Investment Highlights

• We maintain our BUY call on Public Bank Bhd (PBB) with an unchanged fair value of RM24.30/share. This is based on a target P/BV ratio of 2.4x, supported by a FY18 ROE of 14.5%. We tweaked our FY18/FY19 net profit by 1.4%/-2.2% after fine tuning our loan growth and credit cost assumptions.

• The group reported a core net profit of RM1.49bil (+5.7%QoQ, +0.2%YoY) in 4QFY17. On QoQ basis, the improved earnings was supported by modest growth in total income, lower OPEX and provisions for loan losses.

• It recorded a net profit of RM5.47bil (+5.1%YoY) for 12MFY17 which came in within expectations, accounting for 104.0% and 103.3% of our and consensus estimates respectively. ROE for FY17 was 15.3% vs. 15.9% in FY16.

• The group’s loan (both domestic and overseas) grew at a slower pace of 3.6%YoY compared to 4.5%YoY in the previous quarter. This has been contributed by a softer momentum in domestic and overseas loans. Domestic loans grew 4.6%YoY above the industry's 4.1%YoY.

• Customer deposits grew 3.0%YoY in tandem with loan expansion. 4QFY17 saw a further slowdown in CASA growth to 6.6%YoY. CASA ratio remained stable at 26.0%. Net LD ratio was 94.9% while its gross loan to fund and gross loan to fund and equity ratio stood at 90.0% and 80.7%.

• NIM improved 3bp QoQ in 4QFY17 to 2.27% due to management of funding cost. For 12MFY17, NIM rose 8bps YoY to 2.28% with a decline in the expensive wholesale deposits while pricing for loans was stable.

• 4QFY17 impaired loans declined by 1.6%QoQ. New impaired loans formation in 4QFY17 was lower than the 3QFY17. The group's loan loss cover slipped to 95.5% due to lower collective and individual allowances with its asset quality continued to be strong. Including its large regulatory reserves of RM2.4bil, loan loss cover was 256.0%. The group's overall GIL ratio remained steady 0.5% vs. the domestic industry's 1.5%.

• CET1 ratio was 12.2% at group level. The day 1 impact of MFRS 9 on the group capital ratios will be minimal. We remain comfortable with its large regulatory reserves of RM2.4bil which will cushion the impact on the group's capital ratios from the adoption of the new accounting standard.

• A 2nd interim dividend of 34 sen been proposed bringing the total dividends to 61 sen (payout: 43.1%), above our estimate of 58 sen for FY17.

Source: AmInvest Research - 23 Feb 2018