Public Bank - Poised to See Further Growth

Date: 
2024-02-29
Firm: 
KENANGA
Stock: 
Price Target: 
5.10
Price Call: 
BUY
Last Price: 
4.12
Upside/Downside: 
+0.98 (23.79%)

PBBANK’s FY23 net profit (+8% YoY) met expectations but dividends came out more generous than expected. The group looks for sustained growth momentum in FY24 with a greater consideration to write back its hefty overlays with due evaluation in the coming quarters. Maintain OUTPERFORM with a higher rolled over GGM-derived PBV TP of RM5.10 (from RM4.75).

FY23 within expectations. PBBANK’s FY23 net profit of RM6.65b met expectations. A full-year dividend of 19.0 sen surprised our anticipated 18.0 sen payment, thanks to slightly higher pay-out (c.55%).

YoY, FY23 net interest income declined (-4%) owing to lower NIMs (2.19%, - 19bps) which offsets its 6% loans growth. Meanwhile, non-interest income gained 3% namely from better forex. Cost-income ratio rose (33.7%, +2.2ppt) from higher personnel costs. On the flipside, credit cost was significantly lower at 4bps (-5bps) from lower staging, despite the group not exercising on writing back its pre-emptive provisions. In addition to lower effective taxes, FY23 net earnings reported at RM6.65b (+9%).

QoQ, 4QFY23 saw NIMs contract slightly (-4bps) from year-end deposits competition. There was a bump in credit cost attributed to higher provisions in the retail segment. This led to 4QFY23 earnings to be 5% softer.

Briefing highlights. Meeting its targets for FY24, the group is cautious on the near-term outlook but believes it could at least sustain its momentum from FY23.

1. PBBANK’s loans growth target of 5%-6% is a mark up from the past year as the group anticipates a gradual recovery from the property market, as mortgages make up the largest (c.42%) component of its books. It also believes SMEs could be due to return but will likely remains picky with its approvals.

2. Since its last reporting, the group kept an outstanding management overlay of RM1.8b which it has yet to consider writing back. That said, the group believes it may make a decision on its utilisation by 2HFY24 which could mean significant kick-back to earnings given the group’s persistently low provisioning needs. Its FY24 credit cost guidance of 5-10 bps is mostly similar to FY23.

3. Although the group had seen most funding cost pressures in FY23, there could be further underlying concerns in FY24, which we opine could be due to competitive asset yields suppressing NIMs further. We reckon PBBANK may be selectively competitive which spelled guidance for low single-digit NIM compression to be a possibility.

4. CASA management will continue to be a priority to the group as its standing of 28.4% is still above pre-pandemic levels. That said, we believe there could be further tightening of the group’s loans-to-deposits mix as they appear more confident in building its loans base.

Forecasts. Post results, we tweak our FY24F earnings by -1% from model updates as we incorporate FY23’s numbers. Meanwhile, we also introduce our FY25F numbers which accounts for a sustained operating environment.

Maintain OUTPERFORM with a higher TP of RM5.10 (from RM4.75) as we roll over our valuation base year to FY25F. Our TP is based on an unchanged GGM-derived PBV of 1.54x (COE: 9.9%, TG: 4.0%, ROE: 13.0%) on FY25F BVPS of RM3.15. We also applied a 5% premium to our TP based on our 4-star ESG rating, led by the stock’s strong green financing pipeline.

PBBANK is expected to continue commanding a leading GIL ratio amongst peers which could be attributable to its densely collateralised housing loan portfolio. While the stock may not have the highest dividend yield, the possibility for a more than biannual dividend payment could be of interest to certain investors.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 29 Feb 2024

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