- We downgrade our rating on Public Bank Bhd (PBB) to HOLD (from BUY previously), with an unchanged fair value of RM19.80/share. This is based on an FY14F ROE of 21.2% and a fair P/BV of 3.0x.

- Our downgrade is due mainly to PBB’s strong share price performance. This has now reduced the upside to our fair value to less than 15%, which is our in-house minimum threshold for a buy rating.

- PBB’s full year net earnings is in line, at 1.7% below our forecast, and 2.0% below consensus estimate of RM4,148mil FY13F.

- PBB also announced a final single-tier dividend of RM0.30/share. Together with the single-tier interim dividend of RM0.22/share in 1HFY13 earlier, this brings the total tax-exempt dividends for FY13 to RM0.52/share. This is within our forecast of RM0.53/share and consensus forecast of RM0.538/share.

- The 4Q results were positive given the strong top line growth. Loans growth was 11.8%, which is at the top end of the company’s earlier guidance of 11% to 12%. NIM decline of 12bps YoY was within expectations. Asset quality is also stable with gross impaired loans ratio remaining low and unchanged at 0.7%. Loan loss cover strengthened further to 118.5% in 4QFY13 from 117.3% in 3QFY13.

- However, PBB continued to see some uptick in the auto impaired loans segment (+5.5% QoQ), attributed to more stringent in-house classification criteria and selected delinquency trend observed for certain auto segments. Otherwise, residential mortgage impaired loans had stabilised in this quarter, halting the upward trend seen in the previous three quarters.

- There was some softening in the investment and trading income line, with net total estimate of RM33.4mil in 4QFY13, compared to RM58.7mil in 3QFY13. We believe this is due to the steepening yield curve, which led to lower gains for its securities portfolio.

- Looking ahead, the company hinted that residential mortgage loans applications had shown some softening in the recent weeks of January, possibly due to the latest property measures that came into effect in the beginning of this year. It expects asset quality to remain intact.

- The latest set of results is in line. Given generally slower macro growth environment, this leaves little room for us to upgrade earnings ahead. However, we expect share price to hold up well given its highly resilient earnings.

Source: AmeSecurities