Tuesday, October 18, 2011

Public Bank: Earnings Is Consistent

18 October 2011
Price Target: RM12.88
Share price: RM12.50


Results
3QFY11 net profit of RM898.6m (+2.1% qoq; +14.8% yoy) took 9MFY11 to RM1,606.8m (+18.4%) or in line as it accounted for 77.8% (annualized +3%) and 76.5% (+2%) of HLIB and consensus forecasts, respectively.

Deviations
Largely in line.

Dividends
None

Highlights
# 3QFY11 loan growth of 13.8% yoy and annualized (domestic annualized of 14.1% and overseas annualized of 10.8%) was driven by HP, property and SME as well as
sharp jump in loans for the purpose of M&A, slightly at the lower end of management’s target of 14-15% but ahead of our assumption of 12%.

# Deposits growth was slightly behind at 11% yoy or annualized of 12.7% underpinned by domestic deposits growth of 13.8% annualized.

# Sequentially, 3QFY11 earnings would have been lower if not for the lower provisions (mainly due to higher recovery).

# 9MFY11 earnings growth mainly driven by loans growth, higher NIM (from OPR hike), higher non-interest income (mainly Public Mutual), better CIR (cost increased at slower pace) and higher recovery.

# Overseas operations’ 9MFY11 PBT only increased by 5.4% due to appreciation of RM. Without the negative forex impact, overseas operations would have recorded +11.8%.

# Asset quality continued to improve with both impaired loan absolute amount and ratio reduced while LLC continued to increase. However, impaired loan formation in 3QFY11 was slightly higher qoq.

Risks
Unexpected jump in impaired loans and lower than expected loan growth. Uncertainty about quantum of Basel III counter cyclical buffer for capital ratios.

Forecasts
Unchanged.

Rating - HOLD
Positives
- Above industry asset quality, ROE and yield;
- Excellent track record in delivering guidance and consistency in growth.

Negatives
- Dividend payout lower than previous years and uncertainty about quantum of counter cyclical buffer.

Valuation
Target price unchanged at RM12.88 based on Gordon Growth with ROE of 23.9% and WACC of 10%.



Source: HLIB Research

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