-  We maintain our HOLD rating on Public Bank Bhd (PBB) with an unchanged fair value of RM21.00/share. This is based on unchanged ROE of 19.3% FY14F and an unchanged fair P/BV of 2.7x.

-  PBB’s 2QFY14 annualised net earnings was 9.6% below our forecast, and 5.0% below consensus estimates of RM4,404mil for FY14F. However, our forecast included income impact from the rights issue in 2H; thus we deem the results to be within expectations. PBB declared higher interim dividend of 23 sen for 1HFY14 (1HFY14: 22 sen).

-  Annualised growth came in at 9.9%, which is in line with its earlier articulated loans growth target of 10%-11% for FY14F, and mainly driven by its SME segment which posted an annualised growth of 22.6%. The company alluded that there is some moderation in the consumer segment, which it expects to be offset by its strong SME loans growth. Thus, it is maintaining its loans growth target.

-  NIM declined by 8bps in 2QFY14 (1QFY14: -4bps QoQ) with the higher rate of decline attributed to higher funding costs as depositors price in expectations of a rate hike.

-  Given there is ongoing expectations of another rate hike in December, the company indicated that it expects to see ongoing pressure on cost of funds.

-  Including the rate hike, the company is now guiding for a NIM compression of 10bps to 12bps YoY in FY14F, slightly higher than the earlier indications of a 8bps to 10bps decline YoY for FY14F.

-  Asset quality was stable during this quarter. The company hinted that its asset quality is likely to remain highly resilient despite the rate hike.

-  Nevertheless, it expects some pressure due to the interest rate hike and intends to counter this with increased collection efforts. It remains confident of maintaining its credit costs at less than 20bps in FY14F (2QFY14: 11bps).

-  The 2Q hold no major surprises, with the strong growth areas being PBB’s SME loans. We also like PBB’s proactive stance, given that the company looks well prepared for any possible impact on asset quality arising from the rate hike. We maintain our HOLD rating.

Source: AmeSecurities