Results Note
23 October 2015
Public Bank Berhad
MARKET PERFORM ↔
Price:
Target Price:
No Surprises
RM18.64
RM20.00
↔
By the Kenanga Research Team l research@kenanga.com.my
Period
3Q15/9M15
Actual vs.
Expectations
9M15 net profit of RM3.57b (+9.3) came in line with our
expectation and consensus estimate, making up 75% of
both full-year forecasts due to better-than-expected
non-interest income and loan growth.
Dividends
As expected, no dividends were declared.
Share Price Performance
20.00
19.50
19.00
18.50
18.00
17.50
Key Results
Highlights
9M15 vs. 9M14, YoY
The improved earnings (+9.3% vs. 9M14:+7.4%) was
mainly driven by a spectacular non-interest income
(NOII) growth of ~21% (vs. +8% in 9M14).
Non-interest income was robust, thanks to the jump in:
(i) unit trust income (+8.2%), (ii) fee income (+18.3%),
(iii) forex gain (+69%), and (iv) investment income
(+16%).
On an annualized basis, net interest margin (NIM) fell
13bpts due to stiff price-based competition in the
deposits market. (vs. our estimation of 14bpts)
Loans and deposits grew at 13% and 10%, respectively
(as opposed to 10% and 8% respectively in 9M14). The
registered loan growth was better than the industry
average of 8.2%. (Our forecasted loan and deposit
growth was at 10% and 9% respectively)
This led to loan-to-deposit ratio (LDR) extending by
2ppts to 90%. Current account & savings account
deposits (CASA) rose 8%, making up 25% of total
deposit base (in line with 25% in 9M14).
Cost-to-income ratio (CIR) was flattish at 31% (in line
with our forecast) as opex and total income grew in
tandem (+10%). Industry average CIR was at 45%.
Asset quality was mixed as gross impaired loans (GIL)
ratio fell 10bpts but credit costs advanced 8bbpts.
Furthermore, loan loss coverage (LLC) stayed at 131%,
above the industry average of 98%. (We assumed LLC
at 118%)
ROE dipped 3ppts to 16%, due to an enlarged
shareholders’ equity. (vs. our forecast of 2ppts)
CET1, Tier 1 and total capital ratios dropped by 20100bpts attributed to dividend payout and higher
goodwill.
Change to
Forecasts
Rating
Since PBBANK’s 9M15 results is in line with
expectations, we make no changes to our
FY15E/FY16E earnings of RM4,784m/RM4,997m.
Maintain MARKET PERFORM
Despite PBBANK being a solid entity with strong
fundamentals (superior in terms of cost controls and
asset quality compared to other banking stocks under
our coverage), its valuations were never inexpensive.
That said, it will continue to fetch a premium vs. its
peers given current market uncertainties.
Valuation
17.00
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
KLCI
YTD KLCI chg
YTD stock price chg
Aug-15
Oct-15
1705.1
-3.2%
1.9%
Stock Information
Bloomberg Ticker
Market Cap (RM m)
Issued shares
52-week range (H)
52-week range (L)
3-mth avg daily vol:
Free Float
Beta
PBK MK EQUITY
71,978.2
3,861.5
19.90
17.04
6,757,845
60%
1.0
Major Shareholders
CONSOLIDATED TEH
EPF
VANGUARD GROUP INC
21.8%
15.5%
2.4%
Summary Earnings Table
FYE Dec (RM‘m)
Net interest inc.
Islamic banking inc.
Non-interest inc.
