- We maintain our HOLD rating on Public Bank Bhd (PBB) with a slightly lower fair value of RM19.00/share (from RM19.20/share previously) for FY15F. Our fair value is based on a lower ROE of 16.5% (from 16.6% earlier) for FY15F, leading to a fair P/BV of 2.3x.

- PBB indicated that post GST, it had seen a slowdown in loan demand, although it believes that it has stabilised recently.

- In terms of industry loans growth trend, the company indicated that it still expects industry loans growth to range between 8% and 9% for 2015F.

- This is despite the industry’s annualised growth at only 5% for the first four months. The company believes the slower growth was largely due to lumpy corporate repayments.

- The rise in deposit growth for the industry in March 2015, was largely related to the surge in loan drawdown before GST. These were temporarily placed in short-term deposits pending utilisation of payments before GST kicks in. Therefore, the trend is expected to have normalised post GST.

- The company also indicated that the wholesale deposit rates have stabilised, with the peak in the December 2014 quarter.

- In terms of retail fixed deposit, the company intends to maintain some of its fixed deposit campaigns, mainly to secure more stable longer-term funding. Thus, while wholesale deposit funding costs have improved, retail deposits remained competitive.

- Asset quality is also holding up well. PBB believes this is mainly because of its customer profile, which are primarily owner-occupiers. There are also no signs of stress for its SME loan portfolio currently.

- Overall, we have tweaked our earnings forecasts but have not made major changes to our assumption.

- The company visit provided three encouraging indicators: (a) cost of wholesale deposit continued to ease. This is somewhat offset by the ongoing competitive retail deposit; (b) signs of stabilisation in loan demand slowdown post GST; and (c) PBB’s asset quality remains excellent.

- 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 - 30 Jun 2015