CICC: Raises STANCHART (02888) target price by 3.3% to HK$263, maintains "Outperform" rating; 3Q26 results better than expected

CICC: Raises STANCHART (02888) target price by 3.3% to HK$263, maintains "Outperform" rating; 3Q26 results better than expected CICC issued a research report stating that STANCHART's (02888) 3Q26 results were better than the bank's and market expectations, mainly due to better-than-expected non-interest income and credit costs. The bank raised its 2026 and 2027 net profit attributable to ordinary shareholders forecasts by 7.6%/12.5% to US$5.5 billion/US$6.4 billion, and raised its target price by 3.3% to HK$263, maintaining the "Outperform" rating. The company currently trades at 1.3x and 1.2x forecast P/B for 2026 and 2027 respectively; the bank's target price corresponds to 1.6x and 1.5x forecast P/B for 2026 and 2027 respectively, implying 20% upside from the current share price. CICC's main views are as follows: 3Q26 results better than expected STANCHART reported 3Q26 results: adjusted revenue of US$5.8 billion, up 13% YoY; profit before tax of US$2.3 billion, up 27% YoY; net profit attributable to ordinary shareholders of US$1.5 billion, up 46% YoY. Results were better than the bank's and market expectations, mainly due to better-than-expected non-interest income and credit costs. Company raises 2026 net interest income guidance In 3Q26, the company's net interest income grew 8.4% YoY, in line with the bank's expectations. Affected by rising interest rates, the company raised its 2026 net interest income growth guidance to 4% from the previous low single-digit level. Considering deposit competition factors, the bank still expects the company's future net interest income to achieve low single-digit growth. Credit scale grew relatively fast In 3Q26, the company's net customer loans grew 10.6% YoY and 5.3% QoQ. Specifically, WRB loans mainly came from wealth mortgages and mortgage loans, of which India's FCNR program contributed about half of the increment; CIB loans mainly came from global banking and trade finance. Average interest-earning assets grew 4% YoY, which, combined with factors such as more days in the quarter and rising interest rates, jointly supported net interest income growth. Net interest margin flat QoQ In 3Q26, the company's adjusted net interest margin was 2.03%, up 9 basis points YoY. During the quarter, rising market interest rates benefited net interest margin, but this was partly offset by deposit terming, with the CASA ratio in deposits falling 1.3 percentage points QoQ to 57%. Non-interest income continued its growth trend In 3Q26, the company's non-interest income was US$3.826 billion, up 18.6% YoY, exceeding the bank's and market consensus expectations. Wealth management investment continues to pay off In 3Q26, the company's wealth business revenue was US$1.1 billion, up 26% YoY, of which distribution business and bancassurance income grew 28% and 18% respectively, with growth remaining impressive. Quarterly net new wealth management scale was US$19.5 billion, with 76,000 new affluent customers added. The bank believes that StanChart's growth this quarter was mainly due to a more balanced and diversified regional and product mix, as well as continued increased investment in relationship managers and platform building, thereby supporting customer acquisition. Cross-border demand supports corporate banking growth momentum In 3Q26, the company's global markets income grew 20% YoY, of which flow business grew 21% YoY, mainly due to growth in customer demand for FX, commodities and credit trading; transaction banking and global banking income grew 8% and 7% YoY respectively. The bank believes that global trade and supply chain adjustments continue to bring demand for cross-border settlement, financing and risk management, and the company's network layout in core regions and customer-centric product design will continue to support business growth. Operating cost growth in line with expectations, lower effective tax rate supports net profit growth In 3Q26, the company's operating costs grew 8.5% YoY, with the cost-income ratio falling 2.5 percentage points YoY to 59%. The company guides a cost-income ratio of about 60% for 2026, further declining to 57% in 2027. During the same period, the effective tax rate fell 4.8 percentage points YoY to 21.7%, mainly due to an increased share of profits from low-tax regions such as Hong Kong and Singapore. Credit cost only 12 basis points, no new risk points in 3Q26 In 3Q26, the company's quarterly annualized credit cost was only 12 basis points, better than the bank's expectations, mainly due to improved CIB portfolio ratings and net write-backs on repayments. Middle East-related provisions increased by US$34 million this quarter, totaling US$268 million year-to-date. Capital level remains robust, shareholder return expectations unchanged At end-3Q26, the company's Common Equity Tier 1 (CET1) ratio fell 0.31 percentage points QoQ to 13.8%, still within the 13%-14% target range. Among this, the US$1 billion buyback announced in July had an impact of about 0.38 percentage points on CET1. The company expects RWA of about US$275 billion in early 2027, under the impact of increased operational risk RWA in 4Q26 and the implementation of UK Basel 3.1. The bank believes that StanChart has good capital generation capability and can support the business growth and current shareholder return level. Company raises 2026 guidance and maintains positive medium- to long-term guidance The company raised its 2026 revenue growth guidance from 5%-7% to above that range, adjusted its net interest income growth guidance from the previous low single-digit level to 4%, adjusted its full-year cost-income ratio guidance to 60%, and raised its full-year average return on tangible equity (RoTE) guidance from previously above 12% to about 14%. At the same time, the company maintained its medium-term targets of RoTE above 15% in 2028 and about 18% in 2030, and reiterated a compound annual growth rate of 16%-19% (high teens) in earnings per share (EPS) from 2026 to 2028. The bank calculates that StanChart's combined shareholder return from forecast dividends and buybacks in 2027 is about 7%. Risk warnings Escalation of geopolitical conflicts; uncertainty in interest rate policy; deterioration in customer credit quality.