Investment Highlights

• We maintain our BUY call on Public Bank (PBB) with an unchanged fair value of RM26.00/share based on P/BV of 2.4x, supported by FY19 ROE of 14.1%. Our earnings estimates are unchanged.

• The group reported a core net profit of RM1.38bil in 3QFY18. It declined by 0.9%QoQ due to higher tax expenses and zakat despite recording a slight increase in pre-tax profit. This led to a normalised 9MFY18 earnings of RM4.19bil which climbed 6.2%YoY due to higher total income, lower provisions and taxes partially offset by a rise in opex. NOII for 9MFY18 was flat with lower investment, trading income and FX gains offsetting an increase in net fee and commission income.

• 9MFY18 net profit was within expectations, accounting for 76.0% and 72.8% of our and consensus estimates respectively.

• Year-to-date annualised loan growth was higher at 4.4% vs. 4.1% annualised for 1HFY18, and was line with the group’s targeted growth of 4.0-5.0% for FY18. Domestic loan grew by a similar YTD annualised growth rate of 4.4%. International loans picked up pace supported by expansion of credits in Hong Kong, China and Cambodia.

• Growth in deposits continued to be stronger than loans. YTD annualised deposit growth was 6.5%. Momentum for CASA continued to improve with a YTD annualised growth rate of 3.7%. The group's CASA ratio was steady at 25.5%. Meanwhile, its net LD ratio inched lower to 93.4% with the strong deposit growth.

• Group’s NIM declined by 8bps QoQ to 2.16% in 3QFY18 contributed by higher funding cost as evidenced by a stronger deposit compared to loan growth. We gather that the increase in cost of funds was attributed to a rise in the more expensive corporate deposits as well as the step-up in rates of existing FDs which were booked in through campaigns last year. Management has maintained its guidance for its FY18 NIM to be compressed by a low to mid-single digit from FY17.

• The group's overall GIL ratio remained steady 0.5% vs. the domestic industry's 1.6%. Including its regulatory reserves of RM2.0bil, loan loss cover remained high at 235.8%.

Source: AmInvest Research - 26 Oct 2018