Public Bank’s 1Q22 net profit was up 1% QoQ, thanks to lower provision for bad loans. Besides, NIM widened sequentially, loans growth held steady, and asset quality was resilient. Overall, results were within expectations and hence, FY22- 23 forecasts were kept. That said, we introduce FY24 financial projections. We are turning less bullish on Public Bank, considering its strong price showing YTD, which may limit returns going forward; we note that valuations are near to mean, indicating the easy money has been made. Reduce to HOLD call but with an unchanged GGM-TP of RM4.80, based on 1.72x FY23 P/B.

In line. Public Bank posted 1Q22 net profit of RM1.4bn (+1% QoQ, -9% YoY). This is within expectations, making up 24-25% of our and consensus full-year forecasts.

Dividend. None declared as Public Bank only divvy in 2Q and 4Q.

QoQ. The 65% drop in loan loss provision, helped to mitigate the higher opex (+9%) and effective tax rate (+6ppt). As a result, profit was lifted by 1%. That said, top-line growth was decent at 3%, thanks to net interest margin (NIM) expansion of 6bp and stronger 11% increase in non-interest income (NOII); this was boosted by investment related gains of RM32m vs a loss of RM74m last quarter.

YoY. Bottom-line declined 9% given negative Jaws (total income -3% vs opex +2%) and higher effective tax rate (+7ppt). However, lower impaired loan allowances (-50%) cushioned some of the damage. At the top, NIM compressed 4bp and while NOII fell 11% (weak fees and investment-related performance).

Other key trends. Both loans and deposits growth held steady at +3.7% YoY (4Q21: +3.6%) and +4.4% YoY (4Q21: +4.0% YoY) respectively. In turn, sequential loan-to deposits ratio (LDR) was unchanged at 94%. For asset quality, gross impaired loans (GIL) ratio improved 2bp QoQ to 0.29%, backed by larger loan base and smaller NPL formation.

Outlook. NIM is seen to expand sequentially, following May-22’s OPR hike. However, the magnitude could be capped by downward normalization of CASA mix. That said, loans growth is expected to chug along for now, considering economic recovery. On a separate note, GIL ratio is likely to creep upwards but we are not overly concerned as Public Bank has already made heavy pre-emptive provisioning in FY20-21 to cushion this impact. Moreover, FY22 NCC assumption pencilled in by both us and consensus are still fairly elevated (above the normalized run-rate but below FY20-21’s level).

Forecast. Unchanged since 1Q22 results were in line. That said, we introduce FY24 financial estimates.

Reduce to HOLD call but with an unchanged GGM-TP of RM4.80, based on 1.72x FY23 P/B with assumptions of 12.7% ROE, 8.6% COE, and 3.0% LTG. This exceeds the sector’s P/B of 0.92x but lower vs its 5-year mean of 1.78x. The premium/discount is warranted given its ROE output, which is 3ppt/1ppt above/below industry/its 5-year average. We are turning less bullish on Public Bank, considering its strong share price showing YTD, which may limit returns going forward; we note valuations are near to mean, indicating the easy money has been made. Nevertheless, asset quality remains strong and we still believe it has large potential headroom to perform management provision overlay writebacks.

Source: Hong Leong Investment Bank Research - 31 May 2022