Public Bank’s 1Q13 results held no major surprises. All-in, the results suggest that the group is well on track to meet its 2013 targets. Our earnings forecasts and fair value of MYR16.80 (14x CY13 EPS) are unchanged. However, we have downgraded our recommendation to Neutral from Buy as we think much of the positives have already been reflected at the current price level, thus limiting further upside potential.

- 1Q13 results within expectations. Public Bank reported 1Q13 net profit of MYR968m (+4% y-o-y; -2% q-o-q), i.e. 23% of our and consensus fullyear estimates. However, we consider the results to be within expectations as 1Q tends to be a seasonally weaker quarter.

- Result highlights. 1Q13 positives include: 1) robust domestic loan and deposit growth of 12.5% and 13.3% (annualised) respectively; 2) noninterest income remained at healthy levels; 3) moderate rise in overheads (+4% y-o-y); 4) credit cost (annualised) was broadly stable q-o-q at 16bps; and 5) stable asset quality. The main negative was that NIM remains under pressure (-14bps y-o-y; -5bps q-o-q).

- On track to meet 2013 targets. On the whole, Public Bank’s 1Q13 results suggest that the group is well on track to meet the targets that have been set for 2013. Recall that these were: 1) ROE >20%; 2) RWCR >12%; 3) Gross impaired loan ratio <1%; 4) CIR <32%; 5) loan growth of 11-12%; and 6) deposit growth of 11-12%. Apart from that, credit cost appears to be trending in line with the <20bps guidance while 1Q13 NIM of 2.32% is within the 10-12bps NIM compression guided for this year.

- Forecasts. No change to our earnings forecasts.

- Valuations and recommendation. Our fair value of MYR16.80 remains unchanged and is based on target CY13 PER of 14x. However, after posting total returns of 25.9% in 2012 and 2.3% YTD (vs. 14.4% and 1.4% in 2012 and YTD for the FBM KLCI), we think much of the positives have already been reflected in the current share price. Together with the limited potential upside to our fair value, we have downgraded our recommendation to Neutral from Buy.

Source: RHB