PETALING JAYA: PUBLIC BANK BHD’s first quarter results for the 2020 financial year (FY20) of RM1.33bil were largely within analysts estimates although it did show some effects from the Covid-19 pandemic.
RHB Research said that Public Bank would stand out against its peers due to its resilient loans portfolio and strong provision buffers.
“The projected fall in FY20 earnings will likely be mildest among large peers. Public Bank is our preferred pick for exposure to Malaysian banks, ” RHB Research said.
It maintained its “buy” call on Public Bank with a target price of RM17.40.
“Management believes asset quality stress will be manageable given the bank’s resilient loan portfolio. Management is also actively engaging customers to provide assistance, including restructuring and rescheduling of loans if required, ” it said.
RHB Research noted that Public Bank had allocated additional provisions on the deterioration in economic outlook and increased credit risks.
This had led to higher credit cost guidance of 15 basis points (bps), which is 2-2.5 times above the normal run rate, it said.
The research house expects net interest margins (NIM) to now narrow by 15 bps from the 5-10bps earlier due to the 100 bps cut in the overnight policy rate so far this year.
Maybank Research said Public Bank’s management is expecting their loans growth to be in line with the industry’s at 1-2%.
“Our forecasts assume a credit cost of 10 bps in FY20 versus 5 bps in FY19 – management guides for credit cost of less than 15bps, ” Maybank Research said.
It said Public Bank’s first quarter results showed weaknesses from the previous year as expected and it expects NIM compression and higher credit costs to continue to weigh on earnings over the next few quarters.
“Undoubtedly the bank has one of the strongest fundamentals in Malaysia, but we see little catalyst to rerate the stock, ” it said, rating the stock a hold with a target price of RM16.10.
Maybank Research had trimmed Public Bank’s FY20 earnings by a further 3% to factor in the higher NIM compression and it expects FY20 net profit to contract by 11% before recovering by 6% in FY21.
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