Public Bank’s 2Q23 results in line with expectations

PETALING JAYA: With its strong asset quality, healthy provisioning levels and ample management overlays as a buffer, Public Bank Bhd is a safe haven amid slower economic growth, says Maybank Investment Bank (Maybank IB) Research.

In its report after a review of the bank’s second quarter of financial year 2023 (2Q23) earnings, Maybank IB has upgraded the stock to a “buy” with a higher target price of RM5.05 (from RM4.30), having rolled forward valuations to FY24 with an unchanged price to book value target of 1.7 times.

It said Public Bank’s 2Q23 core net profit of RM1.62bil, which brought first half of 2023 (1H23) core net profit to RM3.33bil, was within expectations at 50% of the research firm’s full year forecast and consensus.

“Operating profit for 1H23 rose a marginal 2.7% year-on-year (y-o-y) amid annualised loan growth of 5.4% and non-interest income growth of 5% y-o-y, offset in part by net interest margin (NIM) compression of 17 basis points (bps) in 1H23. Provisions declined 86% y-o-y to support earnings growth, but generally, provision buffers in the form of management overlays are comfortable,” Maybank IB said in a report.

According to the research firm, the bank has maintained its loan growth guidance of 4%-5% for FY23 (5.4% annualised in 1H23). But the NIM guidance is revised from an expected compression of more than 10 bps to less than 20 bps (-17 bps in 1H23). It noted that the bank’s management maintains its return on equity (ROE) target of 12%-13%. Loan loss coverage was a healthy 226% at end-June 2023 including regulatory reserves with RM1.8bil worth of overlays outstanding.

“Our forecasts are maintained, having already imputed a NIM compression of 16 bps for FY23 and a credit cost of seven bps.

“Our FY23 ROE estimate of 13% is at the top end of management’s guidance of 12-13%,” said Maybank IB.

Meanwhile, UOB Kay Hian (UOBKH) Research noted that Public Bank’s NIM compression has eased significantly and is expected to stabilise in 2H23.

“The group’s current account and savings account ratio has shown signs of stabilisation, improving marginally to 29% in 2Q23 versus 28.8% in 1Q23.

“Nevertheless, we are retaining our full-year NIM compression assumption of 18 bps, which essentially implies that NIM should stabilise in 2H23 at similar levels to 2Q23, bringing full-year 2023 NIM to 2.20%. This is broadly in line with management’s guidance for full-year NIM compression of less than 20 bps,’ said the research firm.

Keeping its “buy” call on the stock with a RM5.10 target price, UOBKH Research said “valuations have declined to a highly attractive 1.2 standard deviation below its historical mean while hefty provisions buffers provide potential credit cost tailwinds”.

It said the group’s loan growth momentum edged marginally upwards, registering sequential growth of 1.4% in 2Q23 versus 1.2% in 1Q23.

This brought 1H23 annualised group loan growth to 5.4% which is ahead of both management’s 4%-5% target and UOBKH Research’s 4.5% assumption.

“Growth was supported largely by mortgages and auto loans, while loan growth for non-residential property remains sluggish at 2.3% y-o-y,” it said.