Investment Highlights

• We keep our HOLD call on Public Bank (PBB) with an unchanged fair value (FV) of RM4.40/share, pegging the stock to FY22 P/BV of 1.6x and supported by an ROE of 12.3%. We continue to see the stock as fairly valued. Our FY21/22/23 net profit has been revised by +4.2%/-0.8%/-0.2% after fine-tuning our NIM and credit cost assumptions.

• PBB reported a stronger 1Q21 core net profit of RM1.53bil (+33.3% QoQ; +15.1% YoY). On a YoY basis, the improved earnings were driven by higher total income partially offset by higher operating expenses (opex) and provisions.

• Underlying earnings for 1Q21 were within expectations, accounting for 27.3% and 27.9% of our and consensus estimate respectively.

• The group’s loan (domestic and overseas) grew by 5.1% YoY or 4.8% annualised. Domestic loans expanded by 4.8% annualized close to the industry’s 4.9% annualized growth.

• PBB’s deposits grew by 3.8% YoY or 2.9% annualised. CASA growth remained strong, leading to a higher ratio of 30.0%.

• In 1Q21, NIM rose by 22bps QoQ to 2.28%. This was contributed by the reprising of deposits and the strong momentum in CASA which lowered funding cost.

• The group’s NOII climbed by 16.6% YoY to RM721mil in 1Q21 supported by higher unit trust, brokerage, fees and commission income. 1Q21 saw stronger unit trust management fees and sales of unit trust. Also, bancassurance income was stronger in the quarter.

• Asset quality was stable with a low GIL ratio of 0.4%, well below the domestic industry's 1.6%. Meanwhile, PBB’s impaired loans decreased QoQ with the percentage of total domestic loans requiring relief in loan repayments rising only slightly to 12.0% in 1Q21 vs. 11.0% in 4Q20.

• The group's credit cost was 23bps in 1Q21 vs. 7bps in 1Q20 and 32bps in FY20. 1Q21 saw no further top-up in provision buffers. Despite some loan delinquencies in 1Q21, provision buffers of RM650mil set aside in FY20 for potential credit losses (management overlays/changes to MEVs) remained unutilized.

Source: AmInvest Research - 12 May 2021