Investment Highlights

• We maintain BUY 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 make no changes to our earnings estimates in view that  the 1Q23 core earnings were within expectations  accounting for 24.8% of both our and consensus estimates.

• Underlying net profit excluding the impact of Cukai Makmur  in 1Q22 grew by 13.8% YoY in 1Q23 to RM1.7bil. The  improved earnings were driven largely by higher net  interest income (NII) and significantly lower loan loss  provisions. Provisions fell by 98.5% YoY contributed by the  writeback in provisions for retail operations and HP  segments.

• The group’s non-interest income (NOII) was subdued with  a growth of 0.7% YoY to RM647mil. Higher FX gains, net  gains on financial instruments and stock broking income  were partially offset by weaker unit trust income. 

• PBT of Public Mutual fell by 4.7% YoY to RM193mil in 1Q23, contributed by lower sales of unit trust funds as a result of  weaker market sentiment. Net asset value of funds under  management stood at RM94.4bil as at 1Q23, an increase of  2.8% from RM91.8bil in 2022. The retail market share of  Public Mutual increased marginally to 35.7% in 1Q23 vs.  35.4% in 4Q22. Meanwhile, for bancassurance business,  annualised new premiums (ANP) rose by 9.8% YoY to  RM102.2mil. 

• The group’s loan (domestic and overseas) growth eased  slightly to 5.2% YoY in 1Q23 vs. 5.3% YoY in 4Q22.  Domestic loan growth moderated to 5.1% YoY, close to the  industry’s 5% YoY expansion. Meanwhile, international  loans grew at a slightly faster pace of 6.9% YoY.

• CASA contracted by 2.9% YoY, resulting in a lower CASA  ratio of 28.9% in 1Q23 vs. 29.9% in 4Q22.

• NIM in 1Q23 was compressed by 32bps QoQ to 2.26%. The  interest margin in 1Q23 was lower than NIM of 2.39% for  FY22. The compression was contributed by tapering  positive impact of 4 previous OPR hikes which cumulated to 100bps in FY22 on asset yield and higher funding cost. 

• Slight uptick in GIL ratio to 0.52% in 1Q23 from 0.42% in  4Q22, driven largely by the impairment of 1 corporate loan in Hong Kong related to the property sector. No provisions  were required for this loan as it is well collateralised.

• 1Q23 credit cost of 0.2bps was well within management  guidance of <10bps for FY23.  

Source: AmInvest Research - 26 May 2023