Public Bank Bhd
(April 16, RM12.02)
Maintain hold at RM12.04, target price raised to RM12.50: Public Bank's 1Q10 results were slightly above our expectations, with net profit at 25% of our 2010 forecast.
Loan impairment allowance contracted sharply (-11% year-on-year, -21% quarter-on-quarter) beyond our forecast, mainly from the overseas operations, with no major impact from FRS 139 adoption.
We raise our earnings forecasts by 4% to 5% per annum, now expecting a 12% three-year net profit compound annual growth rate (CAGR). Our dividend discount model-based (DDM) target price is also upgraded slightly to RM12.50, but hold rating is retained.
It was a flattish quarter-on-quarter (q-o-q) for Public Bank. 1Q10 net profit of RM685 million rose 1% q-o-q, on flat operating income (+0.4%), while a sharp decline in loan impairment allowance (- 21%) offset higher opex (+5%).
The FRS 139 adoption had no major impact on Public Bank's profit and loss while its reserves were enhanced by 2.4%. Y-o-y, its net profit was up a stronger 16% due to loan growth (+13.6%), and higher net interest margin (+15 bps), unit trust fee income and forex profit.
The bank's y-o-y growth was boosted by lower loan impairment allowance at the overseas operations. Asset quality stayed strong with gross impaired loans ratio at a low 0.94%.
We retain our 14% loan growth projection for 2010, with 1Q10's 3.5% growth on track to meet our forecast. We expect net interest income to inch higher in 2Q10, driven by March 10's 25bps rise in the overnight policy rate.
We have lowered our 2010 credit charge assumption to 26bps from 29bps (2009: 31bps) taking a cue from 1Q10's upside surprise. In all, we have raised our earnings forecasts by 4% to 5% per annum. However, we retain our dividend forecasts, assuming a 52% to 53% net profit payout (2009: 57%, 2008: 53%, excluding share dividend).
Public Bank's near-term outlook stays positive - we expect more than 20% ROE (return on equity) into 2012, with both the domestic and overseas operations to drive earnings.
Nonetheless, this is mostly priced in, with the market valuing the stock at 14.6 times 2010 price-earnings ratio (PER) and 3.1 times book, which is at one standard deviation above its long-term mean. Dividends would be capped in 2010 by potentially higher capital requirements.
Based on our estimate, the stock would return a gross yield of 4.8% for 2010, with more attractive yield propositions elsewhere. - Maybank IB, April 16
This article appeared in The Edge Financial Daily, April 19, 2010.
(April 16, RM12.02)
Maintain hold at RM12.04, target price raised to RM12.50: Public Bank's 1Q10 results were slightly above our expectations, with net profit at 25% of our 2010 forecast.
Loan impairment allowance contracted sharply (-11% year-on-year, -21% quarter-on-quarter) beyond our forecast, mainly from the overseas operations, with no major impact from FRS 139 adoption.
We raise our earnings forecasts by 4% to 5% per annum, now expecting a 12% three-year net profit compound annual growth rate (CAGR). Our dividend discount model-based (DDM) target price is also upgraded slightly to RM12.50, but hold rating is retained.
It was a flattish quarter-on-quarter (q-o-q) for Public Bank. 1Q10 net profit of RM685 million rose 1% q-o-q, on flat operating income (+0.4%), while a sharp decline in loan impairment allowance (- 21%) offset higher opex (+5%).
The FRS 139 adoption had no major impact on Public Bank's profit and loss while its reserves were enhanced by 2.4%. Y-o-y, its net profit was up a stronger 16% due to loan growth (+13.6%), and higher net interest margin (+15 bps), unit trust fee income and forex profit.
The bank's y-o-y growth was boosted by lower loan impairment allowance at the overseas operations. Asset quality stayed strong with gross impaired loans ratio at a low 0.94%.
We retain our 14% loan growth projection for 2010, with 1Q10's 3.5% growth on track to meet our forecast. We expect net interest income to inch higher in 2Q10, driven by March 10's 25bps rise in the overnight policy rate.
We have lowered our 2010 credit charge assumption to 26bps from 29bps (2009: 31bps) taking a cue from 1Q10's upside surprise. In all, we have raised our earnings forecasts by 4% to 5% per annum. However, we retain our dividend forecasts, assuming a 52% to 53% net profit payout (2009: 57%, 2008: 53%, excluding share dividend).
Public Bank's near-term outlook stays positive - we expect more than 20% ROE (return on equity) into 2012, with both the domestic and overseas operations to drive earnings.
Nonetheless, this is mostly priced in, with the market valuing the stock at 14.6 times 2010 price-earnings ratio (PER) and 3.1 times book, which is at one standard deviation above its long-term mean. Dividends would be capped in 2010 by potentially higher capital requirements.
Based on our estimate, the stock would return a gross yield of 4.8% for 2010, with more attractive yield propositions elsewhere. - Maybank IB, April 16
This article appeared in The Edge Financial Daily, April 19, 2010.
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