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

- PBB’s annualised 1QFY15 came in marginally short of our forecast (-4.6%), but is within (-0.8%) consensus estimates of RM4,725mil for FY15F. The main shortfall when compared to our forecast is mainly due to the net interest income and non-interest income lines.

- Loans growth performed better than expected, with an annualised loans growth of 13.1%, exceeding the earlier articulated target of 9%-10% for FY15F. Annualised deposit growth of 12.8% was also above the company’s targeted growth of 9%-10%.

- The company alluded that the higher-than-expected loans growth was partly due to drawdowns relating to a surge in pre-GST demand in March 2015. Thus, despite the stronger-than-expected loans growth, the company is maintaining its loans growth target of 9%-10% for FY15F.

- However, NIM declined by 5bps QoQ and 13bps YoY to 2.15% in 1QFY15, -- the first time that that NIM has fallen below 2.20% in the recent past. The company is targeting a NIM compression of 8bps-10bps YoY for FY15F.

- The lower NIM was mainly caused by higher cost of deposit, as the core gross interest expense related to customer deposits rose 4.0% QoQ, thus outstripping the growth in total customer deposit of 3.2% QoQ.

- Asset quality remains strong, with gross impaired loans remaining low at only 0.6% in 1QFY15 (4QFY14: 0.6%). Loan loss cover strengthened to 128.1% from 122.4% level in the previous quarter. In addition, credit costs remained low at only 12bps during the quarter (4QFY14: 10bps). This is within the company’s target of less than 20bps for FY15F.

- We consider PBB’s 1QFY15 net earnings to be good, as it has once again proven to be consistent, reliable, and resilient. However, based on the latest result, there is still limited scope to upgrade our net earnings.

- We maintain our HOLD rating as there is less than 15% upside (our in-house threshold for a BUY rating) to our fair value.

Source: AmeSecurities Research - 21 Apr 2015