Public Bank 4QFY08 : Still going strong

January 22, 2009 at 12:49 am 3 comments

· Within expectations
Results were within expectations, and full year earnings would have come in within a whisker of our estimates if not for a RM200m goodwill income which was recognized pursuant to the regional strategic alliance with ING Asia Pacific Limited. The test will be in the current financial year where economic conditions will remain weak, and loans growth and asset quality are put to the test.
· Loans growth strong, but showing some signs of weakening
While loans still grew at a robust 19.1% y-o-y, signs of waning growth are already emerging on a q-o-q basis. The Group’s current loan base expanded by RM19.3bn to RM120.3bn for the year, raising group market share to 14.9% as at the end of November (2007:14.4%), supported mainly by growth in loans to the household sector.
· Capital market slowdown has mixed effects
In line with the slowdown in capital market activities last year, certain fee related activities of the Group were impacted somewhat while others exhibited admirable strength, chief of which were fund management activities despite the sharp 39% fall in the KLCI last year which would
have impaired market values substantially and thereby reducing fee income. Corporate lending and investment banking profits, not surprisingly, shrank by -36.4% and -55% respectively. Of slight concern would be the decreasing profitability of its hire purchase business despite fair growth levels, owing to higher operating expenses.
· NPL level continues to improve
Despite its above-average loans growth amid the current weak economic climate, asset quality continues to improve and bears testament to the Group’s credit management policies. 3-month net NPLs are currently 0.86%, and is 1/3 of industry average. Loan loss coverage now stands at
159.7%. General provisions stand at RM1.76bn, exceeding the total NPL amount of RM1.2bn despite that more than 90% of the NPLs are secured.
· Maintaining BUY call and target price of RM10.40
We make no changes to our earnings estimates and continue to favour the bank as one of our preferred picks for its attractive dividend yields and strong management.

A closer look into the numbers
Loans growth strong, but showing some signs of weakening While loans still grew at a robust 19.1% y-o-y, signs of waning growth are already emerging on a q-o-q basis. The current quarter represents the second consecutive quarter that growth has weakened, a trend we expect to see continuing in the coming few quarters at least.

Lending activity to the household sector continues to be robust, contributing strongly to the y-o-y loans growth of 19.1%, which we expect to continue in the coming quarters but on a more muted basis. While lending for the purchase of residential properties remain decent, hire purchase loans growth has already weakened (4Q – 0.3%, 3Q – 3.2%) and will most likely do so in the coming quarters. Weakening growth in the business segment will also add to the expected decline in growth in the near term. We have imputed loans growth of 10% going forward, which we do expect to be met quite easily given the entrenched franchise value of the bank, despite stringent credit policies which continue to be in place.

Capital market slowdown has mixed effects
In line with the slowdown in capital market activities last year, certain fee-related activities of the Group were impacted somewhat while others exhibited admirable strength, chief of which were fund management activities despite the sharp 39% fall in the KLCI last year which would have impaired market values substantially and thereby reducing fee income. Corporate lending and investment banking profits, not surprisingly, shrank by -36.4% and -55% respectively. Of slight concern would be the decreasing profitability of its hire purchase business despite fair growth levels, owing to higher operating expenses.

NPL level continues to improve
Despite its above-average loans growth amid the current weak economic climate, asset quality continues to improve and bears testament to the Group’s credit management policies. 3-month net NPLs are currently 0.86%, and is 1/3 of industry average. Loan loss coverage now stands at 159.7%. General provisions stand at RM1.76bn, exceeding the total NPL amount of RM1.2bn despite that more than 90% of the NPLs are secured. While the chart below does show some increases in non-performing loans over the recent quarters, previously non-performing which have been reclassified have also been on the rise. We will be monitoring these numbers keenly however, as the net increase does pose a little concern given current times.

Final cash dividend of 25sen and 1:35 share dividend declared
A final cash dividend of 25sen and a 1:35 share dividend were declared in the current quarter, bringing gross dividends for the year to 88.7sen and translating into a yield of 10.2%. While we are unable to ascertain as to whether the share dividend issue will be continued in the current financial year, sustainable cash dividends of 55sen in itself translates to an attractive 6.3% gross dividend yield.

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21 January 2009 Newz Bits 22 January 2009 Newz Bits

3 Comments Add your own

  • 1. Credit Crunch » Public Bank 4QFY08 : Still going strong  |  January 22, 2009 at 1:03 am

    […] Credit Denied wrote an interesting post today onHere’s a quick excerptPublic Bank 4QFY08 : Still going strong · Within expectations Results were within expectations, and full year earnings would have come in within a whisker of our estimates if not for a RM200m goodwill income which was recognized pursuant to the regional strategic alliance with ING Asia Pacific Limited. The test will be in the current financial year where economic conditions will remain weak, and loans growth and asset quality are put to the test. · Loans growth strong, but showing some signs […]

  • 2. » Public Bank 4QFY08 : Still going strong  |  January 22, 2009 at 1:06 am

    […] Internet Business Review wrote an interesting post today onHere’s a quick excerptPublic Bank 4QFY08 : Still going strong · Within expectations Results were within expectations, and full year earnings would have come in within a whisker of our estimates if not for a RM200m goodwill income which was recognized pursuant to the regional strategic alliance with ING Asia Pacific Limited. The test will be in the current financial year where economic conditions will remain weak, and loans growth and asset quality are put to the test. · Loans growth strong, but showing some signs […]

  • […] Public Bank 4QFY08 : Still going strong « Sought Content […]

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