Public Bank’s 1Q16 results met estimates on the back of healthy income growth and asset quality staying intact. Its balance sheet growth, however, was more muted. This was partly due to the strengthening of the MYR. With a strong execution track record, amid challenging macroeconomic conditions, it remains our preferred pick for the banking sector. Maintain NEUTRAL and MYR19.40 TP (2% upside).
Outlook. We expect Public Bank to see some net interest margin (NIM) pressure ahead, mainly from funding costs. This should be cushioned by continued loan growth and healthy non-interest income. Its asset quality remains sound which is another plus point, as it would serve to keep its credit cost in check. Its moderating expenses growth (base effect as the Goods and Services Tax (GST) was implemented in 2Q15) could provide further support to profitability. 1Q16 results highlights. As a positive, its NIM expanded YoY and QoQ from a higher average asset yield, by our estimates. It also booked double-digit non-interest income growth – driven by strong forex gains (operational and non-operational) – as well as a further improvement in asset quality. This led to a credit cost of just 10bps (annualised). On the flipside, annualised group loan growth was 5.5%, ie below the 8-9% target due to the appreciation of the MYR during the quarter. Ex-forex impact, Public Bank’s loan growth would have been in line with target. On the whole, 1Q16’s ROE of 15.8% (annualised) was on track to meet management’s target for 2016 of >15%. Risks include slower-than-expected loans growth, weaker-than-expected NIMs and asset quality deterioration.
Forecasts and investment case. We leave our earnings forecasts and GGM-derived TP of MYR19.40 unchanged. Our TP is based on a 2016F P/BV of 2.2x, which is at a discount to the 3.2x 10-year average, given the lower ROEs ahead. We continue to like the group for its good earnings predictability, sound asset quality and cost efficiency – defensive qualities that we think should tide investors through a challenging year ahead. However, we are keeping our NEUTRAL call on valuation grounds.
PBBANK (1295) - Public Bank - Healthy Income Growth Supports Bottomline
Source: RHB Research - 21 Apr 2016
