• PBB’s FY23 net profit was 4% below our expectation, due to lower-than- expected non-interest income.

• We expect PBB’s CCOR to be benign at a projected 5bp in FY24F, potentially one of the lowest in the sector.

• Reiterate Add on PBB. Potential re-rating catalysts: write-back in management overlay and increase in dividend payout ratio.

FY23 net profit below our expectation

Public Bank Bhd’s (PBB) FY23 net profit was 4% below our expectation, due to lower-than- expected non-interest income. However, FY23 net profit was within street expectation, accounting for 98% of Bloomberg consensus’ estimates. With a second interim DPS of 10 sen, FY23 DPS totalled 19 sen (translating into a dividend payout ratio of 56%, in line with its dividend policy of more than 50% payout), slightly above our projection of 18 sen. FY23 net profit rose by 8.7%, thanks to the non-recurrence of Cukai Makmur taxation and a 57.1% plunge in loan loss provisioning. Nonetheless, its net interest income slid by 1.2% in FY23, caused by the 19bp contraction in net interest margin.

4Q23 net profit dented by a contraction in net interest margin

PBB’s net profit dwindled by 5.7% yoy in 4Q23, dragged by a 6.4% yoy drop in net interest income, resulting from a 43bp yoy contraction in net interest margin to 2.15% in 4Q23. Meanwhile, non-interest income was flattish in 4Q23 (+0.1% yoy), and 4Q23 loan loss provisioning rose by 7.8% yoy. On a qoq basis, 4Q23 declined by 5%, dampened by a 185.3% yoy surge in loan loss provisioning.

Expecting benign credit cost in FY24F

PBB recorded a credit charge-off rate (CCOR) of only 4bp in FY23, one of the lowest in the sector. This represented an improvement from a CCOR of 10bp in FY22. The bank expects its CCOR to be benign in FY24F at below 10bp. We are projecting a CCOR of 5bp for PBB in FY24F.

PBB’s FY24F guidance

During its conference call on 28 Feb 24, PBB unveiled its guidance for FY24F, including: 1) loan and deposit growth of 5-6%, 2) CCOR of 5-10bp, and 3) ROE of c.12%.

Reiterate Add on PBB

We retain our Add call on PBB, given that it has one of the best asset qualities and one of the lowest credit costs in the sector. Re-rating catalysts: potential partial write-back in management overlay, and increase in dividend payout ratio. Downside risks to our call would be a deterioration in loan growth and asset quality. We maintain our FY24-25F EPS forecasts and our DDM-based target price of RM5.25 (cost of equity of 9.3%; terminal growth rate of 4%).

Source: CGS-CIMB Research - 28 Feb 2024