Investment Highlights

• We are maintaining our BUY call on Public Bank (PBB) with an unchanged fair value of RM23.60/share. Our valuation is based on an FY20 P/BV of 2.0x supported by an ROE of 13.0%. We tweak our FY19/20 earnings marginally by 0.7%/0.4% to RM5.57bil/RM5.81bil by adjusting our net interest income estimates. Valuation remains attractive with the stock trading at 1.7x FY20 PB/V which is more than 2 standard deviations below its 5-year historical average PB of 2.3x. Asset quality is benign with no concerns on impairments of any large corporate loans. NIM is expected to recover in 4Q19 from repricing of deposits after the OPR cut of 25bps in May 2019 and BNM maintaining the OPR at 3.00% after the recent MPC meeting on 5 Nov.

• 3Q19 net profit came in at RM1.36bil which was higher by 2.2% QoQ contributed by a marginal increase in total income, lower operating expenses and provisions partially offset by higher taxes.

• 9M19 core earnings of RM4.1bil declined modestly by 1.9% YoY despite lower provisions. Overhead expenses grew at a faster pace than operating income resulting in a negative jaw of 4.0%. Cumulative earnings were within expectations, making up 74.2% of our and 73.8% of consensus estimates. The group delivered an ROE of 13.1% for 9M19, in line with our estimate.

• The group’s loans (domestic and overseas) picked up pace slightly to a higher annualized rate of 4.2%. Domestic loans grew by an annualized 4.4% continuing to outpace the industry which recorded a 3.3% annualized growth.

• YTD growth in group’s deposits fell to 3.2% annualized. CASA ratio remained stable at 25.4%.

• 3Q19 NIM was stable at 2.12% QoQ supported by lower interest expense from the slowdown in customer deposits to manage funding cost. We believe that this has mitigated some impact from the 25 bps OPR cut in May 2019. Also, it has resulted in a slight increase in the group’s net LD ratio to 93.7%.

• NOII grew by 5.8% YoY in 9M19 with gains from financial instruments offsetting a weaker fee income.

• The group continued to record a low GIL ratio of 0.5%, well below the domestic industry's 1.6%. Credit cost in 9M19 stayed low at 5bps attributed to lower expected credit losses, and was in line with our estimate.

Source: AmInvest Research - 8 Nov 2019