Another Favourable Quarter

Public Bank (PBB) saw another favourable set of earnings in 3Q17 (+13.5% yoy and +5.5% qoq), driven by improved pre-provision profit generation, while operating expenses were lower qoq. There were no surprises and 9M17 results came in within our and consensus estimates. Sound asset quality (GIL ratio at 0.5%), a CET1 ratio at 11.7% and robust ROE (annualized ROE at 15.4%) continue to reflect its balance sheet strength. Profitability ratios remain intact, as implied by a steady 9M17 NIM at 2.27% (+11bps yoy) and 9M17 CIR ratio of 32.8%. Maintain BUY, PT at RM24.00 (2.3x CY18E P/BV target).

3Q17 Net Profit Up 5.5% Qoq and 13.5% Yoy

Public Bank Berhad (PBB) saw a stronger 3Q17 net profit of RM1,404.8m (+5.5% qoq, +13.5% yoy), which provided a boost to 9M17 earnings, which was close to RM4bn (+7% yoy). There were no surprises and 9M17 results came in within our and consensus estimates. We continue to anticipate a steady 4Q17, which should be underpinned primarily by expansion in fundbased income (accounting for 78-79% of net income) and fee income growth. Meanwhile, sound asset quality should ensure credit cost remains relatively low, likely <15bps.

9M17 Operating Income +7.6% Yoy, Fund-based Income the Key Driver

PBB’s 9M17 operating income (+7.6% yoy) was driven primarily by i) fundbased income of RM6.27bn (+7.6% yoy); and ii) non-interest income (+7.6% yoy). Though annualized group gross loan growth remained subdued at 3.3%, it has not affected fund-based income as funding cost pressure eased (partially aided by strong CASA growth of 5.3% ytd, and higher CASA ratio of 25.5% as at Sept17 vs. 23.7% in Sept16). Although there was some NIM pressure in 3Q17 (-2bps to 2.24%), overall 9M17 NIM remained on an uptrend, +11bps yoy to 2.27%.

Reaffirm BUY Rating, PT Unchanged at RM24.00

Reaffirm BUY on PBB, with a 12-month PT of RM24.00 based on a 2.3x 2018E P/BV multiple. For 2017E, we expect fund-based income growth of +7% yoy, coupled with a +6bps NIM improvement yoy to 2.26% (though 4Q17 may see some NIM pressure creeping up arising from deposit campaigns). We continue to like PBB for its superior management execution strategies, solid market share in the retail and SME segments, sound asset quality and a well-capitalized balance sheet.

Source: Affin Hwang Research - 27 Oct 2017