PBBANK's 9MFY24 net profit (+6%) met expectations with the group showing commendable recovery of NIMs ahead of seasonal deposits competition arising in 4Q, prompting the group to guide for a positive close to NIMs as opposed to compression, previously. While the group continues to guide gradual writebacks on its remaining overlays, we have not reflected such possibility into our model assumptions. Maintain OUTPERFORM with a GGM-derived PBV TP of RM5.10.

9MFY24 within expectations. PBBANK's 9MFY24 net profit of RM5.35b came in at 74% of our full-year forecast and 76% of consensus full-year estimate.

YoY, 9MFY24 net profit grew by 6% following stronger NII (+4%) supported by a higher loans base (+5%) and NIMs improving to 2.21% (+1 bps) from leaner funding costs. NOII gained 10% mainly on the back of higher unit trust and stockbroking fees during the period.

Operating expenses increased by 9%, mostly driven by personnel costs, leading a higher CIR of 34.9% (+1.2 ppts). However, this was offset by credit costs being benign at 1 bps (-1 bps) and stronger associates contribution which benefitted from one-off accounting adjustments. If we exclude associate returns, net earnings would have grown by 3% instead.

QoQ, 3QFY24 net profit improved by 7%, attributed to the same abovementioned factors. NIMs had notably shown a sharp improvement by 7 bps to 2.24% from the group's efforts to reprice funding costs. However, this may be mitigated in 4Q owing to seasonal pressures in the deposits market.

Highlights. We call out PBBANK's NIMs which demonstrated one of the highest QoQ improvements among its peers. While there was a slight decrease in CASA ratio to 27.7% (-0.3 ppt), the group's strong retail franchise could have kept depositors sticky despite offering lower fixed deposit rates. While they had previously guided for up to 5 bps compression in FY24, the group has now turned positive with a renewed expectation for NIMs to be at least stable for the year.

With other headline targets remaining unchanged, PBBANK reaffirms that it will continue to write back on its macroeconomic overlays as it sees fit within the coming quarters, of which has a remaining balance of RM1.6b. That said, we take a page from its competitors who ultimately decide to retain these provisions indefinitely, prompting us to be aware of lumpy write-backs and special dividends arising from it.

On a BAU basis without write-backs, PBBANK eyes credit cost to stay within 5-10 bps which is within pre-pandemic levels with ROEs to close near 13.0%.

Forecasts. Post results, our FY24F/FY25F earnings were tweaked by -1% each following model updates on 3QFY24 numbers.

Maintain OUTPERFORM and TP of RM5.10 based on an unchanged GGM-derived PBV of 1.54x (COE: 9.9%, TG: 4.0%, ROE: 13.0%) on a FY25F BVPS of RM3.14. We also applied a 5% premium to our TP based on our 4-star ESG rating, led by the stock's strong green financing pipeline. PBBANK is expected to continue commanding a leading GIL ratio amongst peers which could be attributable to its densely collateralised housing loan portfolio. While the stock may not have the highest dividend yield, the possibility for a more than biannual dividend payment could be of interest to select investors.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 2 Dec 2024