Public Bank - A slow 1Q

-  At our recent company visit, PBB alluded to a slow loans growth in 1QFY12, but this is in-line with the historical trend whereby loan demand tends to be softer due to the Chinese New Year holiday season as well as a shorter working quarter. Nevertheless, PBB remains confident of achieving its overall loans growth target of 11% to 12%. Net interest margin is expected to compress by 10bps YoY in FY13F, in-line with the earlier guidance of around 10bps to 12bps decline YoY for FY13F.

-  For its residential mortgage loans, about 70% of these are still considered to be within the mass market segment, with loan values ranging between RM100k and RM500k. Loans less than RM100k make up about 10% to 15% of its mortgages. Loans exceeding RM1mil remain at a small proportion of its total loans, at less than 5%.

-  Its SME loans had done well in the past one year, with small-and-medium sized enterprises (SMEs) expanding 22.2% YoY in FY12. This was attributed mainly to its strong network within the community, and fast and efficient service, rather than pricing, which is positive for NIM.

-  Fee income ratio is targeted to be slightly higher than the recent range of 20% to 21%. The company is building up its trade finance business, targeted mostly at its SME customers which are traditionally mainly in the shophouse financing segment. The company also reiterated that asset quality remains stable, with a targeted credit cost of 20bps for FY13F.

-  With group common equity ratio at 8.5%, and the bank entity level’s common equity ratio at 7.5% as at end-FY12 (assuming no phase-in arrangements which is allowed under Bank Negara’ final guidelines), the company expects capital to be sufficient in the medium term. The company may consider a rights issue, by 2015 or possibly 2014, if a counter-cyclical buffer is implemented in 2016. However, PBB reiterated that it will not be considering any dividend reinvestment plan. Dividend payout is expected to be slightly lower than the 45.3% in FY12, although the company targets to still increase overall quantum of dividend for FY13F.

-  From the meeting, we now expect the 1QFY13 to be slightly lower than consensus’ net earnings of RM4,189mil on an annualised basis, but this is in-line with a historically slow 1Q. A possible rights issue may materialise earlier, in 2014 rather than 2015. Maintain HOLD.

Source: AmeSecurities