Public Bank - Deposit Repricing Filtering Through to NIM; Still BUY

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+0.80 (20.00%)
  • Maintain BUY and MYR4.80 TP, 15% upside with c.5% yield. Public Bank’s 1Q24 results were in line, with healthy income growth largely offset by higher opex (YoY and QoQ) and credit cost (YoY). PBK retained its 2024 targets and guidance. Despite earnings growth moderation, we continue to like it given its quality name, and as a good proxy to domestic activities. Also, we see the stock as a laggard play and should benefit from rotational plays seeking out laggard stocks for upside.
  • 1Q24 net profit was up 2% QoQ (-4% YoY) to MYR1.7bn, making up 23-24% of our and consensus FY24F PATMI. Its reported 1Q24 ROE of 12.3% (FY23: 13%) was tracking management’s 12-13% target. CET-1 ratio was down 20bps QoQ to 14.5% but stable YoY. Key positives during the quarter were around operating income. NII was up 3% QoQ and YoY on the back of good loan growth (+6% YoY; +2% QoQ) and a surprising 6bps QoQ expansion in NIM (-5bps YoY). These, however, were offset by a jump in opex (+10% YoY; +9% QoQ) due to inflationary adjustments for personnel costs (+13% YoY; +10% QoQ). As such, CIR deteriorated to 35.4% (4Q23: 33.8%; 1Q23: 33.1%) but was close to PBK’s target of c. 35%. 1Q24 credit cost was also higher YoY at 6bps (4Q23: 10bps; 1Q23: nil), in line with the 5-10bps guided range.
  • Deposit repricing helps lift NIM. By our estimates, the QoQ NIM expansion was mainly due to lower funding cost thanks to the repricing of high cost deposits that were gathered in 4Q22-1Q23 (12-15 months’ tenor). PBK (and some of its peers) have been gradually reducing promotional and board rates, which appear to be filtering through. That said, PBK maintained its NIM guidance of a flat to mid-single digit compression, citing potential dilution from yields from financing campaigns (eg mortgages, SME).
  • Loans and deposit targets kept. Annualised loan and deposit growth were 6.3% and 7.1%. Loan drivers were auto (+17%) and residential mortgages (+6%) while SME was +5%. As for deposits, fixed deposits rose by 24% while CASA was +2% (savings: +4%; current account: +1%) (figures annualised). Nevertheless, despite the robust fixed deposit growth, funding cost was well under control thanks to ongoing efforts to manage funding cost. CASA ratio eased to 28.1% from 28.4% in 4Q23 and 28.9% in 1Q23 while LDR was stable QoQ at 95.4% (1Q23: 93.5%).
  • Impaired loans ticked up but nothing systemic. GILs rose a further 8% QoQ (+28% YoY) due to impaired residential mortgage and working capital loans, although PBK said the rise in working capital GIL was spread out and not confined to any specific sector. With that, GIL ratio ticked up to 0.62% from 0.59% in 4Q23 (1Q23: 0.52%) while LLC fell to 169% (4Q23: 182%; 1Q23: 218%).
  • No change to earnings forecasts and TP. Our TP includes an unchanged ESG premium of 2%.

Source: RHB Research - 21 May 2024

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