Investment Highlights

• We keep our HOLD call on Public Bank (PBB) as we continue to see the stock as fairly valued. Our fair value has been revised to RM4.40/share from RM3.80/share after rolling over our valuation to FY22, pegging the stock to a P/BV of 1.6x. This is supported by an ROE of 12.4%. We fine-tune our FY21/FY22 net profit by +9.2%/+13.0% to reflect higher loan growth, NIM assumptions and raise our NOII estimate.

• The group reported a lower core 4Q20 net profit of RM1.15bil (-17.6% QoQ) due to further conservative provisions booked for potential credit losses.

• 12M20 core earnings fell 6.3% YoY to RM5.17bil due to the consecutive interest rate cuts impacting net interest income, higher opex and provisions for loan losses. Cumulative earnings were above expectations, accounting for 112.0% and 108.1% of our and consensus estimate respectively. It exceeded our estimate due to higher NII and NOII.

• The group’s loans (domestic and overseas) grew 4.6% YoY. Domestic loans expanded by 5.4% YoY, above the industry’s 3.4% YoY growth.

• Deposits rose 3.5% YoY, supported by a strong growth in CASA, leading to a higher CASA ratio of 28.9%. CASA growth is likely to taper once economic recovery picks up momentum.

• The group’s underlying NIM improved by 9bps QoQ to 2.10% in 4Q20. For 12M20, underlying NIM excluding mod loss slipped 10bps to 2.05%.

• The group’s 12M20 NOII increased by 17.5% YoY to RM2.82bil, underpinned by gains from the disposal of securities, higher unit trust and brokerage income.

• With higher provisions booked in the form of management overlay in 4Q20, the group's credit cost rose to 32bps in 12M20 vs. 5bps in 12M19 and was within management guidance of 30–35bps. Of the total provisions of RM1.1bil in FY20, 60% of it comprised provisions booked in the form of management overlays and adjustments to macroeconomic variable.

• The group declared dividend of 13 sen/share for FY20, resulting in a payout of 51.8% and matching that of FY19.

Source: AmInvest Research - 26 Feb 2021