Public Bank - 2Q12 result within expectation

Period    2Q12/1H12

Actual vs.  Expectations

 The 1H12 PAT of RM1,893.5m was within ours (51%) and the consensus’ expectations (50%). Meanwhile, the quarterly results were slightly above our expectations. The 2Q12 PAT of RM952.7m was relatively flat on a QoQ and YoY basis (+1.3% QoQ, -0.2% YoY).

Dividends   The group has announced a first interim single-tier dividend of 20%.

Key Result Highlights

 Local loans growth continues to outpace the industry by 90bps (12.3% YoY vs. industry’s 11.4%) with a 16.2% market share. This was within management’s guidance as the group is always looking to achieve a higher-thanindustry loans growth in capturing a higher market share.

However, the group’s total loans growth of 12.0% was marginally lower against our estimate of 15% YoY, mainly dragged by the drop in overseas operation (-3.8% YTD).

 Nonetheless, the net interest income YoY growth was capped by a lower net interest margin (NIM) of 2.5% (vs. 1Q12’s 2.5%, 2Q11’s 2.7%).  As such, net interest income only increased marginally to RM1.30b (+4.6% YoY, +2.6% QoQ).  

 Non-interest income of RM617m (+2.7% YoY, -2.7% QoQ) meanwhile was relatively flat and made up mainly from Public Mutual’s management fees as well as transaction charges.  

 Post full adoption of FRS139, the asset quality trend remains solid with the loan loss coverage ratio stood at 123% (vs. the industry’s 93%) and gross impaired ratio at 0.8% (vs. the industry’s 2.3%). 

 The bank sustained its cost efficiency drive with a low costto-income ratio of 31.4% (vs. the industry’s 46.0%). 

 Annualised ROE meanwhile held steady at 24.7%, meeting management’s target of >20%.

Outlook   PBBANK’s share price has performed well, rising 4.4% since June 2012, reflecting its defensive quality and supported by a solid capital and dividend payout, in our view. 

 We continue to like PBBANK and are optimistic about its near-term relative performance as the stock is likely to play catch-up on the defensive theme. 

 Expectations of rising dividends from the bank coupled with its consistent high ROE as well as good earnings visibility could be key rerating catalysts going forward.

Change to Forecasts

 Maintaining our FY12E and FY13E PAT of RM3,720m and RM4,223m, respectively.

Rating  Maintain OUTPERFORM

 The current share price implies a 13% total upside (with a 4% net div yield) as measured against our TP of RM15.50.

Valuation    Keeping our TP of RM15.50 unchanged, implying a 3.0x P/BV valuation or 13.0x its FY13 EPS.

Risks   Tighter lending rules and margin squeeze.  

Source: Kenanga