Public Bank’s 1HFY22 core net profit of RM2.82b made up 48% of MIDF’s consensus full-year forecasts however, earnings slipped by -3.4%yoy, though this was due to elevated tax expenses as a result of Cukai Makmur, as well as weaker NOII. Otherwise, PBB reported a far stronger PBT on the back of higher NII and lower loan provisions.
Meanwhile, second-quarter earnings of RM1.42b rose by +2.4%yoy on the back of lower loan provisioning and stronger NII, offsetting higher OPEX and tax expenses, as well as lower NOII. On a sequential-quarter basis, it rose +1.3%qoq mostly due to improved NII.
The positive performance prompted the bank to announce a gross DPS of 9.0sen, which translates to a dividend payout of 55%. This translates to a dividend yield of 3.3% in FY22.
As results were within expectations, MIDF makes no changes to its earnings forecast. Key to earnings includes the inability to maintain lower costs, considering higher revenue spend and fixed costs as the economy reopens, lower-than-expected loan growth, especially in the retail SME segment, contraction in unit trust fund size, and loss in retail market share, given higher competition.
MIDF is optimistic about Public Bank’s long-term prospects for several reasons, mainly its excellent asset quality and buffers reduce the possibility of unwelcome credit cost surprises, retail SME loan growth could see a huge jump in 2HFY22, PBB’s unit trust continues to steadily capture retail market share, set to benefit as markets revert to a more accommodative state, foray into sustainability practices could see PBB becomes more attractive as a viable ESG alternative within the industry.
Thus, we maintain our BUY call with an unchanged TP of RM5.67, as we peg its FY23 BVPS to an unchanged P/BV of 2.0x. (GGM assumptions: FY23 ROE of 12.9%, LTG of 3.5%, and COE of 8.1%.)
