Public Bank’s 9M18 net profit of RM4.18bn (+5%) came in within expectations, accounting for 71.8% and 72.8% of our and consensus full year forecasts. The 5% earnings growth achieved YTD was driven by lower provision (-24.9%), higher NII (+2.8%) and 4.4% loan growth. Total deposits eased to 3.8% YoY (from +4% in 1H18), due to slower FD growth of 3.4% YoY. GIL remained stable at 0.52% as Malaysia remained the key driver. No change to our earnings forecasts and GGM-derived TP of RM26.00 (9.4% COE and 8.3% WACC). Maintain HOLD rating.

Results in line. Public Bank’s 3Q18 net profit of RM1.38bn (-1.5% YoY, -0.9% QoQ) took 9MFY18 net profit to RM4.18bn (5% YoY). The results came in within expectations, accounting for 71.8% and 72.8% of our and consensus full-year net profit forecast.

Dividend. No Dividend Was Declared.

YoY and QoQ. 3Q18 net profit declined by 1.5% YoY to RM1.38bn stemming from lower NOII by (-8.7%) and higher opex (+5.2%), but partly offset by lower provision (- 43.1%, arising from higher recoveries). On QoQ basis, net profit moderated by 0.9% as higher NOII (+4.4%) and lower opex (-1%) were more than offset by a surge in provision by 43.1%.

YTD. 9M18 net profit increased by 5% YoY to RM4.18bn. The better results were driven by slower provision (-24.9%) and higher NII (+2.8%). Despite higher contribution from unit trust, NOII was flat at RM1.68bn due to lower contribution from forex income.

Loan growth stronger. Loan growth picked up by 4.4% YoY (vs. 4.1% YoY in 1H18) underpinned by loan growth in Malaysia (+4.4%) and Cambodia (+4.3%). Public Bank managed to drive commendable growth across its household-related loans driven by residential (+8.6% YoY), personal use (+6% YoY) and credit card (+5.5% YoY). Likewise, the better sentiment flowed into hire purchase loan which recovered after 3 months of weakness, rising by 0.3% YoY.

CASA expands at a faster rate. Despite stronger CASA growth of 4.1% YoY (3.8% YoY in 1H18), total deposits growth eased to 3.8% YoY (vs. +4% YoY in 1H18) caused by slower FD growth of 3.4% YoY (vs. 4.4% in 1H18). NIM remained on a compression mode, declining by -8bps to 2.16% (9M18) attributed to the more expensive funding cost in view of OPR hike in Jan-18 which has flowing into longer term FD.

Stable asset quality position. GIL remained stable at 0.52% despite some weakness in ex-Malaysia GIL, particularly in in HK and China. However, we note that these 2 markets accounts for only 6% of PBB’s GIL. Credit cost was stable at 11bps mainly due to the lower provision.

Forecast. We leave our forecast unchanged as the results were inline.

Maintain HOLD, TP: RM26.00. We believe that demand for Public Bank’s retail loan will slow down in the upcoming quarter with the end of tax holiday period in Sept-19. We maintain our HOLD rating on Public Bank with unchanged TP of RM26.00 based on Gordon Growth (i) 9.4% COE; and (ii) 8.3% WACC.

Source: Hong Leong Investment Bank Research - 26 Oct 2018