Overview

Public Bank (PBB) was founded in 1966 by the late Tan Sri Dato' Sri Dr. Teh Hong Piow. On 6 April 1967, Public Bank was listed on Bursa Malaysia. The group offers a comprehensive suite of financial products and services, including personal banking, commercial banking, Islamic banking, investment banking, share broking, trustee services, nominee services, sale and management of unit trust funds, and bancassurance and general insurance products. PBB is Malaysia's third largest banking group by assets, with an asset size of over RM519.8bn as of 31 March 2024.

Investment Themes

• Bouncing back. We see increased aggressiveness in PBB defending market share, with a noticeable shift towards the SME and business segments, particularly non-residential properties. While there is some moderation in residential mortgages, HP activities are on the rise. Approved loans are better accepted, particularly for mid-single-digit growth in the SME sector.

• Maintaining exceptional asset quality. As of 1QCY24, the gross impaired loan ratio remains impressively low at 0.62%. The loan loss coverage is robust at 168.7%, surpassing the industry average of 113.3%. PBB is supported by a substantial management overlay buffer of RM1.7bn, little changes from RM1.8bn a year ago.

• Room to raise dividend payout. Backed by a CET1 ratio of 14.5% and healthy asset quality buffers, we believe there is room for PBB to raise its dividend payout further. We note that PBB's dividend payout has been on a gradual rise since 2019, increasing from 51.4% to 55.5% in 2023.

• Potential beneficiary of foreign inflows. The foreign shareholding level for PBB is currently at around 24.6%, above the 5-year average of 28.5%. Backed by asset quality strength and superior ROE of 12.4%, above the peers’ average of 9.7%, PBB is well-positioned to be a top choice for potential foreign investors returning to the Malaysian market. At its highest point, PBB's foreign shareholding reached 39.5% in March 2018.

Risk

• The NIM could face potential funding pressures due to a substantial 25.1% YoY increase in FDs, contrasting with the flat YoY growth in CASA. PBB is also experiencing negative JAWS, driven by a steep rise in personnel costs, prompting a focus on cost optimisation measures in 2024.

Recommendation

• We value PBB at RM4.90. Our valuation is based on an implied PBV of c. 1.53x based on the Gordon Growth Model.

Source: TA Research - 2 Jul 2024