KUALA LUMPUR (Jan 31): Analysts remained positive about CIMB Group Holdings Bhd (KL:CIMB), even as they predicted softer fourth-quarter (4Q2024) results for the group, with at least one research house upgrading its rating after a recent dip in the CIMB’s share price.
Hong Leong Investment Bank (HLIB) upgraded its call on CIMB, highlighting the bank's long-term growth potential despite near-term challenges in its financial performance for 4Q2024.
In a note on Friday, HLIB upgraded CIMB to a "buy" with a revised target price of RM9.20, up from RM8.80, following a recent pullback in its share price.
In 4Q2024, CIMB’s net interest margin (NIM) is expected to compress sequentially, from a modest increase of +1 basis point (bp) in 3Q2024, said HLIB.
The contraction has been primarily attributed to seasonal fixed deposit (FD) competition in Malaysia, which impacted both retail and wholesale banking operations.
However, CIMB remains hopeful that NIMs will normalise by January, with a potential recovery anticipated for the remainder of the first quarter of 2025.
Non-interest income (NOII) is also expected to soften in 4Q2024, due to weaker trading and foreign exchange performance, though the impact is expected to be cushioned by stronger underlying retail and wholesale banking fees.
Despite these challenges, analysts remain generally optimistic about the bank’s longer-term outlook.
In a separate note, Maybank pointed to a potential for faster loan momentum and more stable margins in FY2025, although CIMB is also likely to face higher credit costs.
Domestic corporate lending picked up in 4Q2024 and is expected to sustain into FY2025, with mortgage lending likely to resume as pricing becomes more reasonable.
In addition, NIMs are anticipated to recover in Malaysia as deposit competition eases, with Indonesia's NIMs expected to stabilise as they adjust to recent rate cuts.
Maybank further noted that CIMB is likely to achieve its return on equity (ROE) target for FY2024, which stands between 11% and 11.5%.
This performance aligns with expectations, and to drive future ROE growth, the bank is expected to focus on high-return businesses, particularly in Indonesia, Singapore and commercial banking.
Efforts to turn around CIMB Thai’s operations are also expected to be a key part of the bank’s strategy moving forward.
In anticipation of CIMB's future plans, Maybank maintained its "buy" call with a target price of RM9.20.
Meanwhile, Kenanga Research, while maintaining a "market perform" rating and a target price of RM7.60, said CIMB's softer NIMs and NOII in 4Q2024 were largely expected, given the high base established in the previous quarter.
The research house sees CIMB continuing to prioritise value creation and earnings sustainability over volume growth and market share in the near term, with further details on this strategy expected when the bank formally discloses its long-term plans.
Kenanga also expects CIMB’s Malaysian operations to normalise, though the 25 basis point cut in interest rates in Indonesia earlier in January could see the bank face further pressure margins there.
CIMB’s FY2024 NIM guidance remains stable, with an expected increase of up to five basis points compared to FY2023’s 2.22%.
Looking ahead, the group’s strong trading and forex income from heightened activities in 3Q2024 has diminished in 4Q2024, leading to softer comparable NOII.
However, Kenanga remains confident in CIMB’s focus on expanding its higher risk-adjusted return on capital (RAROC) businesses in its Niaga and Singapore units.
Furthermore, ongoing efforts to rejuvenate CIMB Thailand, particularly in addressing inefficiencies in its consumer business, are expected to continue to gain traction.
At the time of writing, CIMB’s shares were up six sen or 0.8% to RM8.00, valuing the company at RM85.86 billion.