PBBANK (1295) - Public Bank Bhd - Tougher times in 2015
Target RM17.00 (Stock Rating: REDUCE)
At 102% of our forecast, Public Bank’s (PBB) FY14 net profit was largely in line with our expectations but above consensus (105%). Net DPS of 54 sen for FY14 was above our projected 51 sen. We trim our FY15-16 EPS forecasts and DDM-based target price (cost of equity of 10.3%; long-term growth of 4%) as we lower our projected loan growth by 1% pt. We still rate PBB as a Reduce, given its (1) above-sector valuation, (2) margin compression, (3) weaker loan momentum, (4) an upturn in credit costs, and (5) a drop in ROE post the rights issue. We are projecting single-digit EPS growth for PBB in FY15-16. Prefer RHB Capital.
Single-digit EPS growth and lower ROE in FY14
PBB’s net profit rose a healthy 11.2% in FY14, underpinned by (1) 10.8% loan growth, and (2) a 26.3% drop in loan loss provisioning. The “jaws” widened in FY14 even though the operating revenue only increased by 6.3% as the group managed to limit the increase in overheads at 4.1%. Nonetheless, the EPS only expanded by 6.5% in FY14, due to the dilution from the rights issue implemented in Aug 14. This also pushed down its ROE from 21.1% in FY13 to 18.7% in FY14, below the 20% mark for the first time since 2005.
Slower loan growth
Loan growth moderately rebounded from 10.2% yoy in Sep 14 to 10.8% yoy in Dec 14, above the industry’s rate of 8.7%. The improvement came from stronger expansion of auto and working capital loans against a softer momentum for property loans.
Slight improvement in asset quality
Gross impaired loan ratio fell from 0.65% in Sep 14 to 0.61% in Dec 14, while loan loss coverage increased from 117.1% to 122.4% during the same period.
Maintain Reduce
While PBB reported strong results in 4Q14, the management guided for more challenging prospects in 2015. For a bleaker outlook and its rich valuations, we advise investors to reduce their holdings in PBB.
Source: CIMB Daybreak - 06 February 2015
Target RM17.00 (Stock Rating: REDUCE)
At 102% of our forecast, Public Bank’s (PBB) FY14 net profit was largely in line with our expectations but above consensus (105%). Net DPS of 54 sen for FY14 was above our projected 51 sen. We trim our FY15-16 EPS forecasts and DDM-based target price (cost of equity of 10.3%; long-term growth of 4%) as we lower our projected loan growth by 1% pt. We still rate PBB as a Reduce, given its (1) above-sector valuation, (2) margin compression, (3) weaker loan momentum, (4) an upturn in credit costs, and (5) a drop in ROE post the rights issue. We are projecting single-digit EPS growth for PBB in FY15-16. Prefer RHB Capital.
Single-digit EPS growth and lower ROE in FY14
PBB’s net profit rose a healthy 11.2% in FY14, underpinned by (1) 10.8% loan growth, and (2) a 26.3% drop in loan loss provisioning. The “jaws” widened in FY14 even though the operating revenue only increased by 6.3% as the group managed to limit the increase in overheads at 4.1%. Nonetheless, the EPS only expanded by 6.5% in FY14, due to the dilution from the rights issue implemented in Aug 14. This also pushed down its ROE from 21.1% in FY13 to 18.7% in FY14, below the 20% mark for the first time since 2005.
Slower loan growth
Loan growth moderately rebounded from 10.2% yoy in Sep 14 to 10.8% yoy in Dec 14, above the industry’s rate of 8.7%. The improvement came from stronger expansion of auto and working capital loans against a softer momentum for property loans.
Slight improvement in asset quality
Gross impaired loan ratio fell from 0.65% in Sep 14 to 0.61% in Dec 14, while loan loss coverage increased from 117.1% to 122.4% during the same period.
Maintain Reduce
While PBB reported strong results in 4Q14, the management guided for more challenging prospects in 2015. For a bleaker outlook and its rich valuations, we advise investors to reduce their holdings in PBB.
Source: CIMB Daybreak - 06 February 2015
