PBBANK (1295) - Public Bank Bhd - A decent start to 2015
Target RM17.00 (Stock Rating: REDUCE)
Public Bank’s (PBB) 1Q15 net profit met expectations, accounting for 24% of our full-year forecast and 25% of consensus. Also in line was the absence of dividends in 1Q15. We retain our DDM-based target price (cost of equity of 10.3%, long-term growth of 4%). Despite the decent showing in 1Q15, the stock remains a Reduce in our books due to its rich valuations and modest earnings prospects, as reflected in our projection of single-digit EPS growth in FY15-16. The potential de-rating catalysts are (1) continuous margin compression, (2) an upturn in credit costs, and (3) a drop in ROE post rights issue. Our pick of the sector is RHB Capital.
Single-digit EPS growth and lower ROE in 1Q15
PBB’s net profit showed healthy growth of 15.2% yoy in 1Q15, underpinned by a (1) 9.4% yoy rise in net interest income, (2) 10.7% yoy increase in non-interest income, and (3) 10.7% yoy drop in loan loss provisioning. Nevertheless, EPS advanced by only 4.5% yoy due to dilution from the rights issue implemented in Aug 14. This also brought down its ROE from 20.6% a year ago to 18% in 1Q15.
Stronger loan growth
Despite management guidance of slower loan momentum in 2015, loan growth picked up from 10.8% yoy in Dec 14 to 11.7% yoy in Mar 15. There was an across-the-board improvement in all the major loan segments including residential mortgages (+12.3% yoy in Mar 15), auto loans (+8.1% yoy) and working capital loans (+16.4% yoy).
Slight improvement in asset quality
The gross impaired loan ratio fell from 0.61% in Dec 14 to 0.56% in Mar 15 while loan loss coverage increased from 122.4% to 128.1% over the same period.
Challenges ahead in 2Q15
We think that the prospects for Public Bank are still challenging in 2Q15, plagued by the negative impact of the implementation of GST. Margins will still be under pressure given the sliding yields for residential mortgages and keen competition for deposits.
Source: CIMB Daybreak - 21 April 2015
Target RM17.00 (Stock Rating: REDUCE)
Public Bank’s (PBB) 1Q15 net profit met expectations, accounting for 24% of our full-year forecast and 25% of consensus. Also in line was the absence of dividends in 1Q15. We retain our DDM-based target price (cost of equity of 10.3%, long-term growth of 4%). Despite the decent showing in 1Q15, the stock remains a Reduce in our books due to its rich valuations and modest earnings prospects, as reflected in our projection of single-digit EPS growth in FY15-16. The potential de-rating catalysts are (1) continuous margin compression, (2) an upturn in credit costs, and (3) a drop in ROE post rights issue. Our pick of the sector is RHB Capital.
Single-digit EPS growth and lower ROE in 1Q15
PBB’s net profit showed healthy growth of 15.2% yoy in 1Q15, underpinned by a (1) 9.4% yoy rise in net interest income, (2) 10.7% yoy increase in non-interest income, and (3) 10.7% yoy drop in loan loss provisioning. Nevertheless, EPS advanced by only 4.5% yoy due to dilution from the rights issue implemented in Aug 14. This also brought down its ROE from 20.6% a year ago to 18% in 1Q15.
Stronger loan growth
Despite management guidance of slower loan momentum in 2015, loan growth picked up from 10.8% yoy in Dec 14 to 11.7% yoy in Mar 15. There was an across-the-board improvement in all the major loan segments including residential mortgages (+12.3% yoy in Mar 15), auto loans (+8.1% yoy) and working capital loans (+16.4% yoy).
Slight improvement in asset quality
The gross impaired loan ratio fell from 0.61% in Dec 14 to 0.56% in Mar 15 while loan loss coverage increased from 122.4% to 128.1% over the same period.
Challenges ahead in 2Q15
We think that the prospects for Public Bank are still challenging in 2Q15, plagued by the negative impact of the implementation of GST. Margins will still be under pressure given the sliding yields for residential mortgages and keen competition for deposits.
Source: CIMB Daybreak - 21 April 2015
