9MFY22 PATAMI of RM4.41b (+3%) came in as expected with a surprise interim dividend declared, albeit at expected payout rate. The group’s leading position in retail markets should continue to hold ground in terms of sustainability and asset quality. However, even with solid ROEs, long-term returns may seem less attractive at current levels. Downgrade to MP with an unchanged GGM-derived PBV TP of RM4.70.

9MFY22 within expectations. 9MFY22 PATAMI of RM4.41b made up 77% of our full-year forecast and 75% of consensus full-year estimate. A 4.0 sen interim declared was a surprise to us as the group typically pays biannually. However, the payout is still within our anticipated full year expectation of 15.5 sen (c.50%).

YoY, 9MFY22 total income rose slightly (+3%), supported by a strengthening loans book (+6%) and improving net interest margins (NIMs) of 2.30% (+7bps). On the flipside, non-interest income waned from softer unit trust fees and stockbroking performance. Cost-income ratio bumped slightly to 32.6% (+0.9ppt) on generally higher operating expenses in an expansionary climate. Meanwhile, credit cost was significantly better at 10 bps (-25bps) thanks to lower provisional concerns. This translated to a profit before tax growth of 14%, but due to the one-off prosperity tax, 9MFY22 PATAMI only gained 3%, at RM4.41b.

Briefing’s highlights. Buoyed by better economic activity, the group believes that its loans and deposits initiatives will continue to see favourable results until the year-end. Key markets continue to be residential, hire purchase and SME segments which are also seeing a revival from improving employment markets. That said, toppish NIMs in the recent quarter are likely to normalise as the boost from OPR transitions should not be long-term as rates correct amidst price competition. In terms of credit cost, the group is assured by its asset quality standing and does not expect significant bookings in the last 4Q period. This led to a more refined credit cost guidance of 10 bps (from a range of 10-15 bps).

Meanwhile, the group alluded that the out-of-season interim dividend arose from an assessment of earnings and capital level to reward shareholders. We do not discount that we might see more frequent payments from PBBANK in future periods, albeit still within the guided payout of 50%.

Forecasts. Post results, we slightly tweak our FY22F/FY23F earnings from model updates.

Downgrade to MARKET PERFORM with a TP of RM4.70. Our TP is based on an unchanged GGM-derived PBV of 1.58x (COE: 9.7%, TG: 4.0%, ROE: 13.0%) on our FY23F BVPS. We also applied a 5% premium to our TP based on our 4-star ESG rating, led by the stock’s strong green financing pipeline. PBBANK commands the leading GIL ratio amongst peers (0.3% vs. peer average of 2.1%) which could be attributable to its densely collateralised housing loan portfolio. However, current price points bring dividend prospects to a more moderate level as opposed to its peers in addition to limited capital opportunities.

Risks to our call include: (i) higher/lower-than-expected margin squeeze, (ii) higher/lower-than-expected loans growth, (iii) better/worse-than-expected improvement in asset quality, (iv) stronger/weaker capital market activities, (v) currency fluctuations, and (vi) changes in OPR.

Source: Kenanga Research - 1 Dec 2022