Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on April 25, 2017

Public Bank Bhd (PBB)
(April 21, RM19.96)
Maintain hold with an unchanged target price of RM19.50:
Although Public Bank Bhd’s first quarter of financial year 2017 (1QFY17) net profit accounted for only 22.1% of our full-year forecast (and 23.9% of Bloomberg consensus estimates), we regard the results as in line as 1Q is traditionally the weakest quarter. We expect quarter-on-quarter earnings improvements in the coming quarters, arising from healthy loan growth and sustained margins. As a norm, no dividend was declared in 1QFY17. 

The positive takeaway from the 1QFY17 results is the 11 basis points year-on-year (y-o-y) expansion in net interest margin, despite the negative impact of the rate cut in July 2017.  This pushed up net interest income growth to 8.3% y-o-y in 1QFY17, possibly one of the strongest in 1QFY17 among the local banks. Nonetheless, non-interest income slid 13.1% y-o-y in 1QFY17, impacted by the 90.2% y-o-y plunge in investment income and 46% y-o-y fall in foreign exchange income. This was a major reason for the weak net profit growth of 1.5% y-o-y in 1QFY17.

Loan growth eased from 7.5% y-o-y at end-December 2016 to 7% y-o-y at end-March 2017, but this would still be above the industry’s pace of 5% to 6%. Growth was dragged down by the slowdown in the expansion of non-residential mortgages from 8.6% y-o-y at end-December 2016 to 6.8% y-o-y at end-March 2017 and the wider contraction of 1% y-o-y for auto loans. However, growth in working capital loans improved, while the momentum for residential mortgages was sustained at 10.3% at end-March 2017, similar to that as at end-December 2016.

Despite having the best asset quality in the sector, Public Bank still saw an improvement in its gross impaired loans ratio from 0.51% at end-December 2016 to 0.49% at end-March 2017. Loan loss coverage was at a comfortable level, rising from 102.7% at end-December 2016 to 104% at end-March 2017. — CIMB Research, April 20
 

      Print
      Text Size
      Share