MIDF Sector Research

Public Bank Berhad - Weighed by Higher Cost

sectoranalyst
Publish date: Thu, 27 Feb 2020, 03:18 PM

KEY INVESTMENT HIGHLIGHTS

  • Earnings declined but within expectations
  • OPEX came in higher
  • NIM compression was the main factor for flattish NII
  • Loans growth decent matched with deposits growth
  • Asset quality remains solid, which means stability should there be any economic shocks
  • Final dividend of 40sen, full year 73sen
  • Revising earnings FY20 and FY21 earnings forecast downwards by -2.9%yoy and -4.6%yoy respectively
  • Revised to TRADING BUY with revised TP of RM19.00

Within expectations. The Group registered FY19 earnings of RM5.51b. This was within ours and consensus' expectations coming in at 97.5% and 96.3% of respective full year estimates.

Higher OPEX weighed earnings. The Group's PATAMI fell -1.4%yoy as it posted negative JAWS of -4.5%. OPEX was higher by +6.9%yoy due to increased personnel and establishment costs. These grew +8.5%yoy to RM2.74b and +9.0%yoy to RM710.9m respectively.

NII affected by lower NIM. NII was relatively flat for FY19 as it grew just +0.1%yoy. This was attributable to the NIM compression of -7bp yoy coming from the OPR cut in May-19. However, NIM did recover in 4QFY19, increasing by +5bp yoy possibly as more expensive FDs matured and re-priced lower. We expect the Group will face some NIM pressure this year from the OPR cut in Jan-20 and with potentially another one coming.

NOII and Islamic banking income supported total income. NOII grew +8.4%yoy and Islamic banking income rose +5.9%yoy to moderate the pressure to NII. NOII growth was supported by >100% growth in trading income to RM167.7b and forex income growth of +37.9%yoy to RM336.1b.

Gross loans growth remained decent. Gross loans growth was maintained at decent pace of +4.1%yoy to RM330.5b. Retail loans continued to be dominant, expanding +5.2%yoy to RM215.2b with housing loans the main driver. This grew +8.6%yoy to RM120.0b.

Deposits growth matched loans growth. Total deposits grew +4.2%yoy to RM353.3b. However, CASA growth hardly grew in 4QFY19, expanding +0.5%qoq to RM88.8b. On a sequential year basis, CASA rose +2.0%yoy. Meanwhile, FD grew +4.6%yoy to RM205.8b.

Asset quality, always dependable. The Group GIL ratio was stable at 0.5% as at 4QFY19. In the meantime, allowance for loan losses fell - 8.7%yoy, keeping credit cost to circa 5bp.

Revision to earnings forecast. We revising downwards our earnings forecast for FY20 and FY21 by -2.9%yoy and -4.6%yoy to reflect the pressure we expect to NIM this year.

Source: MIDF Research - 27 Feb 2020

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