Investment Highlights

• We are maintaining our HOLD call on Public Bank (PBB) as we see ROEs declining which will reduce the stock’s premium valuation compared to its peers. We lower our fair value to RM19.00/share (from RM21.20/share). Our valuation is now based on a lower FY20 P/BV of 1.6x supported by an ROE of 12.1%. Our estimates have pencilled in the impact of the 25bps OPR cut on 22 Jan 2020. We are further lowering our FY20/21 earnings estimates by 4.2%/5.6% to RM5.46bil/RM5.76bil after factoring in another rate cut of 25bps in 1H 2020. Arising from this, we have imputed the impact of a total 50bps cut on the OPR into our estimates for FY20.

• 4Q19 net profit came in at RM1.41bil which was higher by 3.2% QoQ contributed by a stronger total income (improved NII and NOII), and lower provisions partially offset by rise in overhead expenses.

• 12M19 core earnings of RM5.5bil fell slightly by 1.4% YoY largely due to modest topline growth with the group’s NII impacted by the OPR cut of 25bps on May 2019.

• Cumulative earnings were within expectations, making up 98.9% of our and 99.5% of consensus estimates. The group delivered an ROE of 13.0% for 12M19, close to our estimate of 13.3%.

• The group’s loan (domestic and overseas) expanded by 4.1% YoY. The domestic loan growth of 4.5% YoY continued to outpace the industry’s which recorded a 3.9% YoY growth.

• Deposits grew 4.2% YoY in tandem with loans. CASA ratio inched lower to 25.1%.

• 4Q19 NIM improved by 5bps QoQ to 2.17% as funding cost declined with the repricing of deposits to lower rates, adjusting to the OPR cut of 25bps in May 2019. For FY19, NIM fell 7bps to 2.15% in line with management’s guidance. On Jan 2020, BNM further cut the benchmark rate by 25bps to 2.75% and this will impact the group’s NIM by 3–4bps. Another rate cut is imminent with the market pricing in at least another 25bps OPR cut based on the difference observed between the interest rate swap and KLIBOR rate.

• The group continued to record a low GIL ratio of 0.5%. Credit cost stayed low at 5bps for FY19 and was in line with our estimate.

• A final dividend of 40 sen/share has been declared bringing the full FY19 dividends to 73 sen/share (payout: 51.4%). This was slightly higher than our projection of 69 sen/share. For FY20, management is guiding for a dividend payout of 50.0%.

Source: AmInvest Research - 27 Feb 2020