Total Income
Pre-tax profit
Net profit (NP)
Consensus NP
Earnings Revision (%)
EPS (RM)
EPS growth (%)
DPS (RM)
BV/share (RM)
NTA/share (RM)
ROE (%)
PER (x)
Price/Book (x)
Price/NTA (x)
Dividend yield (%)
2014A
5,930.5
831.2
1,911.7
8,673.4
5,814.3
4,518.8
1.24
6.6
0.54
7.67
7.10
19.9
15.1
2.4
2.6
2.9
2015E
6,396.4
827.6
2,089.9
9,313.9
6,155.8
4,784.4
4,744.0
1.23
(0.4)
0.54
7.58
7.04
16.7
15.1
2.5
2.6
2.9
2016E
6,760.9
852.9
2,289.7
9,903.6
6,429.3
4,996.9
5,004.0
1.29
4.4
0.57
8.30
7.76
16.2
14.5
2.2
2.4
3.1
We maintained our TP of RM20.00. This is based on a
blended 2.5x FY16E P/B and 15.0x FY16E P/E
(previously 2.6x FY15 P/B and 15.4x FY15 P/E). The
lower P/B and P/E multiples are to reflect slower growth
and weaker ROE generation moving forward.
PP7004/02/2013(031762)
Page 1 of 5
Public Bank Berhad
Results Note
23 October 2015
Key Results
Highlights
(cont’)
3Q15 vs. 2Q15, QoQ
Net profit ticked up 0.4% despite a 7% increase in total income due to higher impairment allowances of 93%.
NIM expanded by 6bpts due to high costs deposits winding down in the 1H15.
Loans accelerated (+3.6%) a tad quicker than deposits (+0.4%) causing LDR to increase 3ppts to 90%.
CIR inched down by 1ppts to 30% given that total income and opex advance higher at 7% and 3%, respectively.
Asset quality was stable as GIL ratio was flattish at 0.5% while LLC stayed above 100%.
Outlook
Leading indicators for loans growth remains weak and we are only expecting system loans to expand by 7-8% YoY this
year (vs. 2014: +9.3% YoY). Furthermore, the industry’s relatively high LDR of over 80% makes bank lending more
difficult than usual. As for asset quality, it is showing signs of weakening given external and internal headwinds prevailing
with credit costs heading north. NIM pressure is likely to persist on the back of stiff price-based competition for loans and
deposits.
We maintained our assumptions for FY15/16E:
(i) ROE to come in above 16% for both FY15/16
(ii) Total loans growth of 9-10% for FY15/16
(iii) Total deposits growth of 9-10% for FY15/16
(iv) NIM at 2.14%/2.08% for FY15/16,
(v) Credit charge ratio of between 12bpts - 15bpts and
(vi) CIR of between 30% to 32%
Risks to Our
Call
Steeper margin squeeze from tighter lending rules and stronger-than-expected competition.
Slower-than-expected loans and deposits growth.
Higher-than-expected rise in credit charge as result of a potential up-cycle in non-performing loan (NPL).
This section is intentionally left blank.
PP7004/02/2013(031762)
Page 2 of 5
Public Bank Berhad
Results Note
23 October 2015
Results Highlight
3Q14
YoY Chg.
9M15
9M14
1,559.6
208.9
544.6
2,313.1
(722.2)
1,590.9
(60.5)
0.7
1,531.1
(334.3)
1,196.8
QoQ
Chg.
4.4%
1.0%
15.9%
6.8%
2.6%
8.7%
93.0%
2.7%
5.4%
23.3%
0.4%
1,551.0
216.1
480.6
2,247.7
(648.5)
1,599.1
(47.0)
0.1
1,552.2
(360.7)
1,191.5
5.0%
-2.4%
31.3%
9.9%
14.3%
8.2%
148.2%
1144.3%
4.0%
14.3%
0.8%
4,722.6
624.2
1,702.2
7,049.0
(2,166.1)
4,882.9
(252.4)
3.2
4,633.6
(1,063.9)
3,569.7
4,375.7
625.3
1,409.8
6,410.8
(1,970.4)
4,440.4
(195.7)
2.3
4,247.0
(982.1)
3,264.8
YoY
Chg.
