Investment Highlights

• We maintain BUY on Public Bank (PBB) with a slightly higher fair value of RM5.10/share (previously: RM5.00/share) supported by a higher ROE of 12.2% leading to FY25F P/BV of 1.6x. No change to our neutral 3-star ESG rating.

• Our FY24/25/26F earnings have been tweaked by - 0.1%/+1.1%/+2.5% to factor in a slight improvement in NIM and non-interest income as well as an increase in our OPEX projection.

• 6M24 net profit of RM3.4bil was within expectations, making up 51.4% of our full-year estimate and 49.2% of consensus’.

• PBB recorded a higher net profit of RM1.8bil (+7.8% QoQ) in 2Q24. This was contributed by an increase in non-interest income (NOII), lower provisions and a higher share of profit from associates due to changes to accounting policies. 2Q24 saw RM115mil in management overlays written back, leaving an outstanding balance of RM1.7bil.

• 6M24 earnings grew modestly by 3.1% YoY, supported largely by an increase in total income (higher net interest income and NOII), partially offset by OPEX and loan loss allowance. NIM was stable at 2.20% in 6M24 compared to the FY23 average. This was in line with management’s guidance of a stable-to-low single-digit compression for FY24F.

• Non-interest income (NOII) in 6M24 climbed 5.8% YoY to RM1.32bil, underpinned by stronger unit trust/stockbroking income and gains from sale of securities.

• Negative JAW of 5.2% YoY in 6M24 driven by growth in operating expenses (9.4% YoY) outpaced total income (+4.2% YoY). The increase in OPEX was attributed to higher personnel and establishment costs. As a result, the CI ratio rose to 35.3% in 6M24 vs. 33.7% in 6M23 but was still lower than the industry’s 46.9%.

• 6M24 PBT of Public Mutual rose by 10.5% YoY to RM428mil with an increase in net asset value of funds under management to RM103bil (+7.1% YoY). The retail market share of Public Mutual was steady at 35.7%. Meanwhile, in the bancassurance business, annualised new premiums (ANP) grew 14% YoY to RM108mil in 6M24.

• The group’s overall loan growth eased marginally to 6.1% YoY in 2Q24 compared to 6.2% YoY in 1Q24. Domestic loans grew 6.3% YoY in line with industry growth while international loan growth moderated to 3.6% YoY. Focus on lending continues to be on residential property, hire purchase and SME. PBB remains selective in growing corporate loans.

• CASA growth remained subdued at 0.6% YoY while FDs expanded at a faster pace. As a result, CASA ratio slipped to 28% in 2Q24 (1Q24: 28.1%).

• Overall GIL ratio was stable at 0.6%. The domestic GIL ratio stood at 0.4% below the industry’s 1.6%.

• Net credit cost was low at 3bps in 6M24 vs. 1bps in 6M23, contributed by write backs in provisions. 6M24 saw a writeback in loan loss provisioning for retail operations and corporate lending segments.

• An interim dividend of 10 sen/share (payout: 56.5%) for 6M24 has been declared vs. 9 sen/share (payout: 52.4%) in 6M23.

Source: AmInvest Research - 28 Aug 2024