Investment Highlights

• We maintain our HOLD call on Public Bank (PBB) with an unchanged fair value of RM4.70/share. This is supported by ROE of 13.3%, leading to FY23F P/BV of 1.7x. No change to our neutral 3-star ESG rating.

• We trim our FY23F/24F earnings by 3%/3.5% to factor in lower net interest margin (NIM) assumptions post-results briefing.

• Core earnings for 12M22 were within our expectations, coming in 4% above our estimate, but ahead of consensus - 12% above street.

• 12M22 core earnings of RM6.6bil grew by 15.9 % YoY, supported by higher NII from loan growth and NIM expansion coupled with lower loan loss allowances. Non-interest income (NOII) decreased by 7.7% YoY, mainly due to a drop in unit trust and stock broking income.

• The group reported an underlying net profit excluding the impact of Cukai Makmur in 4Q22 of RM1.9bil (+8.1% QoQ). The improved earnings were driven largely by higher net interest income (NII) and income from Islamic Banking as well as lower provisions.

• PBT of Public Mutual fell by 11.1% YoY to RM780mil in 12M22. Net asset value of funds under management decreased by 12.2% YoY to RM91.8bil. The retail market share of Public Mutual stood at 35.4%. Meanwhile, for bancassuance business, annualised new premiums (ANP) increased marginally by 2% YoY to RM406.7mil.

• The group’s loans (domestic and overseas) momentum tapered to a slower growth rate of 5.3% YoY in 4Q22 (3Q22: 5.7% YoY). Domestic loans grew by 5.2% YoY, lower than the industry’s 5.7% YoY growth. Meanwhile, international loans moderated to 6.2% YoY.

• CASA growth was subdued leading to a lower CASA ratio of 29.9% in 4Q22 vs. 30.7% in 3Q22.

• NIM in 4Q22 expanded strongly by 16bps QoQ to 2.58%, contributed by OPR hikes. 12M22 NIM rose by 17bps YoY to 2.39% due to higher interest rates and CASA balances.

• Slight uptick in GIL ratio to 0.42%. 12M22 credit cost of 10bps was in line with management guidance.

• Total cumulative conservative provisions remained above RM1bil and management alluded to some write backs on provisions in FY23F. We understand that the write backs in FY23F will not be significant.

• A 3rd interim dividend of 5 sen/share has been declared. This brings the 12M22 total dividends to 17 sen/share, representing a payout of 53.9%.

Source: AmInvest Research - 28 Feb 2023