Public Bank - 4Q12 result within expectations

Period    4Q12/FY12

Actual vs.  Expectations    The full year 2012 PAT of RM3,869.3m was within ours (97%) and the consensus’ expectations (99%). 

Dividends   The group has announced a second interim single-tier dividend of 30% (30sen).

Key Result Highlights    PBBANK’s local loans growth was higher than the industry by 12.5% YoY (vs. the industry’s 10.4%) and with a 16.7% market share in 4Q12 (vs. 2011: 16.4%).  This was an outperformance against the industry trend that is seeing a slower loans growth impacted by the Responsible Guidelines policy. Meanwhile, the group’s total loans growth of 11.3% was marginally lower against our estimate of 15.0% YoY, mainly dragged down by the drop in the overseas operation (-2.7% YTD) due to the impact of foreign exchange movement.

 The net interest income growth YoY continued to be capped by a lower net interest margin (NIM) of 2.4% (vs. 3Q12: 2.5% and 4Q11: 2.6%), leading it to increase only marginally to RM1.33b (+5.2% YoY, -0.9% QoQ).  

 The non-interest income of RM636m (+4.1% YoY, -0.2% QoQ) meanwhile was relatively stable and was made up mainly of Public Mutual’s management fees as well as transaction charges.  

 The bank’s asset quality trend remained solid with the loan loss coverage ratio standing at 126% (vs. the industry’s 102%) and the gross impaired ratio at 0.7% (vs. the industry’s 2.2%). 

 The bank has also sustained its cost efficiency edge with a low cost-to-income ratio of 30.5% (vs. the industry’s 46.0%). 

 The annualised ROE held steady at 24.5%, meeting management’s target of >20%.

Outlook   The group’s strong fundamentals could have been priced in as the stock is currently trading near 3.0x FY13 P/BV, a level higher than +1SD of its historical average P/BV. Furthermore, the stock is trading at a significant premium to the average P/BV multiple of its big-cap peers by 61%, up from 2011’s low of 48%. PBBANK is also trading at a 10% premium to its average big-cap peers (from a discount previously) on a price-to-earnings ratio (PER) basis. Hence, its valuation is less attractive at this juncture given its already high valuation metrics above in our view.

Change to Forecasts    No changes in our earning estimates.

Rating    Maintain MARKET PERFORM

 The current share price implies a 7.7% upside to our TP of RM16.80

Valuation    We are keeping our TP of RM16.80 unchanged, implying a valuation of 2.8x P/BV or at 14.0x its FY13 EPS.

Risks   Slower than expected household lending growth.  

Source: Kenanga