Review

• Public Bank (PBB) reported a decent 6.2% YoY increase in 9MFY24 net profit to RM5,348mn due to higher operating income and higher profit from associates. The results came within expectations, with the YTD net profit accounting for around 77% of our full-year estimates. Annualised ROE stood at 13.2% (FY23: 13.0%).

• Making up around 74% of our full-year forecast, 9MFY24 total income increased at a stronger pace of 5.4% YoY (+4.9% QoQ) anchored by improvements in the net interest income (NII) (+4.2% YoY), Islamic Banking operations (+5.4% YoY) and a boost of 9.8% YoY in non-net interest income (non-NII).

• 9MFY24 NII strengthened on the back of an annualised group loan growth of 5.2% (FY23: +5.9% YoY). Domestic loans rose at a healthier pace of 6.2% (FY23: +5.9% YoY). PBB’s domestic market share broadened to 17.7% from 17.5% in FY23. By segment, loans and advances were supported by hire purchases (+14.4% YoY) while the financing for residential properties grew at a slightly healthier pace of 5.4% compared to the previous quarter (FY23: +6.4% YoY). Financing for commercial properties widened by a more robust 5.2%, while financing for domestic SMEs increased by 3.5% YoY.

• 9MFY24 NIM expanded by 1 bp to 2.21% from 2.2% in FY23. Encouragingly, NIM widened 5 bps to 2.24% from 2.19% in 2QFY24. Management attributes the stronger sequential NIM to efforts in effectively optimising funding costs. Elsewhere, PBB’s total deposits broadened by 3.9% (FY23: +4.6% YoY), where Savings and Demand Deposits grew at an annualised pace of 1.0% and 2.6%, respectively. Meanwhile, the Money Market Deposit slipped at an annualised pace of 10.3%, cushioning the impact of a 12.5% rise in Fixed Deposits. PBB’s market share in the customer deposit space improved slightly to 16.7% (FY23: 16.3%). Elsewhere, liquidity remains ample, with the liquidity coverage ratio (LCR) at 127.1% (FY23: 136.8%).

• 9MFY24 non-NII expanded by 8.8% QoQ and 9.8% YoY. The sequential improvement was attributed to higher fee income (+5.8%) and other operating income, such as Forex income (+55.2% YoY). YoY, net fees and commissions also strengthened, rising by 12.7%, underpinned by higher income from the sale of unit trusts (+13.6% YoY), Stockbroking income (+61.6% YoY) and fees and commission (+2.5% YoY). The stronger fee income helped support lower Forex income (-6.9% YoY) and a 20.4% decline in other operating income. PBB also reported higher net gains and losses on financial instruments amounting to RM73.8mn in 9MFY24 vs RM36.8mn a year ago. In the Wealth Management business, PBB’s Net Asset Value of Funds (NAV) under management rose to RM99.2bn (FY23: RM97.1bn), accounting for a retail market share of 34.6%. Over in the bancassurance business, 9MFY24 annualised new premium (ANP) stood at RM384.7mn (FY23: RM439.3mn).

• 9MFY24 loan loss allowances improved to RM41.7mn vs RM59.7mn a year ago. However, QoQ, PBB reported a net writeback of RM20.4mn, higher than the writeback of RM1.2mn in 2QFY24. With that, the YTD credit cost improved to 1 bps compared to 4 bps in FY23. Overall, management expects asset quality to remain sound, backed by a healthy loan loss coverage ratio of 153.6% (FY23: 181.8%).

• Elsewhere, the gross impaired loans rose to RM2,550mn vs. RM2,335mn in 2023. Despite that, the gross impaired loans ratio (GIL) was steady at around 0.6% (FY23: 0.6%). Domestically, the GIL for residential properties was stable at 0.3%, while the GIL ratio for transport vehicles improved to 0.2% (FY23: 0.3%). Meanwhile, the GIL ratio for commercial properties deteriorated slightly to 0.8% (FY23: 0.6%).

• PBB remains backed by a solid capital position with a Common Equity Tier 1 (CET1) Capital Ratio and Total Capital Ratio of 14.3% and 17.2%, respectively.

Impact

• No change to our earnings estimates.

Outlook

• Management holds a more positive outlook on macro prospects, supported by ongoing strength in domestic demand and improved exports. For the remainder of FY24, management continues to uphold its targets, including an anticipated 5-6% loan growth. This growth will be bolstered by sustained demand for mortgages, hire purchases, and a robust pipeline of SME loans. Deposits are anticipated to increase alongside loans.

• Management anticipates that the NIM will stay stable in 2024, although there is a potential slight risk of some compression in the 4Q due to seasonal competition for deposits. On asset quality, management expresses confidence that credit costs will remain below the 5-10 bps target, with YTD credit costs currently at 1 bps due to writebacks. Management anticipates that, due to potentially better-than-expected NIM and credit costs, ROE could finish the FY at a higher 13% compared to their earlier guidance of 12.5%.

Valuation

• We maintain PBB’s TP at RM5.36. Our valuation is based on an implied PBV of c. 1.64x based on the Gordon Growth Model and a 3% ESG premium. Buy maintained on PBB.

Source: TA Research - 2 Dec 2024