Investment Highlights

• We keep our HOLD call on Public Bank (PBB). Our fair value has been revised to RM17.70/share from RM16.00/share, pegging the stock to FY21 P/BV of 1.4x (previously 1.3x), supported by a higher ROE of 10.8%. We fine-tune our FY20/FY21 net profit by -1.3%/+0.9% to account for higher NOII estimate and raises our FY20 credit cost to 0.30% from 0.20%.

• The group reported a lower core 3Q20 net profit of RM1.33bil (-4.0% QoQ) despite recording a stronger net income. This was due to further conservative provisions booked which included the management overlay.

• 9M20 core earnings declined 1.7% YoY to RM4.04bil due to the consecutive interest rate cuts impacting net interest income, higher opex and provisions for loan losses. Cumulative earnings came in above our expectation, accounted for 86.3% largely due to higherthan-expected NOII. Meanwhile, PBB’s 9M20 earnings made up for 87.1% of consensus estimate.

• 3Q20 saw a pick-up in the group’s loan growth (domestic and overseas) to 4.6% YoY (2Q20: 3.4% YoY). Domestic loans expanded by 5.4% YoY (2Q20: 3.6% YoY) ahead of the industry’s 4.4% YoY growth.

• Deposit growth stayed modest at 4.8% YoY with a strong growth in CASA balances, raising CASA ratio to 28.5%.

• Excluding modification losses in 2Q20, the group’s underlying NIM improved by 3bps QoQ to 2.01% in 3Q20 attributed to lower funding cost from reprising of liabilities and higher CASA mix. For 9M20, underlying interest margin was reduced by 13bps YTD to 2.02%. This was contributed by the cumulative reduction in OPR by 125bps. Moving forward in 4Q20, NIM is expected to improve further with no further rate cuts and the OPR kept unchanged at 1.75%.

• The group’s 9M20 NOII increased by 17.8% YoY to RM2.1bil. The improved NOII was underpinned by gains from the disposal of FVTOCI securities, and higher unit trust and brokerage income.

• With higher prudential provisions (including management overlay) in 3Q20, the group's credit cost increased to 22bps in 9M20 vs. 5bps in 9M19. The provision buffers are likely be further increased in 4Q20 after management guided for a higher credit cost of 30– 35bps compared to 20–25bps earlier for FY20.

Source: AmInvest Research - 30 Nov 2020