Public  Bank’s  3Q14  results  were  robust,  underpinned  by  a  sequential expansion  in  NIM  following  July’s  25bps  OPR  hike.  Other  positives:well-controlled  overheads,  low  credit  cost  with  stable  asset  quality while capital levels are now among the highest after its MYR4.8bn rights issue.  Still,  we  believe  the  positives  are  largely  priced  in.  Maintain NEUTRAL, with a revised MYR20.60 GGM-based TP (10.6% upside).

Public Bank’s  3Q14  net profit of MYR1.2bn (+14% YoY,  +13% QoQ) was  in  line  with  our  and  consensus  estimates,  with  9M14  net  profit  of MYR3.3bn (+7% YoY) accounting  for  74-75% of our and consensus fullyear net profit forecasts. 

Results highlights.  Positives include: i)  a  12bps QoQ (-5bps YoY) net interest margin (NIM) expansion, underpinned by July‟s 25bps overnight policy rate (OPR) hike and investment of proceeds from the MYR4.8bn rights  issue.  Thus,  3Q14  net  interest  income  jumped  9%  QoQ  (+8% YoY),  ii)  overheads remained  under control.  Public Bank‟s cost-income ratio (CIR)  of 29% is the  lowest among peers,  and iii)  3Q14 credit  cost (annualised)  declined  to  8bps  compared  with  11bps  in  2Q14  (3Q13: 19bps),  thanks  to  better  recoveries  while  asset  quality  was  broadly stable. On the flipside, loan growth moderated.

Loan  and  deposit  growth.  While  YoY  loan  growth  continues  to moderate (see Figure 10), 3Q‟s growth was  still decent  given that there was  a  lumpy  corporate  loan  repayment  during  the  quarter  (corporate loans: -7% QoQ/-8% YoY), we believe. Total customer deposits grew 9% YoY (+2% QoQ) or 9% annualised, and hence, the loan-to-deposit (LDR) ratio  inched up to 87.8% from 87.1% at end -Jun 2014. Current account and  savings  account  (CASA)  deposits  broadly  kept  pace  with  overall deposit growth. Thus, its group CASA ratio was stable QoQ, at c.25%. 

Capital.  As  at  end-September,  estimated  fully-loaded  group  and  bank common equity tier 1 (CET-1) ratios were 10.3% (June: 8.9%)  and 9.9%(June: 8.5%) respectively  -  reflecting  capital raised from the  rights issueand a MYR1.25bn transfer to regulatory reserves from retained  profits to meet the minimum 1.2% collective allowance/net loans requirement.

Forecasts. We retain our FY14F-15F forecasts and introduce our FY16F numbers in this report.

Maintain NEUTRAL. We raise  our GGM-derived TP  to  MYR20.60 (from MYR19.85)  mainly  after  rolling  forward  valuations  to  2015.  Our  GGM assumptions include: i)  CoE  of 8.8%, ii) 4.5% long-term growth, and iii) 16% ROE. We make no change to our NEUTRAL call.

Source: RHB