Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Company Name: PUBLIC BANK BHD
| Research House: OSK | Price Call: HOLD | Target Price: 14.00 |
Our recent meeting with Public Bank's managementreaffirms our view that although thegroup will remain a solid investment in times of uncertainty given its superiorasset quality, a dampened growth outlook and margin compression will bethe key challenges for 2012, with a dividend upside surprise unlikely to materialize in the immediate tomedium term. We maintain our NEUTRAL call as well as Fair Value of RM14.00 (ROEof 24% and implied FY12 PBV of 2.90x).
Growth moderatesslightly. Management is guiding for a slight moderation in loans growth forFY12 at 12%-to-13% vs FY11's full-year growth of 13.5%. A higher base effect and continued moderationin consumer loans growth (that isexpected to be partially offset by stronger SME growth) are the key factorsunderlying the moderation in loan growth outlook. We have imputed a 12.8% loansgrowth for FY12.
Marginal impact frommore responsible lending. Given Public Bank's stringent credit underwritingand credit scoring processes, we think that Bank Negara Malaysia's (BNM) tighterlending guidelines are unlikely to result in a significant slowdown in thegroup's consumer loans approval rates. Management said there was evidence of a slight slowdown in loan approval rates inJanuary but believes that this was largely attributed to the seasonaleffects due to the CNY festive seasonfalling in the month of January this year as opposed to February in 2011. Basedon the group's loan portfolio, management indicated a reversal in normalizedapproval trend rates in February, which reaffirms the view that the earlierslowdown in January was largely due to the holiday effect.
NIMs to remain under pressure. With thegroup's loan-to-deposit ratio (LDR) nowat 87.2%, which is close to its intendedoptimal level of 90%, Public Bank may have to continue growing its moreexpensive wholesale deposits to maintain its LDR ratio below 90% as the group'score customer deposit growth of 9.5% continued to lag its loan growth of 13.5%.This will exert more pressure on funding costs and consequently, net interestmargins (NIMs). The relatively more expensive wholesale deposits now account for20% of total customer deposits vs 17% a year ago. In terms of overall NIMs, management is guiding for a 10bps to15bps compression for FY12 as the lending yield pressure on its key loansegments of mortgage, auto and commercial property financing remains intense.Note that even with the benefit of a 25bps increase in the overnight policy rate in 2011, the group still suffered a 10bpscompression in NIMs. With pressure on both lending yields and funding cost remaining intense amid the absence of an interest rate hike or cutfor now, the NIMs compression in FY12 could potentially intensify compared withFY11. We have factored in a 10bps compression in NIMs.
Source: OSK188
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