- We are maintaining our rating on Public Bank Bhd (PBB) at HOLD, with an unchanged fair value of RM16.90/share. This is based on an unchanged FY13F’s ROE of 21.7% and fair P/BV of 3.0x.

- PBB’s annualised 1Q net earnings was 6.4% below our forecast and 7.8% below consensus estimate. The 1Q earnings accounted for 23.4% of our forecast and 23.0% of consensus. The shortfall in comparison to our forecast was due to the non-interest income, which was 11% below our estimate. The soft 1Q was in-line with general expectations, given that historically, 1Q tends to the slowest due to a short working quarter.

- Loans growth was resilient, at an annualised rate of 11.8%, in-line with company’s target of 11%-12% for FY13F. This came mainly from secured non-residential mortgage lending to the SME segment. PBB reported NIM of 2.4% in 1QFY13, unchanged QoQ from 4QFY12’s 2.4%.

- However, non-interest income contracted 1.6% QoQ. The slower non-interest income stemmed from lower commission and service fees, which may be reflective of a generally slow 1Q.

- The absolute gross impaired loans recorded a marginal uptick, by 0.2% QoQ in 1QFY13, the first QoQ uptick in 11 quarters. The uptick came mainly from a real estate non-residential mortgage loan overseas in Hong Kong. Otherwise, domestic impaired loans remained stable.

- Group common equity ratio was at 8.2% in 1QFY13 (vs. 8.5% in 4QFY12). We estimate the adjustment was primarily due to the inclusion of effects from MFRS 119 Employee benefits, which have led to a new deduction item of RM135mil related to defined benefit fund assets from the CET1 capital.

- 1Q is soft in terms of non-interest income, flat capital ratios as well as uptick in impaired loans. There was a slower incremental improvement overall, which we view as reasonable given PBB’s strong base. The bright spots were the relatively strong loans growth with annualised loans growth of 11.8%, and loans approval which expanded 12% YoY, with upcoming loan disbursements likely to contribute to loans growth in 2H.

- With PBB’s share price having appreciated strongly over the past few months, the fair value now represents less than a 15% upside from the current share price. We maintain HOLD.

Source: AmeSecurities