• Stay NEUTRAL, new MYR4.65 TP from MYR4.40, 5% upside with c.5% FY24F yield. Public Bank’s 4Q23 results are in line, at least meeting and, in some instances, exceeding its FY23 targets. Looking ahead, it sees healthy loan demand but yet, topline growth could be challenged by NIM pressure and growing non-II. While we have no major concerns on the group, we prefer banks with larger overseas exposure for better growth opportunities.

• 4Q23 net profit down 5% QoQ (-6% YoY) to MYR1.6bn, bringing FY23 PATMI to MYR6.6bn (+9% YoY), at 100% and 98% of our and consensus FY23F. Its reported FY23 ROE of 13.0% was at the higher end of management’s 12-13% target, and up from 12.8% in FY22. CET-1 rose 16bps QoQ to 14.7% (4Q22: 14.6%). As expected, an interim DPS of 10 sen (4Q22: 5 sen) was declared, with FY23 DPS of 19 sen (FY22: 17 sen) translating to a slightly higher payout ratio of 55% (FY22: 54%).

• Results highlights. 4Q23 PIOP fell 2% QoQ (-17% YoY) on the back of a 2% decline in operating income. NII eased 1% QoQ as NIM was squeezed by 6bps QoQ on funding cost pressures, cushioned by loan expansion. Non-II contracted 3% QoQ on weaker fee income. Opex was well contained and, hence, despite the weaker operating income, CIR was flat QoQ at 33.8%. Credit cost inched up 6bps QoQ to 10bps in 4Q due to a top-up in provisions for an earlier impaired corporate account in the Hong Kong real estate sector on revaluation of collateral. Otherwise, the GIL ratio was stable at 0.59% while 4Q23 LLC stood at 182% vs 3Q23’s 187% and 4Q22’s 272%. For the corporate account, PBK thinks provisions are adequate, with plans afoot to dispose the property collateral later this year.

• FY23 results met targets, now for 2024. For 2024, management’s guidance includes: i) 5-6% loan and deposit growth; ii) stable-to-single-digit NIM compression; iii) 5-6% opex growth with c.35% CIR; iv) 5-10bps credit cost; and v) 12% ROE. The key challenge management sees is with respect to operating income growth. Its key loan drivers – residential mortgages and SME – has seen keen pricing pressure although auto loan pricing is currently higher than pre-pandemic levels. Meanwhile, deposit competition could pick up if loan demand for banks pan out to be stronger than expected. Having said that, PBK thinks there is a good likelihood of some overlay writebacks this year, which has not been factored in the credit cost guidance. This, we think, could help support overall PATMI growth and meet the ROE guidance.

• Forecasts and TP. We have updated our FY24-25F numbers but the net impact to bottomline is insignificant. We raised our TP to MYR4.65 from MYR4.40 after updating our FY24F book value. There is no change to the 4% ESG discount ascribed.

Source: RHB Research - 29 Feb 2024