Public  Bank’s  3Q13  results  were  within  our  and  consensus expectations.  Net  interest  income  trended  positively  while  overheads remain  tightly  controlled,  but  impaired  loans  saw  an  uptick.  Our earnings  forecasts  and  MYR19.40  FV  (15x  CY14  EPS)  are  unchanged. Maintain  NEUTRAL,  as  we  think  most  of  the  positives  have  been reflected in the current price level.

- 3QFY13  results  in  line.  PBK’s 3QFY13  results  were  within  our  and consensus  expectations.  9MFY13  net  profit  of  MYR3.0bn  (+7%  y-o-y) accounted  for  72.5-73%  of  our  and  consensus  full-year  net  profit estimates. 2H is typically a stronger period for earnings.

- Results  highlights.  Positives  include:  i)  healthy  annualised  growth  in loans  and  deposits  of  12%  and  13%  respectively,  both  well  on  track  to meet the targeted 11-12% growth for 2013, ii) net interest margin (NIM) was  stable  q-o-q  (-15bps  y-o-y)  with  average  asset  yield  and  average funding  cost  largely  unchanged  for  the  past  three  quarters now,  and  iii) with  overheads  well  under  control  (+1%  y-o-y;  -3%  q-o-q),  cost-income ratio  (CIR)  improved  to  29.5%  (2QFY13:  30.8%,  3QFY12:  30.5%).  The main  negative  was  the  6%  y-o-y  and  q-o-q  rise  in  absolute  gross impaired  loans  (mainly  hire  purchase  and  residential  mortgages). While the  net  impaired  loan  formation  rate  was  stable  q-o-q  at  53bps, recoveries were lower, resulting in higher impaired loan balances. Thus, 3QFY13 credit cost (annualised) jumped to 19bps compared with 15bps in 2QFY13 (3QFY12: 17bps). In mitigation, the group’s 117%  loan  loss coverage (LLC) is still one of the highest among peers.

- Loan  and  deposit  growth.  3QFY13  gross  loans  rose  11.8%  y-o-y (+2.9%  q-o-q),  due  mainly  to  residential/non-residential  mortgages. Meanwhile,  total  customer  deposits  grew  12.3%  y-o-y  (+2.9%  q-o-q) while  current  account  and  savings  account  (CASA)  deposits  were  up 13.9% y-o-y (+2.5% q-o-q). Both group CASA and loan-to-deposit (LDR) ratios were stable q-o-q at 25.1% and 86.5% respectively.

- Capital. Group and bank common equity tier 1 (CET-1) ratios were 8.2% and 10.1% respectively, as at end-September.

- Maintain NEUTRAL. Our earnings forecasts and MYR19.40 FV (based on a target 2014 P/E of 15x) are unchanged. While we like the group for its  good  earnings  predictability,  sound  asset  quality  and  cost  efficiency, we think these have largely been priced in. Maintain NEUTRAL.

Source: RHB