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Thursday, October 15, 2009

Public Bank Report By HWangDBS

Proven resilience
  • 3Q09 net profit was in line at RM639m, bringing 9M09 earnings to RM1.8bn.
  • NIM inched up 5bps driven by loan and deposit growth, coupled with robust asset quality.
  • Loan approvals were strong, led by housing loans
  • Maintain Buy and RM12.20 TP.
Resilient earnings. 3Q09 net profit was RM639m (+5% q-o-q, +4% y-o-y), driven by higher interest income. Noninterest income was marginally higher, led by higher unit trust management fees and fees from the sale of unit trusts, but mitigated by unrealised revaluation loss for trading derivatives. Cost-to-income ratio remained stable at 34%. NIM inched up 5bps led by strong growth of loans (+3% q-o-q) and deposits (+5% q-o-q), with healthy asset quality. YTD loan growth is 11%, within our 14% assumption for FY09. Deposit growth was largely from overseas operations, and loan-to-deposit ratio remained healthy at 72%. Asset quality remained resilient with gross and net NPL ratios at 0.9% and 0.8% (lowest in the industry), and flat absolute gross NPLs. Specific provision charge-off rate was 0.29%. Capital ratios (bank level)
remain robust with Tier-1 CAR at 11.0% and RWCAR at 12.1%. Overseas contribution was only 6% this quarter. No dividends were declared for 3Q09, as expected.

Strong momentum ahead. Loan approvals remain strong, led by housing and corporate loan approvals. We expect Public Bank’s capital ratios to be enhanced with the adoption of FRS 139, Basel II Internal Rating Based Approach, and by the remaining 80m treasury shares currently sitting in its books.

Maintain Buy. We believe Public Bank remains a core holding for its superior asset quality, ROEs, and dividends. Its ROE profile is expected to improve with less capital intense non-interest income activities and cost savings from FRS 139 implementation. Maintain Buy, with RM12.20 target price based on the Gordon Growth Model, implying 3.8x FY10 BV.

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