Public Bank is a Buy at AllianceDBS Research

KUALA LUMPUR: AllianceDBS Research has a Buy recommendation on Public Bank and a target price of RM22.60 after adjusting for the rights issue.

“Our target price is derived from the Gordon Growth Model. Sustainable growth trends support its premium valuation vs peers. Public Bank remains our top pick among our Malaysian banks coverage,” it said on Tuesday.

 AllianceDBS Research said the bank’s consumer loan growth did not weaken following Bank Negara’s tightening measures over the last three years, although it expected pockets of speculative and high-end properties to soften.

“Its key portfolio is the mass market, hence, we expect loan growth to remain resilient,” it said.

It said Public Bank’s net profit fell on-quarter due to lower net interest margins and higher expenses, but this was offset by higher unit trust and fee income.

The strong boost in fee income was also a result of Public Bank’s added efforts towards cross-selling. Provisions were marginally higher on-quarter, but the increment was insignificant. 

Loans and deposit both registered 3% growth, leaving loan-to-deposit ratio unchanged at 88%.

Loan growth was led by property loans, while deposit growth was driven by both current accounts and savings accounts and fixed deposits.

Asset quality continued to improve, with NPL ratio at only 0.6%, the lowest among peers. Capital ratios dipped mainly due to the second phase off for its hybrid capital instruments as part of Basel III’s transitional requirements. 

“Despite challenging times ahead, Public Bank will continue to deliver sustainable earnings growth.

“Loan approvals remained stable. The spike up in loan growth in 1Q15 was likely due to the pre-GST rush for quicker drawdowns. This would be supported by resilient loan growth, best-in-class cost to income ratio, and unrivalled asset quality.

“Contribution from its asset management business will continue to set the bank apart from peers,” it said.