Still NEUTRAL, with new MYR4.25 TP from MYR4.50, 9% upside. 1Q23 results were in line. NIM slippage and the jump in GIL due to a chunky overseas corporate account dimmed an otherwise decent set of results. We lower FY23F-25F NPAT by 2-3% mainly on lower NIM. While Public Bank remains a well-managed bank with solid asset quality, we are wary of its near term NIM trajectory. Longer term, prefer banks with larger overseas exposure.
1Q23 net profit rose 23% YoY or flat QoQ to MYR1.7bn, making up 25% of our and consensus FY23F net profit. 1Q23 PIOP rose 5% YoY led by 6% NII growth while NPAT’s stronger growth was fuelled by negligible credit cost and a normalising effective tax rate (ETR). QoQ, PIOP fell 15% due to NIM pressure but NPAT was supported by lower credit cost and ETR. Reported ROE of 13.6% was tracking ahead of management’s 12-13% target while CET-1 remains strong at 14.6% (4Q22: 14.6%).
NIM slipped 32bps QoQ (+2bps YoY) as apart from deposit repricing, a shift in mix, and statutory reserve requirement (SRR) cost, 1Q deposit volume growth (+9% annualised) outpaced loans (+5% annualised). PBB thinks the biggest move towards normalised NIM was in 1Q and maintained its guidance for double-digit (<20bps) NIM compression. Among the big banks, PBB enjoyed the biggest NIM expansion in 2022. We believe there will be a “payback” this year, resulting in the biggest compression as NIM normalises.
Loans and deposit targets kept. Loan drivers were residential mortgages and hire purchasewhilefixed deposits (FDs) (+14% annualised) drove deposit volume. LDR eased 90bps QoQ to 93.5% while CASA was down 4% (annualised). CASA ratio at end-1Q23 slid to 28.9% from 29.9% in Dec 2022 (vs pre-pandemic: c.25%). The focus will be on growing CASA and retail FDs. Despite PBB still running deposit campaigns to manage attrition, we think there is scope to shed some of its high cost wholesale deposits.
Impaired loans rose further, but well covered. GILs rose a further 24% QoQ (+86% YoY), which management said was due to one corporate account in Hong Kong from real estate. This loan was fully secured and hence, did not impact provisioning. With that, GIL ratio ticked up to 0.52% from 0.42% in 4Q22 (1Q22: 0.29%) while LLC fell to 218% (4Q22: 272%; 1Q22: 383%). LLC is expected to continue to trend towards the pre-COVID-19 level of 120% over the mid to longer term. Loans under repayment assistance (LURA) improved QoQ to c. 2% (from 4%) with >90% of borrowers able to meet full repayment. Overlays were broadly stable at MYR1.8bn.
FY23F-25F earnings cut by 2-3% and our TP drops to MYR4.25 due to the change and after ascribing an ESG discount of 4% (from nil).
ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....