PBBANK’s 1HFY23 net profit (+18% YoY) and interim dividend declared were within expectations. Safe for certain individual accounts, PBBANK’s asset quality management continued to appear stellar. Meanwhile, it continues to stand favourably in the mortgage space with a growing inclination on affordable housing despite relatively higher interest rates. Maintain OUTPERFORM and GGM-derived PBV TP of RM4.40. PBBANK is also one of our 3QCY23 Top Picks.

1HFY23 within expectations. PBBANK’s 1HFY23 net profit of RM3.33b made up 48% of our full-year forecast and 49% of consensus full-year expectation. An interim dividend of 9.0 sen was declared, which is within our 18.0 sen anticipated for the full year (c.50% payout).

YoY, 1HFY23 total income increased by 3% with improvements in net interest income (+2%) on the back of 5% loans growth amidst diminishing NIMs (2.20%, -3bps) from deposits competition during earlier periods. Meanwhile, non-interest income gained from better forex performances. While cost-income ratio remained relatively stable at 33.7% (+0.2ppt), credit cost was significantly lower at 1bps (-9bps) thanks to sturdiness of PBBANK’s high quality books which alleviated provisioning needs and writebacks at the local front. Including the normalisation of effective taxes post-prosperity tax, 1HFY23 net profits reported at RM3.33b (+18%).

Briefing highlights. With a satisfactory earnings delivery and well managed operations, the group looks to maintain its FY23 targets.

1. Mortgage markets should still see sustainable demand from the rising take-up of affordable homes. The group’s high retail mix in its portfolio (c.70%) provides shelter against the slow-down in certain economic fronts, mainly export-oriented ones.

2. NIM pressures are likely to have bottomed as the industry appears to be relaxing on interest rate competition. This could translate to better sequential quarterly readings ahead and the group opines that its guidance of double-digit compression is prudent.

3. Gross impaired loan saw an uptick but this appears to be attributed by a large Hong Kong-based account which is said to be well covered for now. Domestically speaking, the group believes that its exposure asset quality concerns are largely muted with only minor blips caused by certain accounts being undermined by past OPR hikes.

4. With regards to credit cost, the group continues to mull over the possibility of further writebacks as most of its graduated repayment assistance accounts do not appear to need further provisioning. As of this reporting, PBBANK’s overlays stand at RM1.8b.

Forecasts. Post results, we keep our FY23F/FY24F earnings largely unchanged, with minor tweaks following 2QFY23’s inputs.

Maintain OUTPERFORM and TP of RM4.40. Our TP is based on an unchanged GGM-derived PBV of 1.42x (COE: 10.4%, TG: 4.0%, ROE: 13.0%) on FY24F BVPS of RM2.94. 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. PBBANK is also one of our 3QCY23 Top Picks.

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

Source: Kenanga Research - 30 Aug 2023