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

- PBB’s 1QFY14 net earnings, if annualised, worked out to be 11.3% below our forecast, and 8.4% below consensus. However, PBB’s 1Q tends to be the slowest quarter in terms of net earnings, due to it being a shorter working quarter.

- Group loans’ annualised growth of 9.8% was in line with its earlier articulated growth target of 10%-11% for FY14F.

- The main driver was SME loans (21.8% of total loans) in this quarter, which registered a robust annualised growth of 25.2%.

- Other than that, consumer segment’s growth is generally modest, with residential mortgage annualised growth at 10.5% and transport vehicle segment’s growth at 7.9%. We believe that the consumer segment’s growth is reflective of the general industry trend.

- NIM fell by 4bps QoQ, due mainly to higher cost of funds for customer deposits. We expect the company to maintain its NIM target of -8bps to -10bps YoY for FY14F.

 - The good news is that the auto impaired loans segment has stabilised, with a +0.6% QoQ rise in 1QFY14 compared to +5.5% QoQ in 4QFY13 and +6.5% QoQ in 3QFY13.

- The 1Q indicate slowing consumer segments, which was compensated by a robust SME loans growth. Other than that, NIM continued to decline, while fee income growth was slower. We are positive on its robust SME growth, but we see limited scope to upgrade earnings for now. We maintain our HOLD rating.

Source: AmeSecurities