Period     1Q13/3MFY13

Actual vs. Expectations    The 1Q13 PAT of RM968.3m was within ours (23%) and the consensus expectations (23%).

Dividends     No dividend was announced.

Key Result Highlights     PBBANK’s local loans growth of 12.5% YoY was higher than the industry average of 11.4% and with a 16.8% market share in 1Q13 (vs. 4Q12: 16.7%). This was an outperformance against the industry trend that is seeing a slower loans growth impacted by the Responsible Guidelines policy. Meanwhile, the group’s total loans growth of 11.9% YoY was within our estimate of 12.0%.

The YoY net interest income growth continued to be capped by a lower net interest margin (NIM) of 2.4% (vs. 4Q12: 2.4%, 1Q12: 2.5%), with the number increased marginally to RM1.35b (+6.5% YoY, +0.9% QoQ).

The non-interest income of RM636m (+4.9% YoY, -0.9% QoQ) remained stable and was made up mainly by Public Mutual’s management fees as well as transaction charges.

The bank’s asset quality trend remained solid with the loan loss coverage ratio stood at 124% as at end-March13 (vs. the industry’s 98.5%) and with a gross impaired ratio of 0.7% (vs. the industry’s 1.4%).

The bank has also sustained its cost efficiency edge with a low cost-to-income ratio of 31.9% (vs. the industry’s 46.0%).

The annualised ROE held steady at 21.6%, meeting management’s target of >20%.

Outlook     PBBANK’s share price has consolidated well in the 1Q, rising only 1.8% YTD, which was in line with our expectations. This suggests that its strong fundamentals could have priced in its current valuation of near 3x FY13 P/BV, a level higher than +1SD of its historical average.

However, moving into 2H13, we are turning positive on PBBANK and are optimistic about its 2H13 relative performance as the stock is likely to play catch-up with the others on its defensive theme. Expectations of rising dividends from the bank coupled with its consistent high ROE as well as good earnings visibility could be the key rerating catalysts for it going forward.

Change to Forecasts    No changes in our earning estimates.

Rating    Upgrade to OUTPERFORM

The current share price implies a 11.6% upside to our new TP of RM18.20.

Valuation    We raise our TP higher to RM18.20 as we have rolled forward our valuation year to FY14 with an unchanged P/BV multiple of 2.8x, which implies a 14.1x PER on its FY14 EPS.

Risks     Slower than expected household lending growth.

Source: Kenanga