Public Bank 3Q12 result within expectations

Period   3Q12/9M12

Actual vs. Expectations   The 9M12 PAT of RM2,876.8m was within ours (76%) and the consensus’ expectations (75%). Meanwhile, the quarterly results were relatively steady with 3Q12 PAT of RM983.3m being up +3.2% QoQ and +9.4% YoY.

Dividends   No dividend was proposed during the quarter.

Key Result Highlights   PBBANK’s local loans growth was higher than the industry by 1.4% (annualised 12.8% YoY growth vs. the industry’s 11.4%) with a 16.4% market share in 3Q12. This was an outperformance as against the industry trend that the “re-balancing” of system lending portfolio will likely occur at a measured pace with a shift from consumer growth to that of corporate and business growth. Meanwhile, the group’s annualised total loans growth of 11.3% was marginally lower against our estimate of 15% YoY, mainly dragged down by the drop in the overseas operation (-5.0% YTD) due to the impact of foreign exchange.

Besides, the YoY net interest income growth was also capped by a lower net interest margin (NIM) of 2.5% (vs. 2Q12: 2.5% and 3Q11: 2.7%). As such, the net interest income only increased marginally to RM1.30b (+7.2% YoY, +3.7% QoQ).

The non-interest income of RM637m (+3.2% YoY, +3.3% QoQ) meanwhile was relatively stable and is made up mainly of Public Mutual’s management fees as well as transaction charges.

The asset quality trend remained solid with the loan loss coverage ratio standing at 125% (vs. the industry’s 102%) and the gross impaired ratio at 0.7% (vs. the industry’s 2.2%).

The bank sustained its cost efficiency drive with a low cost-to-income ratio of 30.8% (vs. the industry’s 46.0%). Annualised ROE meanwhile held steady at 24.4%, meeting management’s target of >20%.

Outlook   PBBANK’s share price has performed well, rising 8.7% since June 2012, reflecting its defensive quality and supported by its solid capital and reasonable 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 a catch-up on the defensive theme.

4Q is typically the strongest quarter for the share price in the past due to investors’ expectations of the final dividends from the bank. Its consistently high ROE as well as good earnings visibility are the key rerating catalysts going forward.

Change to Forecasts   Maintaining our FY12E and FY13E PAT of RM3,763m and RM4,277m respectively.

Rating   Maintain OUTPERFORM

The current share price implies a 12% total upside (with a 4.8% net div yield) as measured against our TP of RM15.60.

Valuation   Keeping our TP of RM15.60 unchanged, implying a 2.8x P/BV valuation or 13.0x its FY13 EPS.

Risks   Slower than expected household lending growth.

Source: Kenanga