PBBANK (1295) : Public Bank Bhd - Banking on active asset-liability management
Target RM17.60 (Stock Rating: REDUCE)
Public Bank’s (PBB) 9MFY14 net profit was in line with our expectation (at 74% of full-year forecast) but ahead of consensus (76%). We retain our EPS forecasts but our DDM-based target price (cost of equity of 10.3%; long-term growth of 4%) rises marginally as the valuation rollover to end-2015 was partly offset by the cut in the assumed growth rate for the interim phase from 7% to 6%, given the slowdown in loan growth. We still rate PBB a Reduce, premised on the expected (1) upturn in credit costs, (2) margin compression, and (3) weaker loan momentum. We prefer Maybank.
Positive 3Q14 developments not sustainable
PBB’s net profit growth of 13.8% yoy in 3Q14 was the strongest in the past three years. This was underpinned by (1) stabilisation of the net interest margin, as a result of the bank's active asset-liability management to expand its loans faster than deposits, and (2) a 54.8% yoy plunge in loan-loss provisioning (LLP). However, the above would not be sustainable, in view of the following (1) given the tight liquidity, PBB will need to speed up its deposit growth to support the loan expansion, and (2) the 3Q14 credit charge-off rate was low, at only 8bp, compared to a sustainable level of 20-30bp.
Slower loan growth
Loan growth moderated further from 10.8% yoy in Jun 14 to 10.2% in Sep 14, in line with the industry’s trends. Most major loan segments, including property and auto loans, posted weaker growth in Sep 14, but the growth in working capital loans improved from 13.7% yoy in Jun 14 to 15.2% yoy in Sep 14.
Stable asset quality
The gross impaired loan ratio stayed at 0.65% in Jun-Sep 14, while the loan-loss coverage inched down from 117.6% in Jun 14 to 117.1% in Sep 14.
Maintain Reduce call
We advise investors to reduce their holdings in PBB, due to the concerns over expected margin contractions and the uptick in credit costs.
Source: CIMB Daybreak - 24 October 2014
Target RM17.60 (Stock Rating: REDUCE)
Public Bank’s (PBB) 9MFY14 net profit was in line with our expectation (at 74% of full-year forecast) but ahead of consensus (76%). We retain our EPS forecasts but our DDM-based target price (cost of equity of 10.3%; long-term growth of 4%) rises marginally as the valuation rollover to end-2015 was partly offset by the cut in the assumed growth rate for the interim phase from 7% to 6%, given the slowdown in loan growth. We still rate PBB a Reduce, premised on the expected (1) upturn in credit costs, (2) margin compression, and (3) weaker loan momentum. We prefer Maybank.
Positive 3Q14 developments not sustainable
PBB’s net profit growth of 13.8% yoy in 3Q14 was the strongest in the past three years. This was underpinned by (1) stabilisation of the net interest margin, as a result of the bank's active asset-liability management to expand its loans faster than deposits, and (2) a 54.8% yoy plunge in loan-loss provisioning (LLP). However, the above would not be sustainable, in view of the following (1) given the tight liquidity, PBB will need to speed up its deposit growth to support the loan expansion, and (2) the 3Q14 credit charge-off rate was low, at only 8bp, compared to a sustainable level of 20-30bp.
Slower loan growth
Loan growth moderated further from 10.8% yoy in Jun 14 to 10.2% in Sep 14, in line with the industry’s trends. Most major loan segments, including property and auto loans, posted weaker growth in Sep 14, but the growth in working capital loans improved from 13.7% yoy in Jun 14 to 15.2% yoy in Sep 14.
Stable asset quality
The gross impaired loan ratio stayed at 0.65% in Jun-Sep 14, while the loan-loss coverage inched down from 117.6% in Jun 14 to 117.1% in Sep 14.
Maintain Reduce call
We advise investors to reduce their holdings in PBB, due to the concerns over expected margin contractions and the uptick in credit costs.
Source: CIMB Daybreak - 24 October 2014
