KUALA LUMPUR: RHB Research is maintaining its Buy call on Public Bank while it raised its target price from RM20.60 to RM21.60 after its results for January-September beat its own estimates and consensus also.
The research house said on Monday Public Bank’s third quarter earnings normalised on strong fee income and net interest margin (NIM) recovery.
“Management continued to strengthen asset quality, and took the opportunity to boost loan loss coverage (LLC) to a high 209%. Its share price has risen 21% on vaccine news, lifting FY21F price-to-book value (P/BV) to 1.4 times.
“We believe Public Bank will continue to command premium valuations, given its defensive qualities in the challenging economic environment,” it said.
RHB Research said the bank’s net profit of RM1.39bil (+39% QoQ, +2% YoY) for 3Q20 lifted 9M20 earnings to RM 3.72bil (-9% YoY). The nine months net profit accounted for 82%/80% of its and consensus estimates.
It said Public Bank’s management does not expect a significant uptick in loans under the Targeted Repayment Assistance (TRA), with the enhanced TRA for B40 individuals and micro enterprises.
The research house also said credit cost guidance has been raised to 30-35bps (from 20-25bps), as management intends to take more pre-emptive provisions in 4Q20 to strengthen buffers.
“Loan growth is expected to exceed 4%, with deposits growing in tandem. NIM is expected to narrow by 20bps. We increase net profit by 4% and 3% for FY20F-21F.
“Assumptions of higher credit costs are offset by upward revisions in operating income. Our new forecasts point to a 15% recovery in FY21F earnings,” it said.
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