PUBLIC BANK BHD

ALTHOUGH Public Bank Bhd’s (PBB) 2017 first half (1H17) net profit accounted for 45.7% of CIMB Research’s full-year forecast, the results are in line as the second half is traditionally stronger than the first for PBB. The research group also sees the interim net dividends per share of 27 sen as largely in line with its expectations.

Its first half net profit rose by only 3.8% year-on-year (yoy), dragged down by the 0.7% yoy fall in non-interest income, namely weaker investment income and foreign exchange claims. By contrast, net interest income rose by a strong 8.3% yoy in 1H17, thanks to margin expansion.

Loan growth eased from 7% yoy in March 2017 to 5.3% yoy in June 2017, the weakest since CIMB Research first compiled the quarterly loan growth in 2003. This was dragged down by the slowdown in property loan expansion – from 10.3% to 9.1% yoy for residential mortgages and from 6.8% to 4.3% yoy for non-residential mortgages.

The widening of the contraction in auto loans from 1% in March 2017 to 2% yoy in June 2017 is a cause as well. Also, 1H17 loan loss provisioning plunged by 31.9% yoy. However, the growth in working capital loans was sustained at 8.3% yoy in March-June 2017. PBB’s gross impaired loan ratio was stable at 0.5% as at end-March and end-June 2017. Although loan loss coverage fell from 104% as at end-March 2017, it remained comfortable at 98.1% as at end-June 2017.

CIMB Research assumes the position to hold in view of PBB’s rich valuations. PBB’s financial year 2018 price to earnings ratio of 12.7 times and price to book value of 1.9 times are among the highest in the sector, while its financial year 2017 forecast (FY17F) dividend yield of 3.5% is below the sector’s average of about 4%. CIMB Research retains its financial years 2017-2019 forecasts (FY17-19F) and dividend discount model-based target price of RM19.50.