Continuous increase in management overlay
? PBB’s FY21 core net profit was 3.8% above our forecast due to better-than-expected net interest income and lower-than-expected overheads.
? We are projecting a weak CNP growth of 1.2% in FY22F due to CM taxation. Excluding CM, FY22F net profit growth would be 13.8%.
? Reiterate Add on PBB as we see the bank as the most defensive against the credit risks from Covid-19, given its best-in-sector asset quality.
Final results above our expectations
Public Bank Bhd’s (PBB) FY21 core net profit (CNP) was 3.8% above our forecast due to better-than- expected net interest income and lower-than-expected overheads. However, its FY21 net profit was within market expectations at 101% of Bloomberg consensus’ estimate. The bank’s FY21 DPS of 15 sen was slightly above our projected 14 sen.
Prudent move to further strengthen its management overlay
Despite having the best asset quality in the sector, PBB continued to strengthen its provision buffer in 4Q21 by providing an additional management overlay of RM300m. This brought its management overlay to a total of RM1.7bn at end-Dec 21, accounting for a whopping 154.3% of its gross impaired loan (GIL) at end-Dec 21.
Strong 4Q21 net profit growth due to lower LLP
PBB’s CNP rose by 20.3% yoy in 4Q21, primarily driven by a 49.3% yoy drop in LLP. Meanwhile, 4Q21 CNP only increased by 1.4% qoq as the 13% qoq drop in LLP w as partly offset by a 9.1% qoq decline in non-interest income.
Slower FY22F net profit growth due to Cukai Makmur
We are projecting weaker CNP growth of 1.2% for PBB in FY22F (vs. 8.9% in FY21), due to additional tax expense under Cukai Makmur (CM). Excluding CM, PBB’s FY22F CNP growth would be stronger at 13.8%, underpinned by an 8.4% increase in net interest income and 19.9% drop in LLP.
Upping FY22-23F net profit forecasts and target price
We raise our FY22-23F net profit forecast by 6-10% as we (1) increase our projected FY22-23F net interest income by 6-11%, and (2) cut our FY22-23F overhead forecasts by circa 5%. This leads to a rise in our DDM-based target price from RM4.60 to RM5.00.
Reiterate Add; most defensive against credit risks from Covid-19
We retain our Add call on PBB as w e see it as the most defensive against the credit risks from Covid-19 among its peers, reflected by its strongest-in-class asset quality. Potential re-rating catalyst includes narrow er increase in GIL ratio vs. its peers when the industry’s Gil ratio peaks in 2022F. Positive takes from the briefing are (1) PBB’s guidance for a drop in credit charge-off rate from 34bp in FY21 to below 20bp in FY22F, (2) a drop in loans under repayment assistance and (3) minimal earnings impact from URUS scheme.