Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Public Bank Bhd
(July 14, RM13.40)
Maintain add at RM13.32 with revised target price of RM15 (from RM14.35): Public Bank's 2QFY11 results are expected to be released next week, with earnings to be in line with consensus' and Affin's full-year net profit estimate of RM3.4 billion. Management remains optimistic on achieving 13.5% growth rate on group loans and a 13% to 13.5% group deposit growth for FY11. Dividends for FY11 will be based on a payout ratio of between 50% and 55% while asset quality has continued to improve, with gross impaired loans ratio dipping below 1% for the group on the back of lower individual allowances. Credit charge-off rate for FY11 is expected to decline to around 30 basis points (bps).
Recent amendments to the Hire Purchase Act 1967 resulted in a slowdown in car sales in the past month. Nonetheless, based on Public Bank's management feedback (the bank has the largest industry share at 25.6% as at 1QFY11), the industry has been gradually recovering in the last one or two weeks. A total industry volume growth rate of 14% to 15% year-on-year is likely achievable. In our view, the situation should remain under control and will not affect Public Bank's hire purchase financing (HPs) growth given a revival in loan applications/approvals. Based on the assumption that HPs growth for FY11 to FY13 slows down to half of our projections, FY11 to FY13 net profits are expected to be impacted by 2.6% to 7.3%.
Management shared the view that interest rates are still on an uptrend, despite the impact on the consumer debt-servicing burden as Bank Negara Malaysia targets to curb speculative investments and irrational price competition. Coupled with another 1% hike in the Statutory Reserve Requirement (SRR) to 4% effective tomorrow, this will erode another 3.5bps off Public Bank's net interest margins which stood at 2.6% in 1HFY11. Nonetheless with another potential hike in the overnight policy rate by September, this should help mitigate the squeeze in margins.
We maintain our 'add' rating and raise our target price to RM15 from RM14.35, as we roll forward our valuation to FY12. This equates to three times price-to-book value based on FY12 return on equity of 22.9% (FY11 ROE of 24.1%), 5% growth rate (unchanged) and a cost of equity of 10.8% (unchanged). We still like Public Bank for its superior asset quality, good earnings visibility, established franchise, deep market penetration and strong leadership in the consumer loan market segment and unit trust business. ' Affin IB Research, July 14
This article appeared in The Edge Financial Daily, July 15, 2011.
Company Name: PUBLIC BANK BHD
| Research House: AFFIN | Price Call: BUY | Target Price: 15.00 |
Public Bank Bhd
(July 14, RM13.40)
Maintain add at RM13.32 with revised target price of RM15 (from RM14.35): Public Bank's 2QFY11 results are expected to be released next week, with earnings to be in line with consensus' and Affin's full-year net profit estimate of RM3.4 billion. Management remains optimistic on achieving 13.5% growth rate on group loans and a 13% to 13.5% group deposit growth for FY11. Dividends for FY11 will be based on a payout ratio of between 50% and 55% while asset quality has continued to improve, with gross impaired loans ratio dipping below 1% for the group on the back of lower individual allowances. Credit charge-off rate for FY11 is expected to decline to around 30 basis points (bps).
Recent amendments to the Hire Purchase Act 1967 resulted in a slowdown in car sales in the past month. Nonetheless, based on Public Bank's management feedback (the bank has the largest industry share at 25.6% as at 1QFY11), the industry has been gradually recovering in the last one or two weeks. A total industry volume growth rate of 14% to 15% year-on-year is likely achievable. In our view, the situation should remain under control and will not affect Public Bank's hire purchase financing (HPs) growth given a revival in loan applications/approvals. Based on the assumption that HPs growth for FY11 to FY13 slows down to half of our projections, FY11 to FY13 net profits are expected to be impacted by 2.6% to 7.3%.
Management shared the view that interest rates are still on an uptrend, despite the impact on the consumer debt-servicing burden as Bank Negara Malaysia targets to curb speculative investments and irrational price competition. Coupled with another 1% hike in the Statutory Reserve Requirement (SRR) to 4% effective tomorrow, this will erode another 3.5bps off Public Bank's net interest margins which stood at 2.6% in 1HFY11. Nonetheless with another potential hike in the overnight policy rate by September, this should help mitigate the squeeze in margins.
We maintain our 'add' rating and raise our target price to RM15 from RM14.35, as we roll forward our valuation to FY12. This equates to three times price-to-book value based on FY12 return on equity of 22.9% (FY11 ROE of 24.1%), 5% growth rate (unchanged) and a cost of equity of 10.8% (unchanged). We still like Public Bank for its superior asset quality, good earnings visibility, established franchise, deep market penetration and strong leadership in the consumer loan market segment and unit trust business. ' Affin IB Research, July 14
This article appeared in The Edge Financial Daily, July 15, 2011.
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