Maybank IB Research ups Public Bank to Hold, TP RM18.10


  • Analyst Reports
  • Thursday, 09 Jul 2020

The research house upgraded its call on Public Bank to Hold from Sell, with a raised TP of RM18.10 (from RM16.10), pegging on a higher FY21 PBV of 1.4x versus 1.3x previously (ROE: 11%).

KUALA LUMPUR: Maybank Investment Bank Research expects the recent OPR cut to have minimal impact on Public Bank’s earnings while it also decides to retain its forecasts.

“Separately, it is highly likely, in our view, that Public Bank’s Day 1 modification loss will come in much lower than anticipated, which would be positive, ” it said on Thursday.

The research house upgraded its call on Public Bank to Hold from Sell, with a raised TP of RM18.10 (from RM16.10), pegging on a higher FY21 PBV of 1.4x versus 1.3x previously (ROE: 11%).

It said the cut in OPR by 25 basis points, by its estimates, would trim its FY20 net interest margins (NIM) by 3bps to 1.97%.

While for FY21, it has assumed a 2bps NIM contraction to 2.03%.

“The impact to FY20/21F earnings would be negligible at just -2%/-1.4% respectively. Our forecasts are maintained.

“One of our primary concerns has been the potential Day 1 modification loss (ML) on Public Bank’s HP portfolio, which we estimate to be about RM1.3bil, for this would impact its FY20F net profit by a hefty 26%, ” it said.

Positively though, other banks such as AMMB expect to see their ML offset by potential modification gains and it thinks that Public Bank is likely to benefit from this too.

AMMB’s modification gain, for instance, is expected to reduce its overall modification loss of RM400m to just RM80m.

The modification gain arises from the disbursement of SME loans under the Special Relief Facility (SRF) scheme which, as a result of being 80% guaranteed by Credit Guarantee Corporation, contributes to lower funding cost to banks, thus resulting in a modification gain which could be offset against the Day 1 modification loss on hire-purchase loans.

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