• Stay NEUTRAL with unchanged TP of MYR4.40, 4% upside with c.5%FY24F yield. Public Bank’s 3Q23 results are in line. Stronger operatingincome sequentially, which was supported by both NII and Non-II, as well ascontrolled opex and credit cost were key positives although impaired loantrends have yet to stabilise and the group continues to draw down on itsprovision buffers. PBB is well on track to meet its FY23 targets, which areunchanged. While we have no major concerns on the group, we prefer bankswith larger overseas exposure for better growth opportunities.

• 3Q23 net profit up 5% QoQ (+7% YoY) to MYR1.7bn, bringing the 9M23bottomline to MYR5.0bn (+14% YoY), at c. 75% of our and Street FY23Fearnings. 3Q23 PIOP rose 4% QoQ (-8% YoY), underpinned by a 3% rise inoperating income and improved cost efficiencies. NII rose 3% QoQ thanksto a pickup in loan growth and 3bps NIM expansion, while Non-II rose 3%QoQ on higher fees and a turnaround from mark-to-market (MTM) lossesincurred in 2Q23. Opex growth was contained at 2% QoQ, so CIR improvedto 33.8% (2Q23: 34.2%) while credit cost was stable QoQ at 3bps. Itsreported 9M23 ROE of 13.1% was tracking slightly ahead of management’s12-13% target, while CET-1 remains strong at 14.5% (2Q23: 14.7%).

• NIM expanded QoQ as we estimate the rise in average asset yield (of14bps) – helped by the central bank hiking up the policy rate – outpaced therise in average funding cost (estimated +9bps QoQ). 9M NIM of 2.22%represents a 17bps compression vs 2022’s NIM of 2.39%, and is in line withmanagement’s guided <20bps NIM squeeze for 2023. Looking ahead to4Q23, management thinks the seasonal pick-up in deposit competition coulddampen 4Q NIM but was hopeful competition will ease off in the latter half of1Q24. As such, there was no change to its NIM guidance for 2023.

• Loans growth outpacing target, with annualised growth at 6% asmomentum improved in 3Q to +2% QoQ/+5% YoY. QoQ growth was led byconsumption credit (personal loans and credit cards) and big-ticket items –transport vehicles and residential mortgages. Pricing competition forresidential mortgages has intensified, with new mortgage rates down asmuch as 20bps vs pre-pandemic levels. Meanwhile, deposits grew by aslower 5% (annualised) (+1% QoQ, +4% YoY). PBB’s deposit strategy is toensure sufficient funding for its loan expansion, and it is not overly concernedover market share. PBB’s CASA ratio eased slightly to 28.5% from 2Q23’s29.1%. 2023 loan and deposit growth guidance stayed level at 4-5%.

• Impaired loans rose further, but well covered. GILs rose by a further 6%QoQ (+82% YoY) mainly due to residential mortgages and the auto segmentwhile, by geography, the increase in GIL came from both domestic (e.g.borrowers that exited the repayment assistance programmes) and overseasunits. That said, the bank’s GIL ratio remains low at 0.58% but its LLC fell to187% vs 2Q23: 199%. Overlays were stable at MYR1.8bn.

• Forecasts and TP retained. Our MYR4.40 TP includes a 4% ESG discount.

Source: RHB Securities Research - 30 Nov 2023