- We maintain our HOLD rating on Public Bank Bhd (PBB) with a lower fair value of RM19.20/share for FY15F. Our fair value is based revised ROE of 16.6% (from 17.4%) for FY15F’s, leading to a lower fair P/BV of 2.3x (from 2.5x).

- PBB’s FY14 results were comfortably above estimates, with net earnings 2.5% above our forecast and 3.1% above consensus estimates of RM4,384mil. Total tax-exempt dividends of 54sen for FY14 are in line with expectations.

- The group achieved a gross loans growth of 10.8% in FY14, which is sequentially stronger than the annualised loans growth of 9.8% in 3QFY14. Loans growth is therefore on the higher end of the company’s loans growth target of 10%-11% for FY14F.

- NIM fell 9bps QoQ, thus effectively erasing the previous quarter’s gain from the 25bps rate hike which came into effect on 10 July 2014. The company attributes the NIM compression to escalating cost of funds, as well as ongoing effect from yield compression on its asset

- Asset quality remains strong, with gross impaired loans ratio being lowered to 0.6% in 4QFY14, from 0.7% in 3QFY14. Credit costs came in at only 11bps, much less than the company’s target of less than 20bps for FY14.

- The company hinted that asset quality has been fairly stable despite recent macro trends. It expects asset quality to be stable ahead given its stringent credit assessment and resilient customer base. It expects credit costs to be less than 20bps for FY15F as well

- PBB also believes there will be no rate hike this year. We have therefore revised our assumption on interest rate hike (previously: +25bps for 2015) accordingly. We have also assumed slightly higher cost of funds in view of the intensified retail competition. Overall, this led to a 2.5% downgrade in our FY15 net earnings.

- All in, Public Bank has proven again to be reliable in delivering another set of consistent and resilient earnings. We maintain our HOLD rating as there is less than 15% upside (our in-house threshold for buy rating) to our fair value.

Source: AmeSecurities