KUCHING: Public Bank Bhd (Public Bank) is expected to comfortably meet the minimum seven per cent common equity capital ratio (inclusive of 2.5 per cent capital conservation buffer) by 2015, in line with Bank Negara Malaysia’s Basel III regulations.
HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) in a research note yesterday stated, “However, there are still concerns for when the counter-cyclical buffer (zero to 2.5 per cent) is introduced after 2015.
“As such, we believe Public Bank will remain in capital conservation mode and expect future dividends to be capped at 55sen,” it said.
The research house expected the bank post a net profit of close to RM1 billion for the fourth quarter of financial year 2012 (4QFY12) on the back of stable earnings; this would to take full-year earnings to RM3.881 billion.
“Growth of Islamic banking income and non-interest income (especially brokerage and fees from the sale of trust units) were weaker than expected in the first nine months of FY12, prompting us to trim FY12 to FY14 forecast earnings by four to five per cent,” it stated.
The research house revealed that its other assumptions were ‘intact’ and forecast the bank to declare 30sen in dividend per share (DPS) for the quarter, bringing the FY12 full-year DPS to 55sen, generating a 50 per cent payout.
It trimmed the stock’s target price by 40sen to RM16.60 per share after the earnings downgrade and imputed a 24.5 per cent return-on-equity target (from 25 per cent previously) in its in-house Gordon Growth Model.
HwangDBS Research pointed out that while the stock was currently trading at 2.9 times book value, the target price implied 3.1 times FY13 book value.
Despite noting that the stock’s upside “will be limited for now as Public Bank’s resilient fundamentals – consistent loan and deposit growth, superior asset quality, and lowest cost-to-income ratio among peers – have been priced in, the estimated 55 sen DPS translates into decent 3.5 per cent yield,” it rationalised.