Public Bank continues to show resilience in earnings

Kenanga Research said Public Bank is expected to achieve its loan growth of 4% to 5% this year.

PETALING JAYA: Analysts are upbeat on Public Bank Bhd’s prospects as the group has shown resilience in delivering steady earnings, despite challenges in the fourth quarter of this year.

Kenanga Research said the bank’s nine month results for 2023 were well within expectations, and is on track to meet its full-year targets.

“We maintain an ‘outperform’ call on Public Bank with a higher target price (TP) of RM4.75 from RM4.24 as the worst is likely over in regards to margin compression,” said the research house.

According to Kenanga Research, Public Bank is expected to achieve its loan growth of 4% to 5% this year, with a solid presence in the mortgage space unhindered, albeit possibly lower as compared to financial year 2022 (FY22), no thanks to the higher rate environment.

“In the meantime, appetite remains stable for hire purchases and small and medium enterprise (SME) accounts.

“That said, the group emphasised on only acquiring quality assets as to not compromise its books,” it said.

Furthermore, the bank had guided net interest margin (NIM) to not compress more than 20 basis points (bps) from FY22 of 2.39%.

“This will likely be held by deposit rates recovering to more favourable levels to banking operations.

“That said, fourth quarter’s seasonal rush to capture deposits may limit the upside towards NIM recovery,” Kenanga Research noted.

For its low credit cost, Public Bank will remain cautious and prudent particularly on various SME segments.

“While certain repayment assistance programmes still exist, it will not account for more than 1% of the group’s overall loans book.

“Additionally, its sizable overlay of RM1.8bil remains unchanged with no apparent urgency to write back at this moment,” Kenanga Research added.

The risks include a higher-than-expected margin squeeze, lower growth in loans, significant deterioration in asset quality and a further slowdown in capital market activities.

Meanwhile, Hong Leong Investment Bank (HLIB) Research has maintained a “buy” call on the bank with a higher TP of RM4.80 for its defensive qualities, which typically shine in times of uncertainties.

The brokerage firm said Public Bank’s third quarter profit of RM1.7bil was in line with expectations, making up 74% to 75% of its and consensus full-year forecasts.

For its quarter-on-quarter results, HLIB Research said Public Bank’s positive jaws coupled with lower effective tax rate of minus one percentage point helped to boost earnings up by 5%.

“The robust top-line was thanks to NIM expansion of three bps and non-interest income rising 3%, led by stronger fees and treasury performance,” it said.

On the bank’s prospect. HLIB Research expects NIM to remain broadly stable next quarter, considering fixed deposit rivalry is still fairly benign, and asset quality to be resilient given its prudent and conservative credit origination practices.

“The bank has strong asset quality and its loan loss coverage towers that of pre-pandemic level.

“Moreover, foreign shareholding is near multi-year low.”

Meanwhile, TA Research has maintained its modest FY23 targets due to challenges from rising interest rates and inflation, while management expects loan growth to end at around 5%.

The research firm said the mortgages, hire purchase and SME segments will continue to support lending activities, while deposits are envisaged to rise in tandem with loans.

“As the interest rate upcycle eases, management foresees normalisation in NIM in 2023.

“With the presence of deposit competition, management predicts a potential double-digit margin compression of less than 20 bps in 2023,” it said.

For asset quality, TA Research said the management maintains that credit costs could come in better than the 10 bps guided earlier for 2023 due to stable repayment delinquency trends.

“Taken together, management anticipates that FY23 return of investment, which is guided to come in at around 12% to 13% (FY22: 12.4%), would be supported by continued expansion in loans and deposits as well as stable asset quality,” it said.

TA Research said it will maintain its “hold” call with a TP of RM4.25 with no change to its earnings estimates.