Investment Highlights

• We maintain our BUY call on Public Bank (PBB) with an unchanged fair value of RM24.30/share. This is based on a target P/BV ratio of 2.4x, supported by an FY18 ROE of 14.5%. We make no changes to our forecast.

• The group reported a core net profit of RM1.41bil (- 5.4%QoQ, +12.6%YoY) in 1QFY18. On a YoY basis, the improved earnings were supported by higher total income, partially offset by higher OPEX and slightly higher provisions.

• 1QFY18 net profit was in line with our expectation, making up 25.1% of our estimate. Against street numbers, it was 24.1% of consensus expectation.

• The group’s loan (both domestic and overseas) grew at an annualised rate of 3.0%. Domestic loan growth stayed above the industry average but was dampened by the contraction in international loans.

• Momentum for CASA continued to be slow with CASA ratio slipping to 25.4%. Net LD ratio was 93.6% while its gross loan-to-fund and gross loan-to-fund and equity ratios stood at 89.0% and 79.9% respectively.

• NIM improved 6bps QoQ in 1QFY18 to 2.33% benefitting from the OPR hike of 25bps in Jan 18.

• 1QFY18 impaired loans rose marginally by 0.8%QoQ. The group's loan loss climbed to 125.2% due to higher provisions from the adoption of MFRS 9. Including its large regulatory reserves of RM2.0bil, loan loss cover was 261.0%. The group's overall GIL ratio remained steady 0.5% vs. the domestic industry's 1.6%.

• Day 1 impact from the adoption of MFRS 9 saw an increase in provisions by RM451mil (+32%). Despite this, the group’s shareholders’ funds were minimally impacted. Shareholders’ funds rose slightly by 0.7% to RM37.6bil on day 1 of the adoption. This was due to the recognition of unrealised gains on financial assets at fair value through profit and loss (FVTPL) of RM412.4mil and a transfer of RM441.3mil from regulatory reserves to the group’s retained earnings which offset the increase in provisions under the new standard.

• The day 1 impact of MFRS 9 also saw all the group’s capital ratio, CET1, Tier 1 capital and total capital enhanced by 20bps to 12.4%, 13.2% and 16.2% respectively. Elsewhere, loan loss cover strengthened to 126.1% from 95.5% due to the rise in provisions.

Source: AmInvest Research - 3 May 2018