By CIMB Research
Target Price: RM16.80
PUBLIC Bank Bhd's first quarter financial year 2013 net profit which was 4.1% higher year-on-year (y-o-y) came in below expectations, at 22% of our financial year 2013 forecast and 23% of consensus.
The variance mainly came from our over-projected topline growth, which was affected by margin contraction.
Our earnings per share (EPS) has been cut by about 3% for financial year 2013 to 2015 as we assume 8 basis-point (bp) lower lending yields. This brings down our dividend discount model (DDM)-based target price. Despite its quarter one disappointment, we continue to rate “Outperform” on Public Bank with catalysts still expected from its push for fee-income growth.
A 10 bp y-o-y contraction in net interest margins partly offset the bank's 11.9% loan growth, leading to a 6.5% y-o-y expansion in net interest income. Non-interest income (excluding Islamic banking income) grew at a healthy 8.7%, from a rise of 6.9% y-o-y in fee income and 29% in investment income.
Affected by political uncertainties ahead of the general election, working-capital loans suffered a second consecutive quarter of decline of about 8.6% y-o-y in March. But this was partly made up by stronger residential mortgages and auto loans. Overall, loan growth picked up from 11.3% y-o-y in December 2012 to 11.9% y-o-y in March 2013.
Its gross impaired loan ratio stayed at 0.68% in December 2012 and March 2013. Although loan loss coverage shrank from 126% in December 2012, it remained comfortable at 123.9% in March 2013.
Investors are advised to accumulate the stock given its superior fundamentals as reflected by its unrivalled asset quality and operating efficiency. Its benign impaired loan ratios are expected to keep credit costs low in 2013 and 2014. We are also positive on the pickup in its quarter one loan growth.
By RHB Research
WE take a look at the latest news to hit the education space to determine the impact of the delay in foreign student visa approvals on higher education institutions. We expect earnings to be affected in the near term if the delay persists. All in, we maintain “neutral” on the sector, with Prestariang Bhd as our top pick.
The Higher Education Ministry has recently established a new agency, Education Malaysia Global Services (EMGS), in February to further boost the Government's initiative of achieving its target of 200,000 international students by 2020.
EMGS was set up to control and streamline the intake of foreign students into the country, with the assurance that all completed foreign student visa applications will be processed within 14 days after submission.
EMGS has also taken upon itself to tighten the entry requirements of foreign students and have taken stringent measures such as the issuing of student cards, verification of acceptance from a higher education institution, mandating medical insurance and Bahasa Malaysia language courses.
We believe that this could potentially mitigate the misuse of foreign visas by students who enter the country under false pretences and attract quality international students.
Despite early submissions from students, it was revealed that foreign students are still facing delays in getting their visa applications approved, which in turn has affected their ability to commence classes as scheduled.
This could possibly be attributed to the strict EMGS regulations that institutions go through when handling and processing international students.
The delay in visa application approval, if unresolved, could turn prospective students away and potentially affect the revenues of the education institutions.
The earnings of SEG International Bhd and HELP International Corp Bhd may decrease by 10% and 17% respectively if their international student base were to be cut by half.
All in, we maintain our “neutral” call on the sector, as we remain wary in view of a potential decrease in international student growth, which could possibly hurt earnings in the near term pending more affirmations from EMGS to hasten the visa approval process.
We continue to like Prestariang (buy; target price: RM2.11) for its strong long-term fundamentals and it remains our top pick for the sector.