Capitalising on loan growth

KUALA LUMPUR: Higher demand for financing would continue to buoy Public Bank Bhd’s near-term trajectory following its strong showing in the first quarter.

Amidst expectations of better loans growth for the year, Public Bank’s management is anticipating greater appetite in retail borrowings, led by housing loans and hire purchases to reach a growth target of 4% for FY21.

The group is also aiming to capture greater market share with the acquisition of more deposits digitally. This could also open up cross-selling opportunities for the bank’s other offerings.

Public Bank’s Q1FY21 results came in mostly within analysts’ expectations.

Kenanga Research noted that the group’s profit after tax and minority interests for the three-month ended March 31 of RM1.53bil made up 27% of its expectations.

“Q1FY21 total operating income rose by 15% year-on-year to RM3.23bil thanks to stronger net interest income, driven by better net interest margins (NIM) (2.28%, +20 basis points) from further repricing of deposits amidst a 5% growth in gross loans mainly from mortgages and hire purchases, ” the research house said in a report.

As far as delinquencies are concerned, Public Bank has expressed that they are still able to keep asset quality in check and do not anticipate high downside risks, barring further tightening and prolonging of movement controls.

According to Maybank IB Research, 11.6% of total domestic loans are currently under targeted repayment assistance, which was up marginally from about 11% in February 2021.

This comprises 11% individuals and 14% non-individuals (up from 10% and 13% respectively in February).

The management does not expect a significant increase in these ratios with the movement control order (MCO) 3.0 as businesses are still operating.

Having put through RM650mil worth of pre-emptive provisioning in FY20, there was no additional pre-emptive provisioning in Q1FY21.

Maybank pointed out that its loan loss coverage including regulatory reserves remains very healthy at 338%.

Post-results, Kenanga tweaked its FY21 and FY22 earnings estimates by 1.8% and 1.6% respectively from model updates.

The brokerage has subsequently upgraded its rating on the stock to “outperform” from “market perform” previously with an unchanged target price of RM4.40.

“We upgrade the stock as we recommend investors to take advantage of capital upside opportunities from recent share price weakness. While the stock’s dividend yield is only modest at 3%-4%, it could be made up by its solid return on equity (ROE) proposition of 11%.

“Its low gross impaired loan ratio of less than 1% also backs the group’s longer term resiliency and sustainability, ” it said.

Kenanga believed that interest yields should normalise by the coming quarter unless there are changes to the overnight policy rate, which it reckoned is unlikely for the rest of the year.

That said, recovery in economic activity is not expected to be uniform as some sectors could still remain vulnerable amidst the ongoing pandemic globally.

Hence, Kenanga has kept its guidance and targets for FY21 unchanged for now.

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