Public Bank Bhd (Jan 25, RM13.32)
Maintain buy at RM13.30 with revised target price of RM14.60 (from RM13.50): Factoring in a 3% increase to our book value per share for FRS139 adoption and a higher target price-to-book value of 2.8 times (2.7 times previously) on updating our historical parameters, we are raising our target on Public Bank to RM14.60 from RM13.50 previously. We maintain our “buy” call for exposure to Public Bank’s impeccable fundamentals while a net yield of 4% provides support to the share price.
Public Bank is expected to adopt FRS139 in full from 1QFY12 onwards, which entails a potential writeback in excess collective allowance. Assuming a historical probability of default/loss given default experience of 1% as opposed to the present 1.5% transitional provision requirement, we estimate a RM724 million writeback, which we have credited to a regulatory reserve. This effectively enhances the group’s book value by about 3%.
Public Bank will kick off the reporting season for banks with the release of its 4QFY11 results by month-end. Our full-year net profit estimate stands at RM3.37 billion, just slightly behind (1.8%) consensus’ RM3.43 billion.
This implies a 4QFY11 net profit of RM761 million, down 10% year-on-year and 15% quarter-on-quarter, premised largely on net interest margin (NIM) compression and lower q-o-q non-interest income. Admittedly, the bank has thus far succeeded in surprising on the upside despite repeatedly cautioning a 10 to
15-basis point compression in NIM in 2011. We would not be too surprised if management pulls it off again, which could result in earnings surprising on the upside.
Key assumptions include: (i) a moderation in domestic loan growth to 11.1% from 14% in 2011; (ii) NIM compression (albeit a modest six basis points).
The minimum common equity ratio of 7% buys Public Bank about two to three years before it needs to consider any fundraising exercise. Growth is not expected to be impeded, for at this minimum level, the bank can still expand its loan base by 15% per year while maintaining a dividend payout ratio of 50%. — Maybank IB Research, Jan 25
Maintain buy at RM13.30 with revised target price of RM14.60 (from RM13.50): Factoring in a 3% increase to our book value per share for FRS139 adoption and a higher target price-to-book value of 2.8 times (2.7 times previously) on updating our historical parameters, we are raising our target on Public Bank to RM14.60 from RM13.50 previously. We maintain our “buy” call for exposure to Public Bank’s impeccable fundamentals while a net yield of 4% provides support to the share price.
Public Bank can still expand its loan base by 15% per year while maintaining a dividend payout ratio of 50%.
Public Bank is expected to adopt FRS139 in full from 1QFY12 onwards, which entails a potential writeback in excess collective allowance. Assuming a historical probability of default/loss given default experience of 1% as opposed to the present 1.5% transitional provision requirement, we estimate a RM724 million writeback, which we have credited to a regulatory reserve. This effectively enhances the group’s book value by about 3%.
Public Bank will kick off the reporting season for banks with the release of its 4QFY11 results by month-end. Our full-year net profit estimate stands at RM3.37 billion, just slightly behind (1.8%) consensus’ RM3.43 billion.
This implies a 4QFY11 net profit of RM761 million, down 10% year-on-year and 15% quarter-on-quarter, premised largely on net interest margin (NIM) compression and lower q-o-q non-interest income. Admittedly, the bank has thus far succeeded in surprising on the upside despite repeatedly cautioning a 10 to
15-basis point compression in NIM in 2011. We would not be too surprised if management pulls it off again, which could result in earnings surprising on the upside.
Key assumptions include: (i) a moderation in domestic loan growth to 11.1% from 14% in 2011; (ii) NIM compression (albeit a modest six basis points).
The minimum common equity ratio of 7% buys Public Bank about two to three years before it needs to consider any fundraising exercise. Growth is not expected to be impeded, for at this minimum level, the bank can still expand its loan base by 15% per year while maintaining a dividend payout ratio of 50%. — Maybank IB Research, Jan 25
