 4Q20 net profit came in at RM1.15bn (-18.4% yoy; -17.6% qoq) while 2020 net profit amounted at RM4.87bn (-11.6% yoy), in line with our and consensus estimates

 Provisions continued to rise in 4Q20 (annualized NCC of 65bps), while 2020 NCC (33bps) was within management’s guidance of 30-35bps. This is not a surprise to us based on last quarter’s guidance

 Upgrade to BUY based on an unchanged 12-month TP of RM4.76 (adjusted for 4-for-1 bonus issue), given upside potential of 14%. PBB had also proposed an interim dividend of 13 sen (2019: 14.6 sen), as the CET1 ratio of 14% remained intact despite a challenging year.

2020 operating results marginally better yoy driven by recovery in 2H20

PBB’s 4Q20 quarter continued to be dampened by additional pre-emptive provisions, while operating income was sustained by steady fund-based income (with 4Q20 NIM holding up at 2.06% vs. 2.09% in 3Q20). For 2020, net operating income was marginally better at +1.9% yoy, driven by robust non-interest income (+22.2% yoy; underpinned by significantly higher realized investment gains, stockbroking income and unit trust fees) that was offset by a 4% yoy decline in fund-based income following a 125bps rate cut and the net ‘mod-loss’ impact of RM388m for 2020. For the year, NIM declined 20bps from 2.15% to 1.95%. Meanwhile, loans continued to pick up qoq (+1%) while full-year growth was at 4.6% yoy.

2021E earnings expected to stay flat, but upside could come from lower NCC

Though 2020 saw net credit cost (NCC) at an elevated level of 33bps (with the bulk of it in 4Q20), 2021 is expected to see these provisions decline to circa 28bps (based on our assumption, vs. management’s guidance of 20-25bps). Management continued to exercise caution especially for individual borrowers under the Targeted Repayment Assistance program, which made up 11% of PBB’s outstanding loans as at Dec20. As we expect business and consumer sentiment to gradually recover, default risk could be mitigated as more economic activities resume.

Upgrade to BUY, TP unchanged at RM4.76 (adjusted for 4-for-1 bonus issue)

We upgrade PBB from Hold to BUY on valuation grounds, with our 12-month TP unchanged at RM4.76 (1.86x P/BV on 2021E BVPS) underpinned by a 2021E ROE at 9.9% and cost of equity of 6.9%. We maintain our earnings forecasts for 2021E/22E and introduce the 2023E forecasts. Our underlying assumptions for 2021-23E include: loan growth 4.0-4.5% yoy, NIM at 2.07%-2.09%, net credit cost at 24-28bps, CIR 36-37%. Downside risks: interest rate cuts; higher NPL rates from the targeted assistance program.

Source: Affin Hwang Research - 26 Feb 2021