• Maintain NEUTRAL and MYR4.40 TP, 0% upside with c.4% FY24F yield. Public Bank is expected to report its 4Q23 results on 28 Feb. We think reported 4Q PATMI could be flat to slightly higher QoQ and YoY, vs our 4QF PATMI (-3 to -4% QoQ and YoY) implied from our FY23F bottomline of MYR6.7bn (+9% YoY, Street: MYR6.8bn). On a full-year basis, the variance is not expected to be material. While we have no major concerns on the group, we prefer banks with stronger growth prospects.

• Operating income – sequentially flat to a slight rise. In line with banking system statistics, we expect Public Bank to sustain its loan growth momentum (3Q23: +2% QoQ, +5% YoY) into 4Q23, partly offset by NIM pressure due to seasonal deposit competition and – potentially – the lagged impact from May’s Overnight Policy Rate increase. The bank’s observation of the 4Q23 deposit competition is similar as that of peers and, while some banks offer promotional deposit rates of >4%, it has refrained from such aggressive pricing. As for non-II, this tends to be relatively more stable and, on the whole, we think 4Q operating income could be flat to slightly higher QoQ – but down YoY due to NIM pressure.

• Credit cost likely lower than expected due to ample buffers. Similarly, we think opex and loan impairment trends should be relatively stable QoQ. Notwithstanding that, Public Bank’s GIL may continue to rise. Management attributed this to the expiry of repayment assistance programmes, and thinks the peak may not be too far off. As long as the upward pressure on GIL stays confined to borrowers that took the repayment assistance programmes, overall credit cost should continue to stay low, as pre-emptive provisions have already been set aside. Public Bank’s 9M23 credit cost was 2bps (annualised) vs our FY23 6bps estimate, and this is likely to be the key variance between its reported 4Q results and our implied forecast. We continue to expect LLC levels (Sep 2023: 187%) to normalise closer to pre- pandemic levels of c.125%.

• Dividends. We expect a 4Q DPS of 9.5 sen to be declared, which would bring FY23 DPS to 18.5 sen – in line with the consensus forecast (FY22: 17 sen). This is based on a payout of c. 54%, ie similar to that of FY22.

• What are we watching out for? With auto sales set to ease this year after 2023’s record high TIV of c.800k units (RHB 2024F: 625k units or -22% YoY), this has implications on Public Bank’s loan growth prospects and NIM (auto loans carry better yields vs mortgages) – since the bank is a major auto lender. We would be keen to hear if the SME book can pick up some of the slack and help cushion the yield pressure. YTD 9M23 SME loans rose 1%, vs 4% for overall group loans – possibly as Public Bank continues to observe the segment’s recovery from the pandemic. Also, options on potentially cutting deposit rates to cushion against asset yield pressures would be helpful.

• Forecasts and TP retained. Our MYR4.40 TP includes a 4% ESG discount.

Source: RHB Research - 20 Feb 2024