the absence of asset quality concerns.
"Moreover, we gathered delinquency trends were stable and loan loss coverage (LLC) continues to be high at 103 per cent vs pre- pandemic level of 75 per cent," it adds.
HLIB Research also maintained its view that CIMB Group's risk-reward profile remains well-balanced.
"In the short-term, we are still a tad concerned on whether its big NOII can be sustained, especially when its fair value through other comprehensive income (FVOCI) reserves is still negative," it said.