CIMB Research said the bank’s share price had been flattish in recent months.
PETALING JAYA: An upside to its dividend payout ratio, better credit costs, potential loan growth upgrade and stable cost of funds are the key catalysts for Public Bank Bhd
, say analysts.
CIMB Research said the bank’s share price had been flattish in recent months, which it believes is likely related to concerns about issues arising from its restricted offer for sale of shares by the family of late founder Tan Sri Teh Hong Piow, which was first announced in October 2024.
“However, at current price levels, the dividend yield is now likely to exceed 5% from this year, based on organic growth alone,” the research house said in a report.
The bank’s shares closed at RM4.45 on Monday, down by close to 2% year-to-date.
CIMB Research said the banking group recently acknowledged that its group Common Equity Tier 1 (CET1) capital ratio, at 14.3% in the third quarter of 2024 (3Q24) is high and very conservative, further hinting that there is scope to take it down to 13%.
“This implies extra capital of RM3.4bil or RM0.18 per share that may be released, if Public Bank right-sizes its group CET1 ratio to 13%,” the research house added.
Public Bank also confirmed that the overall impact from changes under Basel III, a framework that sets international standards and minimums for bank capital requirements, stress tests, liquidity regulations, and leverage, will be positive.
“The banking group’s risk-weighted assets (RWA) to–total assets ratio is the highest among the banks we have under our coverage, at 65% versus the sector average of 58% as of the end of last September,” the research house said.
“Assuming that Public Bank’s RWA-to–total assets ratio can be lowered to 60% under Basel III, our calculation indicates that this may reduce RWA by RM27bil, or 8%, to RM316bil, from RM342bil.
“This will correspondingly boost the group’s CET1 ratio by 1.2% to 15.5%, from 14.3% as of end-September 2024, on a proforma basis,” the research house said.
The 1.2% enhancement to CET1 resulting from Basel III changes translates to further excess capital of RM3.8bil, or an additional 20 sen per share, on top of the 18 sen that could be released from right-sizing Public Bank’s capital.
Its pre-emptive provisioning overlay balance stood at RM1.5bil as of end-September 2024, which CIMB Research said is exceptionally high taking into view Public Bank’s excellent asset quality alongside low gross impaired loans ratio of 0.6% and strong loan loss cover of 153.6% in 3Q24.
“All in all, we believe there is ample room for Public Bank to raise its dividend payout ratio to at least 60%, compared with the 55.5% in 2023, on a sustainable basis. We currently assume a dividend payout ratio of 58% for 2025, 58.2% for 2026, and 58.3% for 2027,” the research house said.
Following the restricted offer for sale, the Teh family’s stake in the group will be reduced to 10%, which is within the Financial Services Act limit. The family would remain the majority shareholder in Public Bank, with the stake held under Consolidated Teh Holdings Sdn Bhd.
“This is positive as it means stability for Public Bank in terms of the management team and the group’s culture,” CIMB Research said.
Meanwhile, Public Financial Holdings Ltd, a 73.2%-owned subsidiary of Public Bank listed on the Stock Exchange of Hong Kong, recently reported a goodwill impairment of HK$810mil or about RM464mil.
The research house this was expected to shave off 4.8% from its net earnings projection for Public Bank for 2024.
CIMB Research maintained a “buy” call for Public Bank with a target price of RM5.60 while lowering its 2024 forecast net earnings projection by 4.8% to take into account the estimated RM464mil goodwill impairment from its Hong Kong unit
However, the research house said its return on equity and book-value on the banking group for 2025 were largely unchanged.
“Our forecasts have yet to reflect any potential increase to Public Bank’s dividend payout from right-sizing its currently high group CET1 ratio as well as positive impact from Basel III changes,” the research house said.
