• Maintain NEUTRAL and MYR4.80 TP, 7% upside with 5% FY25F yield. Public Bank’s 3Q24 are in line. While management guided up its FY24F ROE again to 13% - flat vs 2023 but up from the earlier >12.5% target, we believe consensus estimates already reflect the updated guidance and, as such, do not expect major upgrades. With ROE expected to stay flattish, coupled with the potential overhang from the stake selldown by its major shareholder, the stock’s upside potential may be capped.

• 3Q24 net profit rose by 7% QoQ (+12% YoY) to MYR1.9bn while 9M24 PATMI was MYR5.3bn (+6% YoY) – at 76% or our and consensus FY24F PATMI. It reported 9M24 ROE of 13.2% (FY23: 13%) while the CET-1 ratio dropped 20bps QoQ to 14.3%. QoQ PATMI growth was broad-based – stronger NII (+4% QoQ on NIM expansion) and non-II (+9% due to stronger fees (+6% QoQ) and FX (+55% QoQ)), positive jaws with CIR at 34.2% (2Q24: 35.2%) and higher loan impairment writebacks on continued management overlay writebacks. As such, PBK now guides for stable NIM, low single-digit credit cost (CoC) and upped its ROE guidance to 13% (from >12.5%).

• NIM rose 5bps QoQ (+3bp YoY) to 2.24%, which saw 9M24 NIM reach 2.21% - up 1bp vs 2023’s 2.20%. Deposit cost optimisation and a higher LDR of 96.6% (2Q24: 95.8%) were the key drivers. PBK has done four rounds of deposit rate cuts this year, with the last round in May. We believe the impact filtered through to NIM this quarter, and would likely continue to be felt in 4Q24 to help cushion the impact from seasonal deposit competition.

• Management overlay stock stood at c. MYR1.5bn, with MYR75m reversed this quarter. YTD writeback was MYR256m – hence the low 9M CoC of 1bp and revised CoC guidance above. GIL shrank by 3% QoQ. As such, its LLC was sustained at 154%. PBK plans to continue with reversals in the coming quarters, which will help keep credit cost to single-digit levels. Clearer guidance is to be provided next year but, for now, it guides for a LLC floor of c. 125%, ie pre-pandemic level. This means that, assuming absolute GIL is maintained, about half of the stock overlay can be reversed.

• Update on stake selldown. Recall that the estate of the late Tan Sri Dato’ DrTeh Hong Piow (Estate) intends to reduce its stake to 10% from the current 23.4% to meet regulatory requirements via a restricted offer for sale to employees, directors and PBK shareholders over a 5-year period. While the portion to be allocated between shareholders and employees/directors have not been decided, management ruled out the entry of a new strategic shareholder. Also, if some employees do not fully take up their shares, this portion will then go into the pool for other employees that may want more. The discount to market price has yet to be determined.

• We increase FY24-26F PATMI by 1%, 2% and 1% on lower CoC thanks to overlay reversals. Our unchanged MYR4.80 TP includes a 2% ESG premium.

Source: RHB Securities Research - 2 Dec 2024