Results

• In line with expectations. PBB 3Q17 net profit of RM1.4bn (+5.5% QoQ, +13.5% YoY) came in within expectations. 9M17 net profit of RM3.98bn (+7% YoY) represented 74.8% and 76.1% of HLIB and consensus forecast respectively.

Deviations

• None.

Dividend

• No dividend was declared.

Highlights

• 3Q17… The sequential rise in loan - loss provision to RM85.9m (+223% QoQ, -7.1% YoY) was offset by NII and NOII which grew to RM2.1bn (+1.3% QoQ, +6.5% YoY) and RM609m (+8.8% QoQ, +26.7% YoY) respectively.

• 9M17… Net profit rose to RM3.98bn (+7% YoY), aided by expansion in NII and NOII by +7% YoY respectively. Despite a dip in loan growth, NII advanced driven by HTM. NOII was lifted by unit trust income to RM670m (+16.2% YoY) and fee and commission income by +5% YoY.

• Loan growth slows further… Loan growth moderated to +4.5% YoY which was in line with revised guidance of 4.5- 5.0% in FY17. Nevertheless, total loans still charted a sequential growth of +1% QoQ. The moderation in loan growth in 9M17 was weighed by further contraction in hire purchase by -3% YoY. It was, however, mitigated by the growth in residential and personal use which rose by +7.3% YoY.

• Flip flop in deposits… Deposit growth eased to +1.5% YoY (2Q17: +1.8% YoY), dragged by CASA slowdown to +8.9% YoY (2Q17: +10.3% YoY), resulting in a reduction in CASA composition to 25.5% (2Q17: +25.6%). Nevertheless, fixed deposits accelerated by +4.2% YoY (2Q17: +3.7% YoY).

• Lower NIM…. NIM dipped by -2bps QoQ to 2.24%. However, for 9M17, NIM expanded to 2.27% on the back of lower money market deposits. Going forward, we expect PBB's NIM to compress at a slower pace in view of the recent stabilisation of average lending rate.

• Trailing management guidance… 3Q17 results proved PBB’s concern of tough operating environment. Nevertheless, the slowdown in loan and deposit growth was well within PBB’s guidance and we expect PBB to heighten efforts in curbing moderating loan growth.

Risks

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

Forecasts

• We lower our earnings forecast by 4% in FY18-19 as we impute (i) higher credit cost in view of MFRS9 implementation and (ii) lower loan growth assumption.

Rating

HOLD ( ↔ )

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

Valuation

• We maintain our HOLD rating with lower TP of RM20.20 due forecast revision. Our TP is derived from GGM (based on ROE and WACC of 16% and 9.5%).

Source: Hong Leong Investment Bank Research - 27 Oct 2017