Period  4Q13/FY13

Actual vs. Expectations The reported FY13 net profit of RM4.06b (+6.2% YoY) is pretty much within our estimate of RM4.07b and consensus forecast of RM4.15b.

Dividends  Declared 2nd interim/final dividend of 30 sen. Ex-date and payment are set at 18 Feb 14 and 28 Feb14, respectively. Coupled with the 1st interim dividend of 22 sen in 1H, the full-year NDPS is 52 sen (implying c.45% payout and yield of 2.9%), within our expectations of 52.4 sen.

Key Result Highlights Loan: Despite the keen competition and tighter administrative measures, the Group still managed to register a total loan growth of 11.8%. However, this loan growth is still below our expectation of 15%. Nonetheless, this is still higher than the industry YoY loan growth of 10.6% as of end-Dec13. The Group’s loan growth was mainly driven by housing, commercial property and SME loans of which grew by 16.0%, 16.8% and 19.2% YoY, respectively.

 Deposits: Total customer deposits grew 11.5%, higher than the banking industry YoY growth of 7.9% (as at end-Dec13), with the LDR at 88.2% vs. 87.2% and 87.9% as at end-Sep13 and end-Dec12, respectively. CASA-to-Total Deposits stood at 25.5% (vs. 3Q13: 25.1%), inline with industry average of 26.5% as at end-Dec13.

 Interest Income: NIM continued to be under pressure. It dipped another 5bps to 2.32% as opposed to 2.37% in 3Q13. For the full-year, the average NIM of 2.35% was also 16bps below FY12 average NIM of 2.51%. Consequently, net interest income declined 0.5% QoQ and only grew at a slower rate of 6.0% YoY. Inline with the lower NIM, Islamic Banking Income also dipped 5.6% QoQ and declined 0.8% YoY despite enjoying a slightly higher financing and advances growth of 13.6% as compared to the Group.

 Non-interest income, which accounted for 21.5% of total income was mainly attributed to higher fee-based income from unit trust & bancasurrance (apart from foreign exchange related transactions) and transactional banking services. This income stream grew 1.0% QoQ and 6.2% YoY. Net asset value of funds under management (NAV) grew 1.5% YoY from RM54.6b in FY12 to RM62.5b in FY13.

 Highly cost efficient. Operating expenses only grew marginally at 3.0% QoQ or 3.6% YoY. As a result, cost/income ratio was well-controlled at 30.7% for FY13 vs. 31.2% in FY12.

 While allowance for impairment on loans declined 12.6% QoQ, it increased 25.8% YoY. Gross impaired loan ratio stood fairly stable at 0.67% (vs. 0.69% in 3Q13 and 0.69% in 4Q12, in contrast to industry average of 1.3%. Loan loss reserve remained prudent at 118.5% vis-à-vis industry average of 107.6% (as at end-Dec13) despite declining from 126.0% in 4Q12.

 ROE stood at 21.1% which was inline with our FY13 estimate of 21.3% and above its 2013 KPI of 20%.

 Capital adequacy: The Group’s Tier 1 capital ratio and Total capital ratio registered at 11.1% and 14.3%, respectively, as at end-Dec13.

Key Result Highlights (Cont’) While these ratios are lower as compared to the banking industry average of 12.9% and 14.3% as of end-Dec13, we believe this is not a major concern as they already surpassed the capital requirements under the Basel III regime, i.e. 8.5% and 10.5% by Jan 19.

 As such, the Group is likely to maintain its dividend payout ratio of ~45%.

Outlook  Despite keen competitions and tough operating environment, we believe the Group will continue to grow from strength to strength.

 However, the Group has lower its loan and deposit growth targets to 10%-11% from 11%-12% in FY13 as opposed to our FY14 loan and deposit growth rates of 11.9% and 8.5%,respectively.

 The Group also targets to achieve: (i) ROE >20%, (ii) Total capital ratio >12%, (iii) Gross impaired loan ratio <1% and, (iv) cost-to-income ratio <32%.

Change to Forecasts  No changes in our earning estimates.

Rating  Maintain MARKET PERFORM despite higher Target Price revision.

Valuation  The stock is traded at 3.3x FY13 PBV and 16.4x FY14 PER end-Dec 13. These valuations represent +1SD above the 3-year average price multiple bands.

 However, due to the slower loans growth and narrower interest margin, we do not rule out a potential de-rating. Nonetheless, due to its consistent performance, i.e. lower volatility in earnings track records, prudent management and cost efficiency; we believe any de-rating could be mild.

 Pegging our FY14 PER at 17.0x PER, inline with historical PER and FBMKLCI Target PER, we value PBBANK at RM20.75, implying a FY14 PBV of 3.3x.

Risks  Slower-than-expected household lending growth.

Source: Kenanga