Public Bank loan growth likely at 5%-6% this year

TA Research noted that net interest income for the first quarter recovered on the back of stronger annualised loan growth of 6.3%.

PETALING JAYA: Public Bank Bhd, which reported a 3.5% year-on-year decrease in its first quarter (1Q24) net profit, is maintaining modest targets for the full year, taking into account prevailing macroeconomic challenges such as the rising cost of living, which may continue to impact sentiment.

TA Research in a post 1Q24 results review, said the bank’s management anticipates achieving loan growth of approximately 5%-6% this year.

“This growth will be supported by the launch of several special campaigns offering competitive financing terms and pricing to strengthen its market position, as well as opportunities arising from the increasing demand for green financing.

“Deposits are expected to grow in tandem with loans, thanks to Public Bank’s robust deposit franchise and ongoing campaigns,” the research house said.

The lower profit in 1Q24 was due to higher expenses. Despite that, TA Research said the results came in within expectations, with the year-to-date net profit accounting for around 24% of the research firm’s full-year estimates. Annualised return on equity (ROE) stood at 12.3%.

The research house noted that net interest income for the quarter recovered on the back of stronger annualised loan growth of 6.3%. Domestic loans rose at a stronger pace of 5.9% compared with the industry’s annualised increase of 5.3%. The banking group’s market share in the domestic market remained steady at 17.5%.

Notably, the bank’s net interest margin (NIM) showed signs of stabilisation after registering severe compression in 2023 (FY23) to 2.20% from 2.39% in FY22 due to funding pressures.

For 2024, the research house said management forecasts that NIM will remain stable, albeit with a potential for slight mid-single digit compression due to intensified competition for deposits and loans.

“In terms of asset quality, management is confident that credit costs will range between five and 10 basis points, citing consistent repayment patterns and a stable delinquency trend. Additionally, management mentioned the possibility of gradually writing back preemptive provisions when appropriate.

“Overall, FY24 ROE is projected to be around 12%, a decrease from the previous year’s 13%,” the research house added.

Rolling valuations forward to FY25, TA Research has raised the stock’s target price from RM4.70 to RM4.90 based on an implied price-to-book value of about 1.53 times.

Meanwhile, RHB Research sees the stock as a laggard and should benefit from rotational plays seeking out laggard stocks for upside. It has a RM4.80 target price on the stock.

Similarly, MIDF Research said the stock’s valuation remains cheap, backed with solid dividend yields. The research firm upgraded Public bank to a “buy” with a revised target price of RM4.78.

It noted that the bank’s cost-to-income ratio was among the lowest in the industry despite being elevated this year. Cost optimisation efforts are ongoing, while overall writebacks are still highly likely.

According to MIDF Research, improved market conditions could buoy non-interest income this year and the group’s loan growth for small and medium enterprises is also improving.

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