• PBB’s 9M23 net profit was within expectations, accounting for 73% of our fullyear forecast and 74% of the Bloomberg consensus estimate.

• We project an 11.2% yoy increase in PBB’s 4Q23F net profit, primarily underpinned by the absence of Cukai Makmur (CM) taxation.

• Reiterate Add on PBB given the potential re-rating catalysts of a write-back in management overlay and increase in dividend payout ratio.

9M23 Net Profit Within Expectations

Public Bank Bhd’s (PBB) 9M23 net profit was within expectations, accounting for 73% of our full-year forecast and 74% of Bloomberg consensus’ estimate. Net profit rose by a solid 14.3% yoy in 9M23, primarily underpinned by a 78.3% yoy plunge in loan loss provisioning and non-recurrence of the CM taxation. Its 3Q23 net profit also increased, by 7% yoy, driven by a 64.5% yoy drop in loan loss provisioning and non-recurrence of CM taxation.

A QoQ Recovery in 3Q23 Net Interest Margin

The main positive development in 3Q23 was a 3bp qoq recovery in net interest margin, following qoq contractions of 32bp in 1Q23, and 8bp in 2Q23. This enabled PBB to expand its net interest income by 3.4% qoq in 3Q23, reversing the qoq declines of 8.1% in 1Q23 and 2.2% in 2Q23. PBB expects its net interest margin to be largely stable in the 4Q23F (vs. the level in 3Q23) despite risks of a seasonal pick-up in deposit competition towards the year-end.

Projecting 12% QoQ Increase in 4Q23F Net Profit

We are projecting a net profit of RM1.9bn for PBB in 4Q23F, translating to a qoq increase of 12% primarily coming from the continuous qoq expansion in net interest income. This also represents a yoy growth of 11.2% in 4Q23F net profit, primarily underpinned by the absence of CM taxation.

Guidance by PBB for FY23F

During its conference call on 29 Nov 23, PBB guided for a loan growth of 5% for FY23F (vs. our forecast of 4.6%). Its other guidance for FY23F is a less-than-20bp contraction in net interest margin, vis-à-vis our projection of a 15bp compression.

Reiterate Add on PBB

We retain our Add call on PBB premised on the re-rating catalysts of a potential partial write-back in management overlay (which stood at RM1.8bn at end-Sep 23) and increase in dividend payout ratio (our assumption of 50% for FY23-25F vs. the bank’s guidance of more than 50%). The downside risks would be a deterioration in loan growth and asset quality. We maintain our FY23-25F EPS forecasts but raise our DDM-based target price (TP) from RM5.10 to RM5.25 (cost of equity of 9.3%; terminal growth rate of 4%) as we roll over our TP to end-CY24F.

Source: CGS-CIMB Research - 29 Nov 2023