• 1Q21 net profit came in at RM1.53bn (+15.1% yoy; +33.3% qoq), beating our expectations though in-line with consensus estimates. NIM expansion of +23bps yoy was a surprise to us given cheaper funding costs
• Provisions were much lower on a qoq basis (with annualized 1Q21 net credit cost at 23bps vs. 65bps in 4Q20) though remained higher (>200% yoy). Management is however keeping to its NCC guidance of 20-25bps for 2021
• Maintain BUY, with a higher 12-month TP of RM5.35 (from RM4.76), based on a P/BV target of 1.91x, following 2021E-23E earnings upgrades of 8.7-9.5%

1Q21 Operating Results Rose 15.4% Yoy; Above Our Expectations

PBB’s 1Q21 was a favourable quarter, as net profit rose 15% yoy on the back of robust operating results (+15.4% yoy) and notwithstanding higher provisions, which were up 223% yoy. The continuous decline in funding cost (-38.6% yoy) underpinned robust NIM expansion of 23bps yoy to 2.28%. We also saw robust non-interest income (+22.2% yoy), underpinned by significantly higher stockbroking income, unit trust fees and commissions. Optimism of a potential economic recovery continued to fuel loan growth in 1Q21, which was up 5.1% yoy (4.8% annualized) driven by mortgages, auto and working capital.

Anticipating Some Deterioration in Asset Quality in 2H21

PBB’s believes that their credit cost guidance of between 20-25bps would be sufficient for 2021, though expecting some visible signs of deterioration in the loanbook in 2H21 coupled with a slower 2Q21 (due to the MCO 3.0). The outstanding loans under the Targeted Repayment Assistance (TRA) have increased marginally in 1Q21, rising to 11.6% of loanbook (from 11% in 4Q20). Individuals loans make up about 11% of the consumer loanbook while non-individuals (mainly SMEs) at 14% of the business loanbook. Overall customer repayment trends appear to be within management’s expectation. 1Q21 provisions set aside (with NCC at 23bps) are largely to cover for migration of loans from Stage 1 to 2 (due to rising delinquencies and transition to impaired loan).

Maintain BUY, TP Raised to RM5.35 (from RM4.76)

We reiterate our BUY rating on PBB, raising our 12-month TP to RM5.35 (at 1.91x P/BV multiple on 2022E BVPS, as we roll over our valuation horizon to 2022E (from RM4.76 1.86x P/BV on 2021E BVPS). We raise our earnings forecasts for 2021E/22E/23E by 9.5%/9.4%/8.7% as we raise our NIM expectation to c. 2.14%-2.16% (from 2.07-2.09%) given ample low funding cost and lower our CIR to 35% (from 36-37%). Our net credit cost assumptions are at 24-28bps. As most economic sectors are allowed to operate, there should not be much negative impact with the imposition of the MCO 3.0. Downside risks: interest rate cuts; higher NPL rates from the targeted assistance program

Source: Affin Hwang Research - 12 May 2021