As usual no surprises. PBBANK’s 6M18 core earnings came within expectations accounting for 48% of both our/market estimates. Despite the positive results, we cut our FY18E/FY19E earnings estimates slightly to reflect our cautious outlook for loans growth and interest margin ahead. TP reduced to RM23.85 with MARKET PERFROM call maintained.

Business as usual. 6M18 core net profit (CNP) of RM2.8b is in line, accounting for 48% of both our and consensus estimates. Earnings were supported by an able top-line with moderate increase in opex aided by lower- than-expected impaired allowances. A DPS of 32.0 sen was declared (within expectations). Moderate loans with healthy asset quality. 6M18 CNP of RM2,801b improved by +8.6% supported by moderate top-line (+3.8 YoY) and receding impairment allowances (- 8.6% YoY). Top-line was supported by rebound in fee-based income (+4.9% YoY) with Islamic banking income coming in strong at +6.7% YoY vs. fund-based income’s moderate performance of +3.1% YoY. The moderate performance was alluded to moderate loans growth (+4.1% YoY vs. expectations/guidance system loans growth of 5.2%/~5%) coupled with a NIM enhancement by 1bps (within expectations). Asset quality continued to be upheld as GIL was steady at 0.5% with credit charge of 0.06% vs. expectations/guidance of 0.10%/0.15%. Cost-to-Income (CIR) ratio maintained its excellent position among peers at 33.6% (vs. guidance/expectation of 33- 34%/32%) with industry CIR at 47.5%. Sequentially weaker. QoQ, earnings fell by 0.7%, as top-line fell by 3%, mitigated by lower impaired allowances (-73.1%). Top-line weakness was broad-based with feebased income, Islamic banking income and fee-based income all falling at 0.9%, 1.2% and 10.2%, respectively. QoQ, loans saw a slight traction but NIM fell by 4bps contributing to the weakened fund-based income. No change in GIL at 0.5% but credit charge dropped further by 7bps to 0.02%.

Cautious outlook ahead. As expected, management guided for a challenging environment ahead ranging from; (i) global trade friction, (ii) normalization of monetary policy globally, and (iii) capital outflow. Management revised its loans target for FY18 to 4-5% (from ~5% previously) with loans supported by demand from the retail segment (residential property and SME financing) with HP financing expected to taper with the implementation of SST. Despite healthy LDR/LTF of 94.2%/88.8% management guided for a low to mid-single digit compression (from single-digit compression) due to on-going funding competition. On a positive note, thanks to stringent asset quality beforehand, we do not expect any spike in GIL ahead, thus credit costs are likely to be muted despite management continued assessment of 15bps credit costs for 2018.

Forecast earnings revised downwards slightly. We revised our FY18E/FY19E earnings downwards by 1.8%1.6% to RM5.7b/RM6.2b as we input a NIM compression of 4bps for FY18 and lower loans of 4.2%/4.6% (5.2%/5.9% previously) for FY18/FY19. TP revised downwards, but MARKET PERFORM call maintained. As FY18E/FY19E numbers are tweaked slightly downwards, we lower our TP to RM23.85 (from RM24.65) based on a blended PB/PER of 2.2x/15.0 FY19E based on their 5-year average (from a 5-year average PB/PE of 2.4x/15.0x with a +0.5SD previously) to reflect a cautious outlook on loans growth ahead. Coupled with a decent dividend yield of 2.7% giving a potential marginal return of 0.12%, we reiterate MARKET PERFORM. Key risks to our earnings estimates are: (i) steeper margin squeeze, (ii) slower-than-expected loans & deposits growth, (iii) higher-thanexpected rise in credit charge and further slowdown in capital market activities, and (iv) adverse currency fluctuations.

Source: Kenanga Research - 16 Aug 2018