Investment Highlights

• We maintain our HOLD call on Public Bank (PBB) with an unchanged fair value of RM4.70/share. This is supported by an ROE of 13.7%, leading to FY23F P/BV of 1.7x. No change to our neutral 3-star ESG rating.

• We fine-tune our FY22F/23F/24F earnings by 2.2%/1.4%/2.3% to factor in lower credit cost assumptions. Core earnings for 6MFY22 were within expectations, accounting for 49% of our estimate and 53% of consensus forecast.

• 6MFY22 core earnings came in at RM3.1bil, a growth of 5.5% YoY. Stronger NII from loan expansion, higher NIM and lower loan loss allowances were partially offset by a decrease in NOII due to a drop in unit trust, stock broking, investment and trading income.

• PBT of Public Mutual fell 7.7% YoY to RM392bil in 6MFY22. Owing to the volatility in the market, the value of funds was impacted. This has resulted in a lower net asset value of funds under management of RM92.1mil. The retail market share of Public Mutual slipped slightly QoQ to 35.2%.

• The group reported an underlying net profit (excluding the impact of Cukai Makmur) in 2QFY22 of RM1.6bil (+4% QoQ). The improved earnings were contributed largely by higher net interest income (NII) and lower provisions.

• The group’s loans (domestic and overseas) accelerated to 4.5% YoY in 2QFY22 with domestic loans registering a higher growth rate of 4.3% YoY. Meanwhile, international loans expanded at a faster pace of 7.8% YoY.

• Growth in low-cost deposits gained traction to a higher 10.8% YoY leading to a higher CASA ratio of 31.8%.

• In 2Q22, NIM expanded by 5bps QoQ to 2.29% contributed by the OPR hike of 25bps in May 2022. YTD NIM climbed by 4bps to 2.26%.

• Asset quality remained stable with GIL ratio of 0.3% below the domestic industry's 1.7%.

• 6MFY22 credit cost of 10bps was within management guidance of < 20bps for FY22F.

• No additional provisions (management overlays) were set aside in 6MFY22 as the pre-emptive provisions raised earlier had been sufficient. Total cumulative conservative provisions raised were sustained at RM1.7bil and these remained unconsumed (not allocated to specific impaired loans).

• An interim dividend of 8 sen per share has been declared resulting in a payout of 55.2%.

• We continue to see the stock as fully valued, trading at 1.7x FY23 PB/V with limited upside potential. The stock continues to be at a premium valuation compared to the sector average PB/V of 1.0x.

Source: AmInvest Research - 30 Aug 2022