KUALA LUMPUR: Public Bank’s Q1, FY19 net profit was below CIMB Equities Research’s expectations at 23% of its full year forecast due to lower-than-expected topline growth.
However, the net profit was in line with market expectations at 24.5% of Bloomberg consensus estimates, the research house said on Tuesday.
Public Bank’s Q1, FY19 net profit inched up by just 0.3% on-year as the net write-back in loan loss provisioning was offset by a 0.7% on-year drop in operating revenue.
At the topline, net interest income slid 1% on-year, impacted by a 14bp on-year contraction in net interest margin.
Meanwhile, non-interest income fell by 1.6% on-year due to lower fee income and foreign exchange profit.
“The drop in 1Q19 revenue underscores our views for a cautious outlook for banks’ topline growth in 2019F. In the coming quarters, we expect banks’ revenue to continue to be weighed down by (1) margin contraction arising from deposit competition, and (2) weak expansion in fee income.
“Loan growth improved slightly from 4.2% on-year at end-Dec 18 to 4.4% on-year at end-March 2019. The improvement mainly came from working capital loans with a rise of 5.4% on-year at end March 2019 vs. 2.6% on-year at end-December 2018.
“But this was partly offset by the slowdown in the growth of residential mortgages from 8.4% on-year at end-December 2018 to 8.1% on-year at end-March 2019,” it said.
CIMB Research lowered its FY19-21F EPS forecasts by 6%-7% as it cut our projected net interest income by 3%-4% and non-interest income by between 7.6% and 8.5%. This led to a drop in its DDM-based target price from RM25.70 to RM23.60.
“Despite its strong fundamentals, we retain a Hold call on Public Bank due to its pricey valuations. Its CY20F P/E of 14.6 times and P/BV of 1.9 times are the highest in the sector.
“Potential upside/downside risks are an improvement/deterioration in loan and fee income growth. We prefer RHB Bank for exposure to the Malaysian banking sector,” it said.
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