Investment Highlights

• We maintain our BUY call on Public Bank (PBB) with a revised fair value of RM26.00/share (previously: RM26.20/share) after tweaking our estimates for FY18/19/20 by -1.3%/-0.7%/0.7% to account for a slightly slower loan growth ahead as well as adjust our NIM assumptions lower. Our revised fair value is based on an unchanged forward P/BV of 2.4x, supported by an FY19 ROE of 14.1% (previous estimate: 14.3%).

• The group reported a core net profit of RM1.39bil (- 0.7%QoQ) in 2QFY18. This led to 1HFY18 earnings of RM2.8bil, which grew 8.6%YoY supported by higher total income and lower provisions although partially offset by higher OPEX.

• 1HFY18 net profit was in line with expectations, accounting for 50.2% and 48.1% of our and consensus estimates respectively.

• The group’s loan growth picked up pace to an annualised rate of 4.1%. Domestic loan growth of 4.3% annualised was below the industry’s 5.3% annualised growth rate. Meanwhile, growth of international loans remained slow.

• Momentum for CASA picked up pace with CASA ratio climbing to 25.6%. Net LD ratio was unchanged at 93.6% while its gross loan-to-fund and gross loan-tofund and equity ratios improved slightly to 88.8% and 79.4% respectively.

• NIM declined 9bps QoQ in 2QFY18 to 2.24% after the repricing of deposit rates adjusting to OPR hike in 1QFY18. Nevertheless, for 1HFY18, NIM remained stable at 2.28% compared to FY17.

• The group's overall GIL ratio remained steady 0.5% vs. the domestic industry's 1.6%. Including its large regulatory reserves of RM2.0bil, loan loss coverage was 247.9%.

• The group declared an interim dividend of 32 sen/share (payout: 44.3%) in 1HFY18. This was higher compared to 1HFY17’s 27 sen/share (payout: 40.4%).

• Although management highlighted the macro challenges with the global trade tension and normalisation of US monetary policy, coupled with the capital outflow from the emerging markets, its key guidance for FY18 remained largely unchanged. Management has maintained its FY18 ROE guidance of 14.0-15.0%. It is now guiding for a loan growth of 4.0- 5.0% for FY18 compared to 5.0% previously.

Source: AmInvest Research - 15 Aug 2018