For its session in CGS-CIMB Regional Financial Conference on 7 Dec 2023, Public Bank Bhd (PBB) was represented Senior COO Ms Chang Siew Yen, and CFO Ms Yik Sook Ling. For its outlook, the bank sees better prospects for loan growth in 2024F, as it expects stronger economic growth and that the various initiatives implemented by the government will improve Malaysia’s economic environment. Although there could still be pressures from deposit competition on banks’ NIM, PBB thinks its NIM performance would be better in 2024F than its guidance of a less-than-20bp contraction in 2023F.
PBB’s management overlay remained high at RM1.8bn at end-Sep 2023. At this juncture, the bank does not have any definite plan for write-back in management overlay (in terms of timing and magnitude). It stated that it would consider a write-back in management overlay should the global economic climate improve. We estimate that every 10% writeback in management overlay would lift PBB’s FY24F net profit by 1.8%.
PBB thinks the contributions from its Hong Kong operations to its profit before tax (PBT) would increase in 2024F due to potential reduction in US Fed Fund rate, which could lead to the expansion in the NIM of its Hong Kong operations. However, the long-term revenue growth remains challenging in Hong Kong due to stiff competition in the market there, according to PBB. PBB sees better business growth prospects in Cambodia and Vietnam especially with its strong market position as the largest foreign bank in Cambodia. PBB has been aggressively expanding its branch network in Vietnam, raising its number of branches from 29 in 2021 to 40 in Nov 2023.
We retain our Add call on PBB premised on the re-rating catalysts of a potential partial write-back in management overlay and increase in dividend payout ratio (PBB raised its dividend policy from a payout of 50% in FY22 to above 50% starting from FY23). Downside risks are a marked slowdown in loan growth and material deterioration in asset quality. We maintain our FY23-25F forecasts and DDM-based target price of RM5.25 (cost of equity of 9.3%; terminal growth rate of 4%).
Source: CGS-CIMB Research - 11 Dec 2023
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