PBBANK’s 1HFY24 net profit (+3%) and interim dividends were within expectations. 2HFY24 may see better reporting from soft spots in funding costs with long-awaited overlay writebacks indicating asset quality woes are behind them. Maintain OUTPERFORM with a GGM-derived PBV TP of RM5.10.

1HFY24 within expectations. PBBANK’s 1HFY24 net profit of RM1.65b came in within expectations, making up 47% of our full-year forecast and 49% consensus full-year estimate. An interim dividend of 10.0 sen was declared, also deemed within, in anticipation of our full- year payment of 21.0 sen (56% payout).

YoY, net profits grew by 3% as total income was supported by a larger loans base (+6%) and fee-based income uplifting NOII. We note that NIMs have been flattish (2.19%, -1 bps) as the group continued to find opportunities to rationalise funding cost, albeit amid a higher non-CASA take-up. In 2QFY24, its associates saw a significant increase due to one-off accounting adjustments. Though the group did not elaborate on the quantum, net earnings improvement without consideration of associate contributions would be merely 1%.

QoQ, 2QFY24 net profits grew by 8% on the back of the abovementioned lumpy associate reporting and would have otherwise narrowed to 4%. NIMs (-3 bps) appeared slightly strained by a higher non-CASA mix with the period also coming in with a net writeback position (from 1QFY24 credit cost of 6 bps) following a RM120m reversal of overlays.

Highlights. The group anticipates fewer headwinds in 2HFY24 and thus improved their ROE guidance of c.12% to c.12.5%, following a 1HFY24 net ROE achievement of 12.4% (against 11.7% excluding overlay writeback). This is premised on: (i) softening NIM pressures; and (ii) possibly a better position to inject more writebacks on its overlays.

With regards to funding mix, we recognise a lower 1HFY24 CASA ratio of 28.0% (1HFY23: 29.1%) which was mainly due to greater reliance towards money market and fixed deposit products. Keeping liabilities tenure short via money market products is not reflective of positioning for an OPR cut, but rather to fund an overall 6.1% loan growth (guided at 5%-6%), thanks to higher retail loans underlined by its leading hire purchase book (+12%) and momentum in mortgages (+6%).

Meanwhile, we are positive on PBBANK’s consideration to at last write back on its overlays as macro concerns have eased, likely hinged on strong 2QCY24 GDP numbers. That said, the group continues to hold excess overlays of RM1.6b which it will gradually release in the coming quarters. Its gradually easing LLC at 154% (1HFY23: 199%) is not a concern given that PBBANK continues to be on top of its GIL management. On a BAU basis without writebacks, PBBANK eyes credit cost to stay within 5-10 bps which is within pre-pandemic levels.

Forecasts. Relatively unchanged post 2QFY24 updates.

Maintain OUTPERFORM and TP of RM5.10 based on an unchanged GGM-derived PBV of 1.54x (COE: 9.9%, TG: 4.0%, ROE: 13.0%) on a FY25F BVPS of RM3.14. 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 a leading GIL ratio amongst peers 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 Aug 2024