Our recent meeting with
Public Bank’s management
reaffirms our view that although the
group will remain a solid investment in times of uncertainty given its superior
asset quality, a dampened growth outlook and margin compression will be
the key challenges for 2012, with a
dividend upside surprise unlikely to materialize in the immediate to
medium term. We maintain our NEUTRAL call as well as Fair Value of RM14.00 (ROE
of 24% and implied FY12 PBV of 2.90x).
Growth moderates
slightly. Management is guiding for a slight moderation in loans growth for
FY12 at 12%-to-13% vs FY11’s full-year
growth of 13.5%. A higher base effect and continued moderation
in consumer loans growth (that is
expected to be partially offset by stronger SME growth) are the key factors
underlying the moderation in loan growth outlook. We have imputed a 12.8% loans
growth for FY12.
Marginal impact from
more responsible lending. Given Public Bank’s stringent credit underwriting
and credit scoring processes, we think that Bank Negara Malaysia’s (BNM) tighter
lending guidelines are unlikely to result in a significant slowdown in the
group’s consumer loans approval rates. Management said
there was evidence of a slight slowdown in loan approval rates in
January but believes that this was largely attributed to the seasonal
effects due to the CNY festive season
falling in the month of January this year as opposed to February in 2011. Based
on the group’s loan portfolio, management indicated a reversal in normalized
approval trend rates in February, which reaffirms the view that the earlier
slowdown in January was largely due to the holiday effect.
NIMs to remain under pressure. With the
group’s loan-to-deposit ratio (LDR) now
at 87.2%, which is close to its intended
optimal level of 90%, Public Bank may have to continue growing its more
expensive wholesale deposits to maintain its LDR ratio below 90% as the group’s
core customer deposit growth of 9.5% continued to lag its loan growth of 13.5%.
This will exert more pressure on funding costs and consequently, net interest
margins (NIMs). The relatively more expensive wholesale deposits now account for
20% of total customer deposits vs 17% a year
ago. In terms of overall NIMs, management is guiding for a 10bps to
15bps compression for FY12 as the lending yield pressure on its key loan
segments of mortgage, auto and commercial property financing remains intense.
Note that even with the benefit of a 25bps increase in the
overnight policy rate in 2011, the group still suffered a 10bps
compression in NIMs. With pressure on
both lending yields and funding cost remaining intense amid the absence of an interest rate hike or cut
for now, the NIMs compression
in FY12 could potentially intensify compared with
FY11. We have factored in a 10bps compression in NIMs.
Source: OSK188
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