7.9%
-0.2%
20.7%
10.0%
9.9%
10.0%
29.0%
36.5%
9.1%
8.3%
9.3%
31.1
-
31.0
24.0
0.4%
-1
31.9
-
-2.4%
-
92.4
24.0
91.2
23.0
1.4%
4.3%
Gross loans
Net loans
Customer deposits
Current and savings account
BV/share (RM)
NTA/share (RM)
268,048.5
266,194.4
296,338.8
73,098.2
258,806.6
257,006.5
295,299.3
71,170.1
3.6%
3.6%
0.4%
2.7%
237,474.7
235,669.7
268,373.6
67,222.0
12.9%
13.0%
10.4%
8.7%
268,048.5
266,194.4
296,338.8
73,098.2
237,474.7
235,669.7
268,373.6
67,222.0
12.9%
13.0%
10.4%
8.7%
7.68
7.05
7.59
7.03
1.1%
0.3%
7.47
6.91
2.8%
2.1%
7.68
7.05
7.47
6.91
2.8%
2.1%
Net interest margin (Ann.)
Cost-to-income ratio
Effective tax rate
Effective minorities
G. loan-to-deposit ratio
N. loan-to-deposit ratio
% of CASA to total customer
deposits
Gross impaired loans ratio
Total allowances-to-loans
Loan loss coverage
Annualised credit charge /
(writeback) ratio
CET1 capital
Tier 1 capital
Total capital
Annualised ROE
2.13%
30.0%
24.6%
1.3%
90.5%
89.8%
2.07%
31.2%
20.8%
1.3%
87.6%
87.0%
2.32%
28.9%
22.6%
0.9%
88.5%
87.8%
2.06%
30.7%
22.0%
1.0%
90.5%
89.8%
2.19%
30.7%
22.4%
0.8%
88.5%
87.8%
24.7%
24.1%
25.0%
24.7%
25.0%
0.5%
-0.7%
130.8%
0.5%
0.7%
129.2%
0.6%
0.8%
117.1%
0.5%
-0.7%
130.8%
0.6%
0.8%
117.1%
0.13%
0.11%
0.11%
0.13%
0.11%
10.2%
11.4%
14.8%
16.3%
10.7%
11.9%
15.4%
16.7%
10.4%
11.9%
15.8%
19.8%
10.2%
11.4%
14.8%
16.3%
10.4%
11.9%
15.8%
19.8%
Y/E : Dec (RM m)
3Q15
2Q15
Net interest inc.
Net inc. from Islamic banking
Non-interest inc.
Total inc
Other operating exp
Operating profit
(Allowances) / write-backs
Net operating gains / (losses)
Pre-tax profit
Tax & minorities
Net profit
EPS (sen)
DPS declared (sen)
1,628.8
211.0
631.1
2,470.9
(741.1)
1,729.7
(116.7)
0.8
1,613.8
(412.4)
1,201.4
Source: Company, Kenanga Research
Fwd PER Band
18.0
Fwd PBV Band
3.2
PER (X)
17.0
PBV (X)
3.0
16.0
2.8
15.0
14.0
2.6
13.0
2.4
12.0
2.2
11.0
S.Dev -2
FWD PBV
5-Year Average
S.Dev -2
Source: Bloomberg, Kenanga Research
PP7004/02/2013(031762)
Jul-15
Apr-15
Jan-15
Jul-14
S.Dev -1
Oct-14
Apr-14
Jan-14
Jul-13
Oct-13
Apr-13
Jan-13
Jul-12
S.Dev +1
Oct-12
Apr-12
Jan-12
Jul-11
S.Dev +2
Oct-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
Jul-15
Apr-15
Jan-15
Jul-14
S.Dev -1
Oct-14
Apr-14
Jan-14
Jul-13
5-Year Average
Oct-13
Apr-13
Jan-13
Jul-12
S.Dev +1
Oct-12
Apr-12
Jan-12
Jul-11
S.Dev +2
Oct-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
Jan-10
FWD PER
Jan-10
2.0
10.0
Page 3 of 5
Public Bank Berhad
Results Note
23 October 2015
Peer Comparison
Price (22
Oct
2015)
Mkt Cap
(RM)
(RM’m)
Affin Holdings
2.43
Alliance Financial Group
3.63
AMMB Holdings
4.90
14,769.5
BIMB Holdings
4.20
6,477.3
CIMB Group
4.89
41,515.1
Hong Leong Bank
14.16
25,471.1
Malayan Banking
8.59
Public Bank
18.64
RHB Capital
6.21
NAME
PER (x)
Est.
