Public Bank (PBB) booked-in a 4Q17 net profit of RM1.49m (+0.2% yoy; +5.7% qoq) and a full year net profit of RM5.47m (+7.0% yoy). Both the 4Q17 and 2017 results came in within our and consensus estimates. NIM expansion (+8bps), minimal net credit cost (6.9bps) and a relatively-low cost-to-income ratio (31.9%) were the key drivers for 2017. We have raised our 2018-19E net earnings by circa 2% due to the impact of the 25bps rate hike. 2018’s outlook will be driven by steady NIM of 2.32%, recovery in loan growth (forecast at 5.0% yoy) and expansion in fee income. Adoption of MFRS 9 is not expected to cause a significant uptick in 2018E’s credit cost. Maintain BUY, PT revised to RM24.50 (2.5x CY18E P/BV target) from RM24.00.

4Q17 a Robust Quarter, Net Profit +5.7% Qoq; Flat Yoy

Public Bank Berhad (PBB) saw a robust 4Q17 with a net profit of RM1,485.5m (+5.7% qoq, +0.2% yoy), which had continued to boost 2017 earnings to RM5.47bn (+5.1% yoy). Overall, the results were within our and consensus estimates. PBB’s 2017 operating income (+7.9% yoy) drivers were: i) fund-based income of RM8.4bn (+7.0% yoy); and ii) non-interest income RM2.3bn (+11.3% yoy). A relatively modest loan growth (+3.6% yoy) has not affected fund-based income growth, which saw a boost primarily from NIM expansion of +8bps yoy to 2.28%. NIM pressure continued to ease in 4Q17, rising by 3bps qoq. The 2017 CIR saw some marginal improvements (-0.4ppts) to 31.9% while minimal net credit cost of 6.9bps was driven by recoveries and a sound loanbook (0.5% GIL ratio).

MFRS 9 Adoption – No Negative Impact on 2018E’s Earnings

Management guided that the day one impact of MFRS 9 was minimal, as pre-emptive regulatory reserve set-aside of RM2.4bn was utilized to cushion the day one adjustment to the collective allowances. As we are of the view that PBB’s asset quality is expected to stay sound, we continue to maintain our assumption of 9bps in 2018-20E.

Reaffirm BUY Rating, PT Revised to RM24.50 (from RM24.00)

Reaffirm BUY on PBB, with a 12-month PT of RM24.50 based on a 2.5x 2018E P/BV multiple. For 2018E, we expect a fund-based income growth of +10% yoy, coupled with a 5-6bps NIM improvement yoy to 2.33%. Overall, we have raised our 2018-19E earnings by 2.0-2.3% due to the 25bps OPR hike. Our loan growth for PBB has been adjusted down from 6.6% to 5% (in-line with our banking industry growth forecast). Our deposit growth forecasts for 2018-20E has been adjusted down to 4-5%.

Source: Affin Hwang Research - 23 Feb 2018