FY22 net profit of RM6.12b (+8%) beat our expectations thanks to stronger interest gains in 4QFY22, which are likely to come off amidst higher competition for deposits in the coming quarters. Meanwhile, a full-year 17.0 sen dividend is within estimate. The group will remain steadfast in picking high quality asset to ensure consistent fundamental integrity, keeping impairment ratios persistently low. Maintain OUTPERFORM with a higher rolled over GGM-derived PBV TP of RM4.90 (from RM4.70).

Better than expected. FY22 net profit of RM6.12b beat our full-year forecast by 6% but is within consensus full-year estimate (at 103%). The positive deviation on our part appears to be due to the strong uptick in interest margins in 4QFY22, likely accredited by meaningful acquisitions in the group’s housing and hire purchase loans book. Meanwhile, a third interim dividend of 5.0 sen was declared, amounting to a full-year payment of 17.0 sen (54% payout) which is close to our anticipated 16.0 sen.

YoY, FY22 total income rose by 7%, fuelled by higher net interest income (+11%). While loans book grew 5% in line with industry, net interest margins expanded to 2.37% (+15bps) thanks to the OPR upcycle then. On the flipside, non-interest income dipped 7% as stockbroking income and unit trust performance fell. Cost-income ratio was relatively stable at 31.5% as expenses moved in tandem with top line growth. Meanwhile, credit cost was significantly better at 10bps (-24 bps) as asset quality concerns waned. Pre-tax profit for the period rose by 20%, but reflecting the higher one-off prosperity tax, FY22 net profit only grew by 8% at RM6.12b.

Briefing highlights. Going forward, the group is cognizant of upcoming macro challenges ahead primarily from cooling economic prospects. While the group is registering less aggressive customer acquisition as opposed to its peers, the group maintains that its key focus would be to avoid compromising asset quality. That said, the group claims it is still able to find opportunities in higher quality accounts through higher financing margins. On the flipside, deposit competition is expected to creep up as a flattish OPR environment would lead to more comparable factors to consumers and hence stimulating the need for differentiation in the industry. The group opines that the interest margin gained from the upcycle would erode, possibly to double-digit quantum degree. On a brighter note, the group is sitting on management overlays of RM1.7b which could be due for writebacks should conditions stay favourable.

Forecasts. Post results, although FY22 was above our expectations, we revise our FY23F earnings by -6% on softer non-interest income contributions, namely from softer fee-based income. Meanwhile, we introduce our FY24F numbers which indicates a 3% earnings growth on moderate support from all income streams.

Maintain OUTPERFORM with a higher TP of RM4.90 (from RM4.70). Our TP is based on an unchanged GGM-derived PBV of 1.58x (COE: 9.7%, TG: 4.0%, ROE: 13.0%) but on a rolled over valuation base year of FY24F. 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 is expected to continue commanding the leading GIL ratio amongst peers (0.4% vs. peers’ average of 1.7%) which could be attributable to its densely collateralised housing loan portfolio. While the stock may not have the highest dividend yield, the possibility for a more than biannual dividend payment could be of interest to certain investors.

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, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 28 Feb 2023