Div.
Yld.
Fwd
ROE
P/BV
(%)
(x)
FY14/15
FY15/16
FY16/17
FY15/16
FY16/17
(RM)
Net Profit Growth
(%)
Net Profit (RM’m)
Target Price
FY14/15
FY15/16
FY16/17
(%)
Rating
4,721.4
7.8
13.4
9.0
6.2
7.0
0.6
605.3
351.4
527.3
-41.9
50.1
2.40
UP
5,619.6
10.0
10.6
9.6
5.0
12.2
1.2
563.5
530.8
585.0
-5.8
10.2
4.40
MP
8.3
9.1
10.8
4.8
11.1
1.0
1,782.4
1,617.5
1,371.3
-9.3
-15.2
5.88
MP
12.2
11.8
11.1
4.2
15.2
1.8
532.3
548.5
582.6
3.0
6.2
4.20
MP
13.1
12.4
12.5
4.2
10.0
0.9
3,159.0
3,340.9
3,330.8
5.8
-0.3
4.23
UP
12.1
11.4
12.4
3.1
13.6
1.5
2,102.3
2,233.1
2,057.4
6.2
-7.9
13.91
MP
81,942.5
12.2
12.0
11.7
6.6
11.3
1.3
6,716.5
6,816.8
7,020.6
1.5
3.0
9.74
OP
71,978.2
15.9
15.0
14.4
2.9
16.7
2.5
4,518.8
4,784.4
4,996.9
5.9
4.4
20.00
MP
16,074.5
7.9
7.9
7.4
3.9
10.8
0.8
2,038.0
2,030.8
2,176.3
-0.4
7.2
7.07
OP
268,569.2
12.7
12.4
12.2
4.5
12.8
1.5
2.2
2.1
22.5
2.2
215.7
230.7
242.0
6.9
4.9
14.20
MP
1,015.1
433.6
495.5
-57.3
14.3
1.76
UP
-38.8
11.6
Banking
Mkt. Cap Weighted Average
Non-Bank Money Lender
AEON Credit Service (M)
12.80
1,843.2
8.5
8.0
7.6
4.8
Malaysia Building Society
1.61
4,570.0
4.5
10.5
9.2
3.1
9.4
0.9
6,413.2
5.7
9.8
8.8
3.6
13.2
1.3
Mkt. Cap Weighted Average
Source: Bloomberg, Kenanga Research
PP7004/02/2013(031762)
Page 4 of 5
Public Bank Berhad
Results Note
23 October 2015
Stock Ratings are defined as follows:
Stock Recommendations
OUTPERFORM
MARKET PERFORM
UNDERPERFORM
: A particular stock’s Expected Total Return is MORE than 10% (an approximation to the
5-year annualised Total Return of FBMKLCI of 10.2%).
: A particular stock’s Expected Total Return is WITHIN the range of 3% to 10%.
: A particular stock’s Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate).
Sector Recommendations***
OVERWEIGHT
NEUTRAL
UNDERWEIGHT
: A particular sector’s Expected Total Return is MORE than 10% (an approximation to the
5-year annualised Total Return of FBMKLCI of 10.2%).
: A particular sector’s Expected Total Return is WITHIN the range of 3% to 10%.
: A particular sector’s Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate).
***Sector recommendations are defined based on market capitalisation weighted average expected total
return for stocks under our coverage.
This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not
make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to
the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This
document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.
Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document
or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or
otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.
Published and printed by:
KENANGA INVESTMENT BANK BERHAD (15678-H)
8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my
PP7004/02/2013(031762)
Chan Ken Yew
Head of Research
Page 5 of 5