Public Bank

Steady As It Goes

Highlights  2QFY10 results (likely on 19 Jul) expected to be +4-5% qoq while 1HFY10 yoy expected to be in mid-teens.

This will be largely in line with our forecast and consensus.

Expect interim dividend but unsure about quantum.

However, full year payout policy of 50-55% intact.

Loan growth on track to hit its +14-15% full year target.

NIM to show slight improvement as benefit of two OPR hikes filtering through and intact mortgage pricing discipline.

Non-interest income to continue benefit from Public Mutual and transaction fees.

Asset quality largely stable.

Partly offset by slightly higher provision due to absence of huge recovery and initial sequential improvement from Hong Kong as well as continued loan growth (based on FRS139 transitional provision).

Not overly concerned about Basel III given that recent G20 suggests more flexibility and time will be given. Worst case is cash call of RM3.5bn in 2012 but amount may be lower with full adoption of FRS139 and grandfathering.

Catalysts  Earnings growth.

 Watered down Basel III with more time given, relieving concerns about potential cash call.

Risks  Unexpected jump in impaired loans and lower than expected loan growth.

 Impact from Basel III on capital.

Forecasts  No changes.

Rating HOLD

 Positives –

 Above industry asset quality, loan growth and yield;

 Excellent track record in delivering guidance.

 Negatives –

 Dividend payout lower than previous years and potential cash call in 2012.

Valuation  RM12.34 based on Gordon Growth with ROE of 23.5% and WACC of 9.1%.

Source from : HLIB