CEO Morning Brief

Analysts Remain Positive on Public Bank, But Say Seasonal Rush to Capture Deposits May Limit NIM Recovery

Publish date: Fri, 01 Dec 2023, 08:52 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (Nov 30): Analysts maintained their "positive" stances on Public Bank Bhd despite diverse reactions to its earnings for the nine-month period ended Sept 30, 2023 (9MFY2023).

Kenanga Investment Bank Bhd said the bank’s 9MFY2023 net profit, which expanded 14.25% to RM5.03 billion from RM4.4 billion a year earlier, is within the research house’s expectations, making up 74% of Kenanga’s full-year forecast and 75% of consensus full-year estimate.

“Post results, our FY2023F/FY2024F [ending Dec 31] earnings undergo minor tweaks (-1%/+1%) following 3QFY2023’s inputs,” said the research house in a note. It maintained its "outperform" call and kept its target price (TP) at RM4.75.

Public Bank had indicated that net interest margins (NIMs) should not decline by more than 20 basis points from FY2022, where it stood at 2.39%, supported by a rebound in deposit rates, contributing to improved banking operations. However, the seasonal rush to capture deposits in the fourth quarter may limit the upside towards the bank’s NIM recovery, said Kenanga Research.

The bank is anticipated to reach its loans growth target of 4%-5% for FY2023, supported by its robust presence in the mortgage sector, although the growth may be somewhat tempered compared to FY2022 due to the prevailing higher interest rate environment, said Kenanga Research.

“At the meantime, appetite remains stable for hire purchases and SME (small and medium enterprise) accounts. That said, the group emphasised on only acquiring quality assets as to not compromise its books.

“Public Bank is expected to continue commanding the leading GIL (gross impaired loan) ratio amongst peers (0.4% versus peers’ average of 1.7%) which could be attributable to its densely collateralised housing loan portfolio. While the stock may not have the highest dividend yield, the possibility for a more than biannual dividend payment could be of interest to certain investors,” said Kenanga.

The 9MFY2023 earnings also met 74% of Hong Leong Investment Bank (HLIB) Research's full-year estimates. The research house anticipated that the bank's NIM will remain relatively stable in the next quarter, based on the assessment that competition in fixed deposit rates is still fairly mild.

“Loans growth is seen to chug along for now. Separately, we expect asset quality to be resilient given its prudent and conservative credit origination practices. Furthermore, its domestic delinquency rate of 1.5% is trending below pre-pandemic level of >3%,” said HLIB.

“Even if GIL ratio were to spike in the short term (due to macro headwinds and tight monetary policy), we are not overly concerned as 94% of Public Bank’s loans are collateralised and LLC (loan loss coverage) is now at 187% versus pre-pandemic level of 120%,” said the research house, which maintained its "buy" call and TP of RM4.80 on the stock. HLIB also made no change to its earnings forecasts.

MIDF Investment Bank Bhd, on the other hand, said Public Bank’s 9MFY2023 core net profit of RM3.33 billion fell short of the research house's full-year forecasts by 47%. To reflect lower fee income growth, MIDF trimmed its earnings forecasts by 3% for FY2023, 1% for FY2024 and 1% for FY2025.

MIDF kept its "buy" call, but with a lower TP of RM4.68, from RM4.76. “The TP is based on a revised FY2024F P/BV [price-to-book value] of 1.58x (previously 1.59x), to reflect altered earnings prospects and ROE [return-on equity] based valuations.”

“Public Bank has been gradually increasing its payout from 50% to ~52% as of late. Management has confirmed that such increases are sustainable, and the group will continue increasing the payout gradually,” MIDF added.

At the time of writing on Thursday, Public Bank shares were trading up three sen or 0.71% at RM4.27, giving it a market value of RM82.69 billion.

Read also:
Public Bank's 3Q net profit rises 7% to RM1.7 bil

Source: TheEdge - 1 Dec 2023

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