Investment Highlights

• We upgrade our call on Public Bank (PBB) to BUY from HOLD with an unchanged fair value of RM4.50/share supported by ROE of 11.9% leading to FY24F P/BV of 1.5x.

• We make no changes to our earnings estimates and our neutral 3-star ESG rating.

• Year-to-date (YTD), the stock price has fallen by 6.7%, and lagged the KLFIN Index gain of 6.8% . We see value emerging now with the share trading at a low FY24F P/BV of 1.4x, below its 5-year historical average of 1.7x. The steep valuation discount suggests that uncertainties about the late owner’s shareholdings have already been priced in.

• As of end-May 2024, foreign shareholdings on the stock stood at a low 24.6% vs. 32.8% in pre-pandemic Dec 2019.

• NIM pressure is seen as abating albeit deposit competition persisting with digital banks offering attractive and high rates on savings deposits. Fixed deposit rates of recent campaigns have been more rational than in late-2022. Hence, the steep interest margin compression in FY23 is unlikely to be repeated going forward.

• For FY24F, we have factored in a milder NIM compression of 2bps (FY23: decline of 19bps) to reflect a subtle pressure on asset yields with lending rates on retail and commercial loans seen as more competitive. This is within management’s guidance of a stable to 5bps compression for the financial year.

• Recall, the group’s loans accelerated to 6.2% YoY in 1Q24 compared to 5.9% YoY in 4Q23. Domestic loans grew 6% YoY in line with industry growth. We project the group’s loans to end FY24F with a growth of 6% YoY, supported by key segments in mortgages, commercial property lending, hire purchase and financing to SMEs.

• Amidst economic uncertainties and limited visibility on developed economies’ central bank policy rate directions, resilient asset quality and conservative provisioning levels remain key strengths of PBB. With the macroeconomic uncertainties, the group is poised to continue to be prudent and maintain a conservative level of management overlays.

• PBB has a high loan loss coverage (LLC) ratio, including regulatory reserves of 200%. This ranks 2nd behind Hong Leong Bank’s 265%. The ratio is well above the industry’s 120.9% and continues to provide comfort against any downside risk to asset quality.

• A dividend yield of 4.7%/5.1% for FY24F/25F is seen as supportive of our valuation. Besides CIMB Group, we see this stock as liquid among banks under our coverage with a high free float of 62.1%.

Source: AmInvest Research - 26 Jun 2024