Results

• In line with expectations. There was no major surprise on PBB’s 1H17 results as net profit of RM2.57bn came in within expectations, accounting for 48.5% and 49% of HLIB and consensus. 2Q17 net profit of RM1.33bn advanced by +6% YoY and +6.7% QoQ respectively.

Deviations

• None.

Dividend

• Declared first interim dividend of 27 sen, making up 41% payout ratio and equivalent to 1.3% yield for 1H17.

Highlights

• 2Q17. Despite opex accelerated by +9.8% YoY, net profit rose by +6%YoY, driven by growth in the NII and NOII by +8.1% YoY and +13.5% YoY respectively. Growth in NOII was anchored by higher contribution from fee based income related mainly to unit trust income.

• 1H17. Net profit grew modestly by +3.8% YoY, supported by higher contribution from NII by +3.2% which offset the weakness in NOII (-1.1% YoY). NII was driven by Islamic banking (+7.6% YoY) despite higher interest expenses on the back of lower NIM. Credit cost for 1H17 was down to 3bps due to a dip in the individual assessment. This is within our expectations given our credit cost assumption of 10bps in FY17.

• Moderating loan growth. Loan growth moderated to +5.3% YoY, compared to +9.5% YoY in 1H16. On an annualized basis, group and domestic loan growth was at 3.1% and 2.8% respectively. Segmentally, purchase of properties and personal use moderated to +7.0% YoY and +9.4% YoY as compared to +10.7% YoY and in +12.6% YoY in 1H16. Nevertheless, PBB continued to hold up market share of 19.4% for the purchase of residential property.

• Deposit recovery. Deposit growth eased to only +1.8% YoY dragged by across-the-board slowdown, except for CASA. Meanwhile, money market deposit declined by - 13.7% YoY.

• Lower NIM. NIM compressed by -5bps QoQ on the back of expensive deposits. We attribute this to the on-going deposit competitions that drove NIM lower in this quarter. Management maintained its view of single digit NIM compression for FY17.

• Painting tough outlook in 2H17. Citing external environments, PBB revised loan growth target to 4%-5% in 2017. This was evidenced by slower key loan targets, namely purchase of residential and corporate segment.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD ( ↔ )

• The lower guidance introduced in FY17 should translate into moderation in PBK earnings. We also expect the modest consumer sentiments to curb the upside to PBK loan growth target in FY17.

Valuation

• We maintain our HOLD rating but raise our TP to RM20.80 as we roll over our valuation to FY18. Our TP is derived from GGM (based on ROE and WACC of 15.8% and 9.5%).

Source: Hong Leong Investment Bank Research - 26 Jul 2017