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

- PBB’s 2QFY15 net earnings, if annualised, came in just slightly below our forecast (-2.5%), but is in line (+0.3%) with consensus estimate. The 1H net earnings make up 49.8% of our and 49.9% of consensus forecasts for FY15F. Thus, we consider net earnings to be in line with expectations.

- At the results briefing, we get the sense that the company is generally more guarded in its 2H outlook. In terms of industry mortgage loan growth, PBB alluded that the industry loans growth was largely supported by loans approval earlier in 2013.

- Thus, this had supported loans disbursements after 2013, particularly in 2014. Given that PBB was less aggressive than the industry in terms of loans approval in 2013, which was attributed to PBB sustaining its credit standards, PBB expects residential mortgage loans growth ahead to moderate in line with industry.

- PBB’s loans growth applications have slowed down compared to previous periods, although it considers this to be relatively stable. Its rejection rates were also stable.

- NIM recorded a net total compression of -9bps HoH in 1HFY15, with the main reason being intense deposit competition. In contrast, loan yields have been relatively stable.

- Following its 1HFY15 trend, PBB now expects a higher compression in NIM of -12bps (compared to the earlier -8bps to -10bps guidance) YoY for FY15, due mainly to higher cost of funds arising from intense competition for retail deposit.

- Asset quality was stable in 1HFY15. PBB expects asset quality trend to be sustained for the rest of 2015. It is still maintaining its guidance of less than 20bps for credit costs.

- All in, there was a slowdown in selected loan segments on a QoQ basis in PBB’s 2QFY15 results, although this is not a major surprise given 2QFY15 is reflective of post- GST demand. Otherwise, net earnings was in line while asset quality remained excellent. 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 Research - 31 Jul 2015