Public Bank Berhad (PBK) FY23’s Core NP of RM6,649m was Below/Within our/street forecasts: 93%/98% of full-year forecasts with a neutral management’s tone.
MIDF Research said today (Feb 29) this was under core themes of: (a) Competitive loan yields, (b) Improving dividend yields, (c) High possibility of overlay writeback.
MIDF has downgraded the stock to NEUTRAL with a Revised TP of RM4.48 based on an unchanged FY24F P/BV of 1.50x (formerly 1.58x)
Results in a nutshell
PBK’s FY23’s Core net profit (NP) of RM6,649m rose by 9%yoy. The results showed the bank going through tax normalisation, lower provisions and sustained OPEX growth offset declines in NII.
4QFY23’s Core NP of RM1,615m was down by -5% qoq. MIDF was not expecting a sudden uptick in provisions during the quarter. Otherwise, PPOP movements were relatively minor, as with other Income Statement components.
The results also revealed growth in Gross loans which rose by 1.4%qoq, coming up to 5.9%YTD, deposits grew by 1.0%qoq, coming up to 4.6%YTD, while GIL moved by +1bps to 0.59%, LLC currently at 182%.
MIDF reduced the FY24 ROE target of 12% stating that PBK’s main gripe was with more competitive NIM situation:
1. Loan yields in both SME and residential mortgages, two of PBK’s intended loan drivers, are especially competitive. PBK’s low NOII exposure leaves it more vulnerable to adverse interest rate competition.
2. Although deposit competition seems to be waning, management is cautious of potential resurgence in 2HFY24 given that most banks seem to be guiding for strong loan growth targets.
3. It maintains an elevated FY24 CIR target of 35% — while OPEX growth is expected to only increase by a standard 5-6%yoy, the Group highlight revenue volatility as an issue.
At the same time, there are a couple of plus sides and buffers to the adverse situation:
1. Hire-purchase loans are still generating strong loan yields. PBK has a high market share and large exposure to the segment, and the pipeline still looks healthy these few years.
2. LCR remains elevated, management states there is room for improvement.
3. Property disposal for a recovery in a large Hong Kong real estate exposure sometime in FY24.
4. Overlay writebacks very likely in 2HFY24.
Forecasts revised – FY24F/FY25F Core NP adjusted by -5%/-1%. To reflect refreshed targets and guidance, as well as a more competitive scenario in FY24.
Key downside risks include: (1) Further compression of NIM, (2) Lacklustre loan growth, (3) Writebacks delayed again.
Downgrade to NEUTRAL call: MIDF revised their GGM-TP of RM 4.48 (from RM4.69). The TP is based on a revised FY24F P/BV of 1.50x (formerly 1.58x), to reflect altered earnings prospects and ROE-based valuations. (GGM assumptions: FY24F ROE of 12.0%, LTG of 3.5% & COE of 9.2%)
