Results Note - PUBLIC BANK
(ADD, upgrade)
- Defensive market share, solid franchise; raising to ADD
We upgrade our rating on PBB to ADD from REDUCE as
we raise our price target to RM22.00 from RM16.90 (ex-rights) on a reduced
cost of equity assumption from 10.3% to 8.3%, translating into a higher
target P/BV of 2.82x (from 2.1x). Though annualized 1H14 net profit was
slightly below our FY14E expectations, we expect momentum to pick up in 2H14,
driven by a repricing in variable loan rates. In 2Q14, PBB’s loan and deposit
books expanded with ytd growth rates of 5% and 5.4%, respectively, countering
the industry’s moderating trend. Management also shared some measures to
boost non-interest income, stabilize NIM and its recent expansion into the
civil service personal financing segment (fairly minimal at RM2bn vs. its
loan book of RM232bn). We believe that share price should stay defensive, in
light of key shareholders and underwriter support for its Rights Issue.
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