We retain our BUY recommendation and GGM-based TP of MYR21.00. Public Bank delivered a solid set of results, underpinned by above industry loan growth, improved fee income traction and sound asset quality, which helped keep its credit cost low. We think Public Bank ticks the right boxes as a banking stock investors should own amid an uncertain and volatile macro environment.

• Strong start to 2015. Public Bank started off 2015 on a strong note, with 1Q15 net profit of MYR1.17bn (+15% YoY, -7% QoQ) accounting for 24.5% of our and 25% of consensus full-year net profit forecasts. Typically, 1Q tends to be a seasonally weaker earnings quarter.
• Results highlights. Positives include: i) annualised group and domestic loan growth of 13% and 12% respectively, trending above the 9-10% target; ii) +16% YoY (+5% QoQ) growth in 1Q15 non-interest income, thanks to stronger fee and forex income; and iii) solid asset quality. Absolute gross impaired loans declined 5% QoQ and YoY while thegross impaired loan and loan loss coverage ratios were 0.57% and 128% respectively. On the flipside, 1Q15 net interest margin (NIM) contracted by an estimated 10bps QoQ and YoY, but this was in line with the 8-10bps guidance. 1Q15 overheads were also up 7% YoY/11% QoQ mainly due to higher staff costs, but Public Bank’s cost-income ratio (CIR) of 31% remains under control.
• Loan and deposit growth. SME loans were the key loan growth driver (+20%), while loans to individuals increased by 12% (figures annualised). We believe overall group loan growth was also aided by forex impact. We estimate annualised group loan growth stood at 11.5%on constant currency terms, but this was still tracking ahead of its 2015 target. Meanwhile, its total customer deposits rose 10% YoY/+3% QoQ while its current account and savings account (CASA) deposits grew 8% YoY/3% QoQ. Hence, Public Bank’s loan-to-deposit (LD) and CASA ratios were generally stable QoQ at 88% and 25% respectively.
• Capital. As at end-Mar, estimated fully-loaded group and bank common equity tier 1 (CET-1) ratios were at 10.4% (Dec 2014: 10.7%) and 10%(Dec 2014: 10.2%) respectively.
• Forecasts and investment case. We make no change to our forecasts and GGM-derived TP of MYR21.00, and maintain our BUY recommendation. We like the group for its good earnings predictability (it is less reliant on markets-related income, etc), sound asset quality, cost efficiency and resilient book value growth..