1QFY21 PATAMI of RM1.53b (+15% YoY) is within expectations, uplifted by higher NIMs, lower credit cost and CIR. We anticipate this to drive better full-year results with normalisation in FY22 when economic activity becomes more stable. Management is hopeful on near-term prospects with the bank gaining market share in loans and deposits with the right enabling conditions. Upgrade PBBANK to OP (from MP) on share price weakness and maintain our TP of RM4.40.

1QFY21 results came in as expected. PBBANK’s 1QFY21 PATAMI of RM1.53b came within expectations, making up 27%/28% of our/consensus expectations. No dividend was declared as expected, as the group typically pays them biannually.

YoY, 1QFY21 total operating income rose by 15% to RM3.23b thanks to stronger NII, driven by better NIMs (2.28%, +20 bps) from further repricing of deposits amidst a 5% growth in gross loans (mainly from mortgages and hire purchases). NOII also came in better (+17%) from mutual fund income and fees. Although operating expenses expanded by 3%, CIR improved to 31.8% (- 3.9ppt) stemmed by the higher top-line performance. On the flipside, loan provision was still comparatively higher (+223%) as management continued to book greater allowances amidst the lingering economic uncertainties and possible delinquencies. Hence, credit cost came in higher at 23 bps (vs. 8 bps in 1QFY20). Overall, this translated to a PATAMI of RM1.53b (+15%).

QoQ, 1QFY21 income increased by 7%, driven by NII benefitting from lower cost of funds. NOII was flattish due to losses from softer non-fee income items. On a sequential basis, credit cost eased greatly from 65 bps in 4QFY20 to 23 bps as the prior quarter was inflated by high levels of pre-emptive provisioning to account for greater uncertainties, especially from the lapse of the moratorium in 3QFY20. Thanks to this, 1QFY21 PATAMI gained 33%.

Key briefing highlights. Management is hopeful with PBBANK’s near-term trajectory. Aiming to capture greater market share, the group plan to acquire more deposits digitally which could also open cross-selling opportunities for its other offerings. We believe that interest yields should normalise by the coming quarter unless there are changes to the OPR, which we reckon is unlikely for the rest of the year. Management also anticipates greater appetite in retail borrowings, led by housing loans and hire purchases to reach a growth target of 4% for FY21. As far as delinquencies are concerned, the group expressed that they are still able to keep asset quality in check and do not anticipate high downside risks, barring further tightening and prolonging of movement controls. That said, recovery in economic activity is not expected to be uniform as some sectors could still remain vulnerable amidst the ongoing pandemic globally. Guidance and targets for FY21 are unchanged for now.

Post-results, we tweak our FY21E/FY22E earnings by 1.8%/1.6% from model updates.

Upgrade to OUTPERFORM (from MARKET PERFORM) with an unchanged TP of RM4.40. Our TP is based on FY22E GGM-derived PBV of 1.60x (1SD below 5-year mean). We upgrade the stock as we recommend investors to take advantage of capital upside opportunities from recent share price weakness. While the stock’s dividend yield is only modest at 3-4%, it could be made up by its solid ROE proposition of 11%. Its low GIL ratio of <1% also backs the group’s longer term resiliency and sustainability.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower- than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, and (v) adverse currency fluctuations.

Source: Kenanga Research - 12 May 2021