Public Bank recorded the highest net money inflow of RM22.89m last week.
KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Public Bank due to its rich valuations.
It said on Thursday despite bank’s strong fundamentals, the valuations were the highest in the sector for its CY19F price-to-earnings (P/E) of 14.5 times and CY19F price-to-book value (P/BV) of 1.8 times.
“A potential upside risk to our call is a strong pick-up in loan growth, while a key downside risk is a drastic deterioration in asset quality. We prefer RHB Bank for exposure to Malaysian banks.
“We see RM21.60 as a viable entry level for Public Bank as the implied CY19F P/E for this is close to the five-year average of 13.2 times,” it said.
CIMB Research said Public Bank’s 1Q18 net profit was below its expectations, coming in at 23% of its full-year forecast.
It said this was because it had been overly optimistic in its projection of total income growth.
However, Public Bank’s 1QFY18 net profit was in line with market expectations at 24% of Bloomberg consensus estimate.
The 1Q18 net profit rose by 12.6% on-year as revenue growth of 6.6% on-year outpaced the 1.4% on-year increase in overheads.
Loan growth eased marginally from 3.6% on-year at end-Dec 17 to 3.4% on-year at end-Mar 18, below the industry’s rate of 4.4% on-year and the slowest since 1999. The drags were the contraction of 2.4% on-year in auto loans and 4.2% on-year in working capital loans at end-Mar 18.
The key support for loan growth was the 8.9% on-year expansion in residential mortgages at end-Mar 18, on par with the industry’s pace.
On a positive note, Public Bank’s net interest margin expanded by 2bp on-year and 6bp on-quarter to 2.33% in 1Q18.
“We believe this mainly reflected the positive impact from the rate hike in Jan 18,” it said.
CIMB Research said contrary to its expectation for a marginal decline, Public Bank’s common equity Tier-1 (CET1) capital ratio rose by 20bp, which is positive for Public Bank’s, upon the adoption of MFRS 9.
This was mainly due to (1) its high regulatory reserve (RR) of RM2.4bn which was more than enough to cushion the RM451m increase in provision, and (2) a surprise gain from the revaluation of equity investment.
“We cut FY18-20F EPS forecasts by 3.3% as we lower our net interest income projections by 3.1%. We think the margin expansion trend could benefit Public Bank’s long-term EPS growth.
“Hence, we raise our assumed EPS growth rate for the interim growth phase of our dividend discount model from 5% to 6%, leading to an increase in our DDM-based target price from RM21.30 to RM23.30,” said CIMB Research.
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