Public Bank has built a superior record in prudent underwriting and good risk controls in the past decade.
KUALA LUMPUR: AmInvestment Bank Research is downgrading its call on Public Bank to Hold from Buy with a lower fair value of RM25.60 a share from RM26 a share.
The research house had on Thursday trimmed its earnings for FY19/20 by 0.4%/1.4% after imputing higher net interest margin (NIM) compression and raising its cost-to-income ratio assumptions.
“This resulted in a lower projected FY19 return on equity (ROE) of 13.5% (previously: 14.1%) leading to a price-to-book value (P/BV) of 2.3 times. We expect mortgage loan growth to moderate in FY19 as the property market is expected to remain soft.
“This, coupled with compression in NIM, is expected to result in a modest topline growth for FY19,” it said.
AmInvest Research said Public Bank recorded a core net profit of RM1.41bil (+1.6% QoQ) in 4QFY18. This brought 12MFY18 earnings to RM5.59bil, which grew modestly by 2.2% YoY.
Total income growth was flat as it rose only by 0.9% YoY due to lower non-interest income (NOII). Softer income, coupled with higher opex growth of 4.2% YoY, led to an increase in the group’s cost-to-income ratio to 33.0% for FY18 (FY17: 31.9%).
The research house said the 12MFY18 net profit came in within expectations, accounting for 101.5% and 98.5% of its and consensus estimates respectively.
Growth in the group’s NOII declined by 5.0% YoY for FY18 was dragged by non-operational forex losses.
“For the full FY18, its loans grew 4.2%YoY, and was below our assumption of 5.0% expansion,” it said.
Public Bank’s group’s deposits accelerated to 6.2% YoY in 4QFY18 vs. 3.8% YoY in 3QFY18. The current account and savings account ratio remained stable at 25.7%. Meanwhile, its net LD ratio inched lower to 93.0%.
“NIM shrank by 6bps to 2.22% owing to higher funding cost which was in line with management’s guidance. Management is guiding for mid-single digit compression on the groups’ NIM for FY19 mainly due to pressure on funding cost.
“The group continued to record a low GIL ratio of 0.5%, well below the domestic industry's 1.5%. With its regulatory reserves of RM1.81bil, loan loss cover remained high at 237.5%.
“Credit cost in 12FY18 of 0.05% was lower than our estimate of 0.10% for FY18. A second interim dividend of 37 sen a share was declared, leading to a total FY18 dividends of 69 sen a share (payout: 47.9%), higher compared with FY17’s 61 sen/share,” it said.
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