PBB poised for even stronger showing in 2024

CGS-CIMB Research maintained its FY23-FY25 forecasts on PBB.

PETALING JAYA: Public Bank Bhd (PBB) is poised to experience growth in its loan portfolio and improvement in its net interest margin (NIM) in 2024, says CGS-CIMB Research.

The research house said these were among the key takeaways from a recent regional finance conference attended by PBB’s senior chief operating officer Chang Siew Yen and chief financial officer Yik Sook Ling.

“For its outlook, the bank sees better prospects for loan growth in 2024, as it expects stronger economic growth and that the various initiatives implemented by the government will improve Malaysia’s economic environment,” said CGS-CIMB Research in a report yesterday.

Although there could still be pressures on NIM from competition for deposits among banks in Malaysia, the research house said PBB expects its NIM performance will be better in 2024 than its guidance of a less than 20 basis point contraction in 2023.

It added: “PBB’s management overlay remained high at RM1.8bil at end-Sept 2023.

“At this juncture, the bank does not have any definite plan for write-backs in its management overlay in terms of timing and magnitude,” the research house said.

The bank also stated that it would consider a write-back in its management overlay should the global economic climate improve.

CGS-CIMB Research said, “We estimate that every 10% write-back in its management overlay would lift PBB’s FY24 forecast net profit by 1.8%.”

For the bank’s overseas businesses, the research house noted that PBB is expecting better growth prospects in Cambodia and Vietnam, compared with its operations in Hong Kong.

“PBB thinks the contributions from its Hong Kong operations to its pre-tax profit will increase in 2024 due to a potential reduction in US Fed Fund rate, which could lead to the expansion in the NIM of its Hong Kong operations.

“However, long-term revenue growth remains challenging in Hong Kong due to stiff competition in the market there, according to PBB,” said CGS-CIMB Research.

On the other hand, PBB sees better growth prospects in Cambodia and Vietnam, especially with its strong market position as the largest foreign bank in Cambodia.

PBB has been aggressively expanding its branch network in Vietnam, raising its number of branches from 29 in 2021 to 40 in November 2023, noted the research house.

CGS-CIMB Research retained its “add” call on PBB premised on the re-rating catalysts of a potential partial write-back in its management overlay and increase in dividend payout ratio.

The potential downside risks to its call are a marked slowdown in loan growth and material deterioration in asset quality amid a slowdown in Malaysia’s economic growth.

“These could lead to weaker net interest income growth and a possible increase in loan-loss provisioning for PBB in FY23-FY24,” the research house said.

It maintained its FY23-FY25 forecasts on PBB with a target price of RM5.25.

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