- We maintain our HOLD rating on Public Bank Bhd (PBB) with a lower fair value of RM20.00/share (from RM21.00/share previously) as we roll forward our base year to FY15F. Our fair value is now based on FY15F’s ROE of 17.4% (vs. FY14F’s ROE of 19.3% previously). Given the lower ROE, we derive a lower fair P/BV of 2.5x FY15F vs. 2.7x for FY14F previously.

- Overall cost of funds trend is still quite mixed, judging from our latest company visit. We believe that the cost of deposit for the wholesale segment 1-month tenure have remained stable in the past few weeks.

- On the other hand, fixed deposit campaigns targeted at retail deposits appeared to have intensified with a few fixed deposit campaigns offering as high as 4.25% for 15-month tenures. This is substantially higher than the average 1-year fixed deposit rate of 3.30%. Thus, there appears to be intensified competition for the retail deposit, although the wholesale segment appeared to have stabilised.

- The company had started to sell its treasury shares in the past one month. This is because its 29.8mil treasury shares are considered as too insignificant to be distributed as dividend-in-specie to shareholders. We concur with the view. We estimate that the treasury shares were acquired at an average of RM7.23/share.

- The company had 29.8mil treasury shares in the beginning of this year. The total sold year-to-dateis 9.2mil. We estimate total gain from these to beRM109.8mil, or about RM0.03/share.

- This means that 20.6mil shares remain to be sold. We estimate the remaining portion of 20.6mil treasury shares to lead to a book value increase of RM0.06/share, if the sale is done at an average price of RM19.20/share. The enhancement to book value is thus insignificant.

- The company reckons that industry loans growth is likely to range between 8% and 10% next year, vs. this year’s 9% to 10%. The company reiterated its expectations of moderating retail segments ahead.

- Given the slower growth environment, we find that most of our forecast lines for FY15F have to be downgraded. Overall, our earnings forecasts had to be trimmed by 3.3% for FY15F. We maintain our HOLD rating on PBB.

Source: AmeSecurities