PETALING JAYA: Public Bank Bhd
is expected to maintain resilient core earnings and shareholder returns despite a sizeable goodwill impairment at its Hong Kong subsidiary, with analysts viewing the one-off charge as largely accounting-related rather than a material deterioration in its underlying business prospects.
The RM1bil impairment could weigh on the banking group’s reported earnings for the financial year ending Dec 31, 2026 (FY26), but its non-cash nature is expected to limit the impact on capital adequacy, dividend capacity and operating performance.
CIMB Research estimated the impairment attributable to minority interests at RM748.1mil, equivalent to 10% of its previous FY26 reported net profit forecast.
Public Bank recently announced a full goodwill impairment of HK$1.96bil at its 73.23%-owned Hong Kong subsidiary, Public Financial Holdings Ltd, following an impairment assessment.
CIMB Research expects the charge to reduce earnings per share (EPS) and net assets per share by four sen each, but excludes it from its FY26 core net profit forecast.
“We expect limited implications for regulatory capital, as goodwill is already deducted in calculating the common equity-tier one or CET1 capital, as well as for dividend capacity and underlying operating performance,” it said.
CIMB Research expects Public Bank to record broadly flat core net profit of RM1.85bil in the third quarter (3Q) of FY26, up 0.5% year-on-year and 1.5% quarter-on-quarter.
Earnings should be supported by resilient non-interest income from wealth management and foreign-exchange activities, partly offset by a further three-basis-point contraction in net interest margin (NIM) to 2.05%.
It reiterated its “buy” call but lowered its target price to RM5.35 from RM5.50, after cutting its FY26, FY27 and FY28 net profit forecasts by 12.5%, 2.1% and 2.5%, respectively.
One analyst told StarBiz that the impairment would unlikely derail Public Bank’s earnings resilience, although investors would continue to monitor margin pressure and the performance of its Hong Kong operations.
“The group’s capital return plan should remain a key investment attraction, with its defensive earnings and dividend prospects providing support for investor sentiment,” he said.
Hong Leong Investment Bank (HLIB) Research also viewed the impairment as an accounting reset, estimating the attributable charge at RM772.5mil. It incorporated the amount into FY26 reported earnings but excluded it from core earnings, assuming no recurring impairment thereafter.
“Accordingly, the adjustment primarily creates a divergence between reported and core earnings in FY26, rather than altering Public Bank’s underlying earnings trajectory,” it said.
However, HLIB Research cautioned that the rationale behind the write-off points to a more challenging operating environment for Public Bank’s Hong Kong franchise, as higher long-term interest rates increase funding costs and weigh on margins.
It lowered its FY26 to FY28 earnings projections marginally by 0.1%, 0.4% and 0.3%, respectively, while maintaining its “buy” rating and lowering its target price to RM5.10 from RM5.30.
It retained Public Bank as its top pick for 4Q26, citing defensive earnings and the potential for a dividend yield of about 6% from its RM3.5bil capital return programme.
UOB Kay Hian (UOBKH) Research maintained its “hold” recommendation and target price of RM5.54, based on 1.74 times its 2027 forecast price-to-book value.
It estimated the earnings impact at RM746mil, or about 10% of FY26 earnings, but said the charge represented less than 1% of Public Bank’s market capitalisation.
UOBKH Research also expects the lower equity base to potentially lift return on equity by 20 basis points in 2027, all else being equal.
