KUCHING: Public Bank Bhd (Public Bank) is expected to remain consistent in delivering robust earnings results, backed by strong cost management and superior asset quality.
HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) said in a research report yesterday, “Public Bank is one of the strongest players in the small and medium enterprises (SME) space and is well positioned to capture the financing needs of the second and third tier beneficiaries (sub-contractors and building material suppliers) of mass rapid transport (MRT) project.”
In addition, Public Bank’s loan growth prospects had been viewed as sustainable at 13 per cent, the research firm opined.
It further highlighted that Public Bank’s non-interest income was expected to remain robust with unit trust related fees contributing seven per cent to the group’s operating income.
Meanwhile, the research firm noted, “Public Mutual retains its lead in the wealth management business with circa 40 per cent market share. Asset quality remains best in class with gross net non-performing loans at below one per cent.”
In addition, Public Bank’s stellar asset quality could be seen through it’s move to full Malaysia Financial Reporting Standard (MFRS) 139 in 2012 and it’s collective allowance which fell to 0.8 per cent (from 1.5 per cent), the research firm pointed out.
“Cost-to-income ratio remains the lowest in the industry,” HwangDBS Research noted.
On the other hand, the research firm opined that Public Bank’s dividend payout would be sustainable as there was less pressure to raise capital.
“As at September 12, Public Bank’s core tier-one Capital Adequacy Ratio (CAR) group was eight per cent ahead of Basel III minimum requirement of seven per cent (including 2.5 per cent conservation buffer) that is only effective 2016.
“With less pressure to raise capital, we expect dividend payout to be sustainable at 50 per cent, which translates into decent circa four per cent dividend yield,” it said.
Additionally, the research firm noted, Public Bank would embark on capital raising (a rights issue) if the need arises to meet Basel III requirements.
HwangDBS Research retained its optimistic view on Public Bank’s performance, highlighting that the group had the potential to continue delivering strong growth with robust cost management and superior asset quality.
As such, the research firm pegged the target price at RM17 per share on 3.1-fold financial year 2013 book value, based on the Gordon Growth Model and assuming 25 per cent return on equity, three per cent long term growth and 10 per cent cost of equity.