1HFY21 PATAMI of RM2.91b (+25% YoY) is deemed within expectations as the group could see a similar share of provisioning burden in the 2HFY21 amidst ongoing uncertainties. With that in mind, management also tones down its loans and deposits growth guidance, reflective of lower GDP expectations. We tweak our credit cost assumptions to be higher in FY21, and offloading in FY22. This revises our earnings estimates by -3%/+8% for FY21/FY22. Maintain MP and GGM-derived TP of RM3.90.

1HFY21 results within expectations. PBBANK’s 1HFY21 PATAMI of RM2.91b came within expectations, making up 51% each of both our and consensus expectations. While peers are anticipating loftier 2HFY21 provisions that could drag earnings, it seems that PBBANK is keeping its allowances high but evenly distributed. An interim dividend of 7.5 sen (50% payout) was declared, which we also deem to be within our full-year target of 14.0 sen (slightly below a 50% payout).

YoY, 1HFY21 total operating income came in at RM6.42b (+24%) as NII (+29%) was elevated by significant NIM gains (2.26%, +41 bps) from favourable repricing of deposits paired with 5% loans growth. NOII grew by 6% on the back of better mutual fund and fee-based performances. Operating expenses tipped by 3% on higher personnel cost, but the stronger top-line brought CIR to 31.6% (-6.3ppt). As PBBANK adopts high levels of prudency, it booked higher provisions (+176%) which led to a higher credit cost of 34 bps (+21 bps) in anticipation of prevailing uncertainty to come. That said, this did not stop the group from seeing a 25% improvement in PATAMI at RM2.91b.

QoQ, 2QFY21 total income saw a flattish decline (-1%) as NII normalised and NOII was dragged by softness in fee income. Similar to the abovementioned, management toned down its optimism in light of slower economic momentum and laid out further precautionary provisions, resulting in a 100% increase in allowances (RM396.0m). Annualised credit cost came in at 45 bps (+22 bps) for the quarter. This led to a 2QFY21 PATAMI of RM1.38b (-10%).

Key briefing highlights. Faced with the disappointments of a slower paced economic recovery, management takes a firm stand to ensure that it is able to absorb further repercussions. With that, management felt that a lower loans and deposit guidance (of 3% from 4%) is warranted with higher credit cost buffers if things go further south, with a credit cost of 35 bps (from 20-30 bps) at par with last year. On the flipside, the bank has been highly successful with its deposit re-pricing strategies and believes there is still much mileage to be gained. Meanwhile, PBBANK assures that it will be fairly unshaken by any potential mod losses to come as the new blanket moratorium is expected to see a lower take-up than last year’s due to it being an opt-in one. Backing the PEMULIH program, its TRA mix now makes up 23% of its outstanding loans in Jul 2021, predominantly consisting of mortgages and SME loans.

Post results, in favour of management’s more conservative approach, we raised our credit cost assumptions for FY21 to 33 bps (similar to FY20) from 19 bps. With other model updates, our FY21E earnings is toned down by 3%. Meanwhile, we raise our FY22E earnings by 8% in view that it could benefit from high levels of writebacks following FY21’s conservative measures.

Maintain MARKET PERFORM and TP of RM3.90. The abovementioned adjustments did not significantly affect our TP against our unchanged GGM- derived FY22E PBV of 1.42x (1.5SD below mean). The group is well guarded fundamentally with a highly prudent management, which could justify its toppish valuations against large-cap peers. However, we believe it lacks dividend safety which certain investors may demand in the current climate.

Source: Kenanga Research - 30 Aug 2021