RHB RESEARCH UPGRADES PUBLIC BANK TO ‘BUY’
It says higher rating justified by lender’s earnings stability with predictable drivers
RHB Investment Bank Bhd (RHB Research) has deemed Public Bank Bhd a significant defensive and high-quality option for investors’ portfolios amid market volatility.
The research firm has upgraded its call on Public Bank to “buy” with a higher RM4.80 target price.
“We believe that recent events, such as the escalation of tensions in the Middle East and shift in United States Federal Funds Rate expectations, coupled with the upcoming US presidential election, will likely lead to increased market volatility,” it said.
It noted that the rating upgrade was justified by Public Bank’s earnings stability due to domestic-driven earnings with predictable drivers.
“Its stock has underperformed the FTSE Bursa Malaysia KLCI by
RHB Bank Investment Bhd says Public Bank Bhd’s net interest margin pressure is increasing due to competitive mortgage and small and medium enterprise loan rates.
9.0 per cent year-to-date, potentially attracting focus as volatility increases.
“Furthermore, its valuations are attractive, trading near the mid-point of -1 standard deviation (SD) and -2SD levels for 2024, while its foreign shareholding is low at 25.4 per cent compared with a recent low of 25.1 per cent in October last year.”
RHB Research said the loan demand remained strong in the consumer sector for Public Bank, with expected growth of 5.0 to 6.0 per cent this year.
“Key drivers include housing loans, auto loans, and small and medium enterprise (SME) loans. Mortgages are performing well with a solid approval pipeline, while auto loans are supported by robust total industry volume growth.
“Sustainability of auto loan demand is uncertain. Demand for big-ticket items is boosted by improved sentiment and pent-up demand for properties.”
It said Public Bank’s net interest margin (NIM) pressure was increasing due to competitive mortgage
and SME loan rates in the market, but the impact on yields and NIMs would be gradual.
“Despite deposit price competition, Public Bank has kept its discipline.
“It reduced promotional and board fixed deposit rates in March, which it anticipates a stable to single-digit NIM squeeze.”
RHB Research said Public Bank’s asset quality remained strong domestically and in Hong Kong, though there was an uptick in gross impaired loans in Vietnam.