• Maintain NEUTRAL, with new MYR4.90 TP from MYR4.70, 7% upside. Public Bank’s 1Q22 results were within expectations. While still cautious on asset quality, management turned slightly more positive on loan growth and NIM outlook. Stock is up 10% YTD – investors sought refuge in the bank’s defensive attributes as rising economic headwinds threaten global recession. That said, at 1.75x FY22F P/BV, we deem the stock’s risk-reward ratio to be well balanced.

• 1Q22 results within expectations. 1Q22 net profit of MYR1,399m (+1% QoQ, -9% YoY) is in line at 25% and 24% our and consensus FY22F earnings. Reported ROAE of 11.8% is within management’s 11-12% target, while CET-1 ratio is solid at 14.3% (see Figure 1 for details).

• Key trends in 1Q22. PIOP fell 4% YoY as core fee income declined 16% YoY and gains on financial instruments dropped 46% YoY, to offset the 99% YoY jump in FX income. NII was flattish YoY as NIM slipped 4bps YoY while loans grew 1.3% YTD (annualised: +5.3%). Fee income was impacted by declines in income from unit trust (-16% YoY) and stockbroking (-53% YoY). Opex growth was a moderate 1.5% YoY, but CIR ticked up to 33.2% (1Q21: 31.8%) due to the weaker topline. Net profit was impact by Cukai Makmur, which negated the 50% YoY fall in loan provisions. Credit cost was 11bps vs 23bps in 1Q21.

• Asset quality solid. GILs declined 3.7% QoQ, helped by lower property and auto GILs. GIL ratio improved to 0.29% (4Q21: 0.31%) and LLC a very high 382.5% (4Q21: 361%). Loans under repayment assistance (LURA) fell to MYR20.1bn or 6% of its Malaysia loans (Dec 2021: MYR26.9bn or 8%) with the expiry of the PEMULIH scheme since Dec 2021 and low take-up for the Financial Management and Resilience Programme (URUS). Only 3% of LURA is overdue, management is maintaining its prudent stance with provision write-backs not expected until 2023. The bank’s forward looking provisions were unchanged at c.MYR1.7bn at end-Mar 2022.

• FY22F guidance tweaked. Management is maintaining its ROE target of 11- 12%, given the still challenging economic environment. That said, loan growth guidance is raised to 5% (from 4-5%) on healthy pipeline of approved residential mortgages. Deposits growth is expected to keep pace at 5%, revised from 4-5%. NIM is now expected to be stable to marginally better (from stable to single-digit compression), helped by higher policy rates. Management expects another 25bps hike in the overnight policy rate (OPR) in 2022 (see Figure 2 for details).

• Earnings and TP. With results tracking expectations, we make no changes to our FY22F-23F earnings. Our TP is raised to MYR4.90 (from MYR4.70) as our intrinsic value is raised to MYR4.98 on refreshed GGM assumptions (Figure 3). The 2% ESG discount, based on our in-house methodology, is unchanged.

Source: RHB Research - 31 May 2022