Results

• FY15 core net profit of RM4,892m (excluding RM107m gain from revaluation of investment properties) came in within our expectations (accounting for 103.4% of our forecast) but beat consensus by 5%.

Deviations

• Largely in line.

Dividend

• Declared 2nd interim DPS of 32 sen (entitlement date: 22 Feb 16; payment date: 1 Mar 16), bringing total DPS for the year to 56 sen.

Highlights

• With the exception of deposit growth (which fell short of its target marginally), overall results were ahead of its FY15 key performance targets.

• 4Q15 earnings growth of 17.5% yoy (net of investment property revaluation gain) was sustained by above indust ry loan growth, non-interest income, contained overhead expenses, as well as provision write-back. All these were partly offset by NIM compression (arising from intense competition for deposits, which has in turn resulted in higher deposit cost).

• LDR increased to 90.3% (from 89.8% in 3Q15 and 88% in 4Q14), as growth in deposits lagged behind loan.

• Asset quality continued to improve, both in absolute terms and ratio, while LLC, on the other hand, declined to 120.8% (from 130.8% in 3Q15 and 122.4% in 4Q14).

• FY16 KPIs lower than FY15 achievements on the back of more challenging environment but asset quality to remain robust with contained credit cost.

Risks

• Unexpected jump in impaired loans, lower than expected loan growth and higher than expected erosion in NIM

Forecasts

• FY16 net profit forecast lowered by 2.8%, largely to reflect lower loan growth assumption of 9% (vs. 9.5% previously), which is closer to management’s target of 8-9%.

Rating

HOLD

Positives

• Above industry asset quality and stronger capital position post rights issue;
• Excellent track record in delivering guidance and consistency in growth.

Negatives

• Uncertainty on quantum of counter cyclical buffer;
• ROE dilution from rights issue.

Valuation

• Post earnings revision, target price was lowered by 1.9% to RM18.50, based on Gordon Growth with ROE of 15.8% and WACC of 8.5%. While we like Public Bank for strong brand name and market position, as well as its sustained quality loan growth, we believe further upside is capped by its rich valuation (FY16 P/E of 14x, vs. industry average FY16 P/E of 9.5x). Hence, we are maintaining our HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 4 Feb 2016