Investment Highlights

• We are maintaining our BUY call on Public Bank (PBB) with an unchanged fair value of RM25.00/share. Our valuation is based on FY20 P/BV of 2.1x supported by an ROE of 13.3%. No change to our earnings estimates.

• The group achieved a core net profit of RM1.41bil (+0.3% QoQ; +0.3% YoY) in 1QFY19. Total income growth was flat but a write-back in provisions for loan impairment in 1QFY19 of RM3mil against impairment allowances of RM68mil in 1QFY18 lifted the group’s earnings to a marginal growth.

• 1QFY19 net profit came in within expectations, accounting for 24.8% and 24.5% of our and consensus estimates respectively.

• For the 1QFY19, its loans grew 3.9% annualised or 4.4% YoY, and was in line with our expectation.

• The group’s deposits decelerated to 5.2% YoY after a strong acceleration in 4QFY18. This has resulted in its net LD ratio inching lower to 92.8%. CASA ratio remained stable at 25.5%.

• NIM improved marginally by 1bps QoQ to 2.19%. YTD, the group’s NIM has fallen by 3bps. This was in line with management’s guidance of up to a mid-single digit compression for FY19 due to pressure on funding cost.

• NOII declined by 1.6% YoY in 1QFY19 with lower fee and commission income as well as drop in FX gains partially offset by gains from sale of FVTOCI securities and upward revaluation in FVTPL securities.

• The group continued to record a low GIL ratio of 0.5%, well below the domestic industry's 1.5%. With a regulatory reserve of RM1.89bil, loan loss cover remained high at 244.1%.

• Credit cost in 1QFY19 was -0.004%, lower than our estimate of 0.10% for FY19. This was contributed by the write-back in provisions for stage 1 for expected losses under the MFRS 9 and higher recoveries.

• Capital ratios remained healthy with theCET1 ratio of 12.9%. Potential introduction of D-SIB buffer could be see its minimum CET1 ratio requirements for Basel III raised by either 0.5% or 1.0% to 7.5% or 8.0% respectively.

Source: AmInvest Research - 30 Apr 2019