Public Bank - Another record performance HOLD

-  We are downgrading our rating on Public Bank Bhd (PBB) to HOLD from buy, due to the recent share price outperformance. We have fine-tuned our fair value to RM16.90/share (vs. RM17.00/share previously). This  is based on FY13F’s ROE of 21.7% (previously 22.5%) and an unchanged P/BV of 3.0x. 

-  PBB’s FY12’s net earnings came in at 1.2% above ours, and 0.8% above consensus’ net earnings for FY12. PBB announced a final single-tier dividend of RM0.30/share (final FY11: single-tier of RM0.28/share). Together with the single-tier interim dividend of RM0.20/share in 1HFY12 earlier, this brings the total tax-exempt dividend for FY12 to RM0.50/share. All in, there was still an increase in the absolute amount in FY12, compared with FY11’s total single-tier dividend of RM0.48/share; so we consider the dividend to be in line with guidance and expectations. 

-  PBB has now raised the group common equity ratio to 8.5% in 4QFY12, quite a significant increase from 8.0% in 3QFY12 and at a considerably comfortable level in our view. 

-  Notably, lending to the small-and-medium sized enterprises (SMEs) recorded a strong growth of 22.2% YoY. Most of these are concentrated largely in lending for non-residential properties. We estimate that NIM decline was 12bps on a YoY basis in FY12. This was at the lower end of expectations of a 10bps to 15bps YoY decline in NIM in FY12.

-  Non-interest income scored well, backed by strong unit trust management fees, which rose by 4.3% QoQ largely due to a commendable 8% QoQ increase in NAV – attributed to several private retirement schemes launched in 4QFY12.   

-  PBB’s 4QFY12 results are positive in terms of:- (a) strong loans growth to asset-backed SME segment; (b) (b) sustained NIM; (c) strong fee income with unexpectedly strong increase in NAV of its unit trust division; (d) low credit costs; (e) higher-than-expected group common equity ratio. 

-  With PBB’s share price having appreciated strongly over the past few months, the fair value now represents less than a 15% upside from the current share price. We are thus downgrading our rating to HOLD from BUY. We expect the share price to sustain given its seemingly less risky profile given its continued focus on assetbacked lending, and the predictable nature of its earnings.

Source: AmeSecurities