Investment Highlights

• We maintain our BUY call on Public Bank (PBB) with an unchanged fair value of RM22.20/share. This is based on a target P/BV ratio of 2.1x, implying anFY18 ROE of 14.0%. We make no changes to our forecast.

• PBB reported a core net profit of RM1.41bil (+5.5%QoQ; +13.5%YoY) in 3QFY17. 9MFY17 earnings of RM3.99bil (+7.0%YoY) were within expectations, accounting for 75.7% and 75.6% of our and consensus estimates respectively. 9MFY17 annualised ROE was 15.1% against our expectation of 14.6% for FY17.

• Loan growth moderated in 3QFY17. The group’s loans (domestic and overseas) grew 4.5%YoY, slower than the first two quarters of FY17. Domestic loan growth continued to slip for the fifth consecutive quarter to 4.8%YoY. Annualised year-to-date growth of its loans in Malaysia remained ahead of the domestic industry's growth rate. Overseas loan growth continued to trend lower to 1.8%YoY, underpinned by a slowdown in Hong Kong, China and Cambodia's loans.

• Customer deposit growth continued to be slow at 1.5%YoY, in line with a moderation in loan expansion. 3QFY17 saw a further softening in CASA growth to 8.9%YoY, resulting in a marginally lower CASA ratio of 25.5%. Liquidity improved with a lower net LD ratio of 93.0%.

• NIM continued to be compressed but at a milder compression of 2bps QoQ in 3QFY17 vs. a 5bps QoQ decline in 2QFY17. This was attributed to a higher funding cost. In the near term, we expect NIM pressure from deposit competition to still exist but at a milder extent. This is due to the delay in implementation of net stable funding ratio which is likely to ease the pressure on banks' funding cost.

• 3QFY17 saw smaller upticks in impaired loans by 0.8%QoQ compared to 2.3%QoQ in the preceding quarter. New impaired loans formation in 3QFY17 was lower than in 2QFY17. The group's loan loss cover stabilised at 98.2% after falling below 100.0% in 2QFY17. We continue to be comforted by the group's large regulatory reserves of more than RM2.0bil. Including regulatory reserves, loan loss cover would be above 200.0%. The group's overall GIL ratio remained steady at 0.5% vs. the domestic industry's 1.7%.

• CET1 ratio was 11.7% at group level.

• No dividend has been proposed in 3QFY17.

Source: AmInvest Research - 27 Oct 2017