- We maintain our HOLD rating on Public Bank Bhd (PBB) with an unchanged fair value of RM19.20/share. Our fair value is based on an unchanged ROE of 15.8% for FY16F, leading to a fair P/BV of 2.2x.

- PBB’s annualised 3QFY15 net earnings was 2.2% below our forecasts, but came in line with consensus forecasts of RM4,744 mil for FY15F.

- The 9M net earnings make up 73.2% of our and 75.2% of consensus forecasts for FY15F. Thus, net earnings are in line with expectations, in our view.

- NIM unexpectedly improved by 5bps QoQ to 2.16% in 3QFY15, from to 2.11% in 2QFY15.

- This was due mainly to stabilisation in cost of funding for certain segments. We understand there was run-off of the more expensive wholesale deposits which were locked in towards end-2014, and subsequently matured in the following two quarters.

- In addition, there was also a deliberate increase in the group LDR to a more efficient level of 90.5% in 3QFY15, from 87.6% in 2QFY15. This is to be more in line with other peers. Given the slowing deposit growth for the industry, the company believes LDR may still move up comfortably by a couple more percentage points.

- The non-interest income line did particularly well in this quarter, with a large 15.9% QoQ in 3QFY15 (2QFY15: +3.4% QoQ).

- This was boosted mainly by a large foreign exchange profit. We understand the improvement was contributed by:- (a) much larger volume following increased forex activities by third-party customers due to currency volatility; (b) improved spreads due to currency volatility; and (c) some translation gain from non-operating items.

- Asset quality was stable, except for a 15% QoQ rise in working capital impaired loans, albeit from a small base (working capital impaired loans ratio remained loan at only 0.6%). We are reassured though that the increase was not contributed by any particular accounts or segments, and may be partly related to translation effects of some of its overseas operations.

- All in, PBB did well in 3Q in terms of better-than-expected NIM and forex gains. 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 - 23 Oct 2015