Public Bank has built a superior record in prudent underwriting and good risk controls in the past decade.
KUALA LUMPUR: Affin Hwang Capital Research reaffirmed its Buy call and RM26.30 target price on Public Bank Bhd
and expects a fund-based income growth of 10% year-on-year (y-o-y) for 2018.
The research house also expects a 5-6bps net interest margin (NIM) improvement y-o-y to 2.33%, along with a loan growth projection of 5% and deposit growth forecast of 4%.
Downside risks to its forecasts include the chance of a NIM compression (management’s guidance of low to mid-single digit), higher-than-expected deposit growth and more intense competition in the loan market (resulting in price-discounting).
“While industry credit demand may pick up in 2H18 from better consumer and business sentiment, competition in the banking space may intensify.
"We believe, however, that management will not resort to excessive risk-taking, which would result in further discounts on rates, but will work towards preserving its NIM,” it said in a note.
It maintained its forecasts, Buy rating and 12-month target price of RM26.30.
Public Bank’s 1H18 net profit of RM2.8bilwas broadly in line with its estimate but below consensus. “In our view, Q2’18 was another favourable quarter, underpinned by sustainable fund-based income, though the Q2’18 NIM normalised to 2.24% from 2.33% in Q118 (as the deposit cost started repricing upwards).
Given the relatively sound asset quality versus peers, its credit cost stayed at a low 6bps for 1H18.
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