Public Bank has proposed a 4 for 1 share bonus issuance. We are positive on this exercise as it will enhance liquidity and marketability of its shares, although theoretically, there are no fundamental changes. Expected completion by 1Q21. Post bonus issue, our TP will be lowered to RM3.95 to reflect the enlarged share base. For now, our forecasts are unchanged. Overall, the risk-reward profile of the stock remains balanced. Reiterate HOLD and GGM-TP of RM19.70, based on 1.52x FY21 P/B.

NEWSBREAK

Public Bank has proposed a 4 for 1 share bonus issuance. In turn, its share base will eventually enlarge to 19.4b from 3.9b currently. The rationale of this exercise is to: (i) reward existing shareholders, (ii) make price point appear affordable and appealing, along with (iii) enhance trading liquidity. Expected completion by 1Q21.

HLIB’s VIEW

We are positive on this exercise as it will enhance liquidity and marketability of Public Bank’s shares, although theoretically, there are no fundamental changes. Post bonus issue, our TP will be adjusted to RM3.95 to reflect the enlarged share base

Forecast. Unchanged pending the completion of the bonus exercise. Essentially, EPS will be revised down by 5-fold.

Retain HOLD and GGM-TP of RM19.70, based on 1.52x FY21 P/B with assumptions of 11.2% ROE, 8.4% COE, and 3.0% LTG. This is above the sector’s P/B of 0.8 9x but beneath its 5-year mean of 1.91x. The premium/discount is justifiable considering its ROE output, which is 3ppt/4ppt over/below industry/its 5-year average. In our opinion, the risk-reward profile is balanced since the worst is behind us and economic recovery is underway, especially when there are several effective Covid-19 vaccines available, making this a turning point of the pandemic. However, the stock has: (i) modest yield offering of c.3% (larger peers: c.5%), and (ii) high foreign shareholding level at c.28% (vs Maybank: 17% and CIMB: 21%).

Source: Hong Leong Investment Bank Research - 9 Dec 2020