- We maintain our BUY rating on Public Bank Bhd (PBB), with an unchanged fair value of RM19.80/share. This is based on FY14F ROE of 21.4% and a fair P/BV of 3.1x.

- Based on our latest company visit, we now expect PBB to likely target loans growth of 11% to 12% for FY14F, similar to that for FY13F. The loans indicators so far have been stable, with PBB remaining confident of achieving its loans growth target for FY13F. These would be from its three major segments, i.e. residential mortgage, auto and SME.

- Asset quality remains strong, with no major deterioration in its loans portfolio. We believe that the company will likely maintain a credit cost target of less than 20bps for FY14F.

- The company indicated that the internal capital adequacy assessment process (ICAAP) report required under Pillar 2 of BASEL 2 has already been submitted to the central bank in March 2013. Following the submission, we believe that the report is being assessed by the regulators. We understand it is unlikely that the banks will be required to disclose the additional buffer capital required under ICAAP. But given the latest submission, we believe the banks’ current capital levels are sufficient to include any possible buffer arising from the ICAAP study, and therefore ICAAP should no longer be a major concern for the banks in general.

- The remaining outstanding additional buffers that are not yet determined include the counter-cyclical buffer, which is expected to be announced before the implementation date in 2016. Secondly, there is also a possibly capital buffer required for domestic systematically important financial institutions (SIFI). Based on the latest indications, we remain convinced that PBB is unlikely to require any major capital raising ahead.

- We remain positive given these three new indicators from our company visit:- (1) PBB is likely to target a similarly high loans growth of 11% to 12% for FY14F, despite recent household measures; (2) strong asset quality with credit costs likely to be less than 20bps in FY14F; and (3) capital is unlikely to be a major issue, with ICAAP submission now out of the way.

- We remain positive on PBB. We foresee re-rating catalysts from:- (a) confirmation of higher CET1 ratios; (b) affirmation of resilient investment and trading income; (c) decent loan growth; (d) ongoing excellent asset quality; (e) rising dividend; and (f) likelihood of little capital raising requirements ahead. The company will likely release 3Q results on 22 October.

Source: AmeSecurities