KUCHING: Public Bank Bhd (Public Bank) is expected to retain its sturdy financial footing moving forward, despite marginally weaker results expected for the second quarter of financial year 2012 (2QFY12).
The weaker performance outlook, on a quarter-on-quarter (q-o-q) basis, would be largely driven by the normalisation of the bank’s credit cost, according to the research arm of Kenanga Investment Bank Bhd (Kenanga Research).
“However, the overall first half (1H) of FY12 earnings will still likely match the consensus and our expectations. As such, there is unlikely to be any changes in ours and the consensus estimates after the results.
“In addition, we think that it is the right time now to turn more positive on the bank due to the rising investors’ preference for defensive stocks,” the research team rationalised.
“This trend is set to be a major rerating catalyst for Public Bank going forward in 2H12 given the expectation of rising dividends for the bank, a better free cash flow generation, its consistent return-on-equity and also its high earnings visibility,” the research team opined.
Public Bank is due to report its 2QFY12 results today and Kenanga Research has forecasted a profit after tax of RM850 million, 3.3 per cent lower than 1QFY12’s RM877 million.
This was because the research house saw potential normalisation in its credit cost to 32 basis points (bps) – on an annualised basis – versus 1QFY12’s seven bps and partly offset by a lower operating cost.
As such, it added, 1HFY12 profit after tax of RM1.725 billion should be in line with the Kenanga Research’s and the street’s estimates, it said.
The research house forecasted an interim dividend per share (DPS) of 20 sen for 1H12, which would be lower by 20 per cent year-on-year.
That said, it was still expecting the full year dividend payout to remain unchanged at 50 per cent (at gross DPS of 75 sen), which will offer a four per cent net yield.
“The group is likely to continue maintaining its lean balance sheet structure and its overall strategic direction is also likely to remain unchanged.
“Our base case is that there will not be further capital requirement under Basel III. Core Tier 1 ratio was 7.8 per cent in March 2012, which will be sufficient for organic growth in our view.”
Meanwhile, in 1QFY12, net interest margin (NIM) fell by 10bps q-o-q to 2.5 per cent as funding costs surged with a substantial cut in asset yield due to price competition.
The research house believed both the funding cost and asset yield had stabilised for 2QFY12 and thus expected a flattish NIM for the quarter at 2.49 per cent, down one bps q-o-q.
Net interest income is expected to rise to RM1,270m (down 0.1 per cent q-o-q), supported by a three per cent q-o-q loan growth. Together with the flat non-interest income, Kenanga Research expected earnings to fall 3.3 per cent q-o-q.
“Public Bank has performed well, rising 4.4 per cent since June 2012, which we believe reflects its defensive quality supported by a solid capital and dividend payout.
“We continue to like Public Bank and are optimistic about its near-term relative performance as the stock is likely to play catch-up on the defensive theme.
The research house pointed out that the current share price implied a 13 per cent total upside (with a four per cent net dividend yield) as measured against its in-house target price of RM15.60 per share. At this target price, the price to book value valuation would be at 2.9 times and the price earnings ratio at 13 times FY13 earnings, it stated.