Public Bank results in line with expectations

ANALYSTS are maintaining their recommendations on Public Bank Bhd following the announcement of its second quarter (2Q) results ended June 30, which were broadly in line with consensus expectations. “Public Bank’s 1HFY2009 net profit declined by 8.5% year-on-year (y-o-y) to RM1.2 billion, equivalent to 47% of our full-year forecast and 51% of consensus,” said CIMB Research in a note yesterday.“The results are in line with our expectations as we envisage a stronger second half, driven by higher unit trust revenue and interest income from robust loan growth.”Public Bank posted a net profit of RM610.7 million on the back of RM2.35 billion revenue for its 2Q ended June 30. It had posted a net profit of RM593.5 million a year earlier.“The better-than-expected results were mainly driven by non-interest income and stronger loans growth of 7.2% year-to-date. Non-interest income was mainly lifted by an increase in unit trust management fees and stockbroking income,” said UOB Kay Hian. CIMB noted that loan growth was driven by residential mortgages and non-residential mortgages. “The net non-performing loans (NPL) ratio inched down to 0.8% as at end-June 2009 from 0.83% three months ago while loan-loss coverage strengthened from 163.8% to 173%,” stated CIMB. For the quarter, Public Bank declared a gross dividend of 30 sen per share. “As the interims matched our expectations, we retain our earnings forecasts and target price of RM14.10. Public Bank’s brisk loan growth and stable NPL ratio demonstrate its underlying strength even in the midst of an economic downturn. On this score, we continue to rate the stock as ‘outperform’,” said CIMB. UOB maintained its earnings forecasts and “hold” recommendation on Public Bank with a fair value of RM9. CIMB is expecting net profit for FY2009 and FY2010 to come in at RM2.6 billion and RM3.2 billion respectively. UOB’s net profit forecast for FY2009 is RM2.1 billion and FY2010 is RM2.6 billion. Going forward, CIMB said that potential share price triggers include increase contribution from Greater China and new growth avenue in bancassurance among others. However, UOB feels that Public Bank’s overseas operations are unlikely to turn around in 2009. “For 1HFY2009, pre-tax profit from overseas operations fell 24% y-o-y due to a 53% drop in Public Bank Hong Kong’s net profit to HK$118 million (RM53.9 million) from 1HFY2009.”“The decline was affected by higher impairment allowance and a decline in non-interest income. The company does not foresee a turnaround in the Hong Kong operations in 2HFY2009 due to a high level of personal bankruptcy,” said UOB. But UOB opined that there could potentially be more special dividends from Public Bank in the future. “Two potential sources of special dividends include a potential writeback of general provisions with the implementation of FRS139 on Jan 1, 2010. The writeback will go into shareholders’ funds and this will strengthen the bank’s overall capital and core capital base.“Another potential share dividend from the remaining 80.4 million units of treasury shares. Assuming one dividend share for every 43 shares held, this will imply a net yield of 2.3%,” explained UOB.