KUALA LUMPUR (Jan 30): HwangDBS Vickers Research (HDBSVR) has upgraded Public Bank, which will release its fourth-quarter earnings at midday on Monday, to a Buy and raised the target price to RM14.90.
“We raised sustainable returns on equity (ROE) to 25% (from 24%) after pricing in earnings accretion under full FRS 139, which lifted our TP to RM14.90 (3.0 times FY12 price-to-book value),” it said on Monday.
HDBSVR also said it had tweaked the earnings to account for flat net interest margins in 4Q11 and minor adjustments to expenses.
It expected Public Bank’s future earnings will show improvements with the full adoption of FRS 139 with effect from Jan 1, 2012.
“It may book lower provision charges as FRS 139 no longer require banks to set aside 1.5% minimum collective impairments reserves (previously known as general provisions reserves) for loans,” it said.
HDBSVR said with this, Public Bank’s earnings could improve by 0.6%-4.9% in FY12 depending on how much it sets aside for collective impairments. The research house believed it will be much lower than 1.5%.
“Banks may not be allowed to write back (on P/L) the excess general provision reserves set aside previously, but would instead need to maintain a regulatory reserve under shareholders funds.
“It is still unclear whether the regulatory reserves qualify as Tier-1 capital. If it does, Public Bank’s Tier-1 CAR will receive a boost,” it said.
“We raised sustainable returns on equity (ROE) to 25% (from 24%) after pricing in earnings accretion under full FRS 139, which lifted our TP to RM14.90 (3.0 times FY12 price-to-book value),” it said on Monday.
HDBSVR also said it had tweaked the earnings to account for flat net interest margins in 4Q11 and minor adjustments to expenses.
It expected Public Bank’s future earnings will show improvements with the full adoption of FRS 139 with effect from Jan 1, 2012.
“It may book lower provision charges as FRS 139 no longer require banks to set aside 1.5% minimum collective impairments reserves (previously known as general provisions reserves) for loans,” it said.
HDBSVR said with this, Public Bank’s earnings could improve by 0.6%-4.9% in FY12 depending on how much it sets aside for collective impairments. The research house believed it will be much lower than 1.5%.
“Banks may not be allowed to write back (on P/L) the excess general provision reserves set aside previously, but would instead need to maintain a regulatory reserve under shareholders funds.
“It is still unclear whether the regulatory reserves qualify as Tier-1 capital. If it does, Public Bank’s Tier-1 CAR will receive a boost,” it said.
