Results

• In line with expectations. Posted 4Q16 net profit of RM1.4bn (-0.6% YoY, +19.8% QoQ), bringing 12M16 net profit to RM5.2bn (+2.9% YoY), in line with ours and consensus estimates, accounting 102% and 105% full year forecasts respectively.

• Abated loan-loss-coverage (LLC), jump in NIM and volatile treasury income and higher expenses were the key themes in FY2016.

Deviations

• None

Dividend

• Declared second interim dividend of 32 sen, bringing full year dividend to 58 sen, equivalent to 43% payout.

Highlights

• Against its FY16 KPIs… PBK was unable to meet its loan and deposit growth target which were set at 8%-9% and 7%-8% respectively. Nevertheless, ROE, total capital ratio and GIL surpassed group’s target (16.5%, 15.5%, 0.5% respectively) whilst CIR was broadly in line at 32.3%.

• 4Q16… Net profit rose to RM1.48bn (-0.6% YoY, +19.8% QoQ) chiefly driven by slower LLC of RM37.1m (-64% YoY, -140% QoQ) as a result of lower CA writeback, and assisted by higher NII of RM2.0bn (+9.3% YoY, +2.3% QoQ) due to higher AFS sale and Islamic banking income. Due to lower writeback, credit cost for the quarter was higher +1bps.

• FY2016…. Net profit grew to RM5.2bn (+2.9% YoY) underpinned by NII of RM7.8bn (+9.1 YoY). NII was driven by higher NIM of 2.22% and Islamic banking income. However it was offset by rising LLC of RM192m (+31.8% YoY) and overhead expenses of RM3.2bn (+192% YoY). CIR for FY2016 fell marginally to 32.3% (30.5% in FY2015) due to rising expenses across the board.

• The challenging operational conditions brought FY2016 loan growth lower to 7.5% YoY, with domestic loan growing by 7.2% YoY. The key sector for FY2016 was retail operations (landed properties +9.5% YoY, personal use +11% YoY) whilst loan to corporate segment slowed to 0.8% YoY. Loan to SME segment was still high at 11% YoY.

• Deposit missed guidance, growing by 2.9% YoY, due to slowdown in fixed deposit and short term placement, which explained the expansion in NIM to 2.22%.

• Asset quality still the best… GIL touched 0.52% with LLC abated to 102.7%.

Risks

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

Forecasts

• We introduce new FY17 and FY18 forecast with net profit projected to grow 5.0% and 12.2% respectively.

Rating

HOLD ( ↔ )

• While we like Public Bank for strong brand name and market position, we believe the dull domestic environments especially in retail segment may impact its loan growth moving forward.

Valuation

• Maintain Gordon Growth Derived TP of RM19.86 (based on ROE and WACC of 15.8% and 8.7%)

Source: Hong Leong Investment Bank Research - 3 Feb 2017