KUALA LUMPUR (Aug 30): Maybank Investment Bank (Maybank IB) has upgraded Public Bank Bhd to “buy” at RM4.14 with a higher target price (TP) of RM5.05 (from RM4.30).

In a note on Wednesday, the research house said that with its strong asset quality, healthy provisioning levels and ample management overlays as buffer, Public Bank is a safe haven amid slower economic growth.

Maybank IB said Public Bank’s second quarter of 2023 (2Q2023) core net profit of RM1.62 billion, up 14% year-on-year (y-o-y) but down 6% quarter-on-quarter (q-o-q), took first half of 2023 (1H2023) core net profit to RM3.33 billion, up 18% y-o-y.

It said the results were within expectations at 50% of house's full-year forecast and consensus.

Maybank IB said Public Bank’s 1H2023 operating profit rose a marginal 2.7% y-o-y amid annualised loan growth of 5.4% and non-interest income growth of 5% y-o-y, offset in part by net interest margin (NIM) compression of 17 basis points (bps) y-o-y in the first half of this year.

“Provisions declined 86% y-o-y to support earnings growth, but generally, provision buffers in the form of management overlays are comfortable.

“Our forecasts are maintained, having already imputed a NIM compression of 16bps for FY2023 and a credit cost of 7bps.

“Our FY2023 ROE (return on equity) estimate of 13% is at the top end of management’s guidance of 12%-13%.

“We roll forward valuations to FY2024 and raise our TP to RM5.05 on an unchanged PBV (price-to-book value) target of 1.7 times, which is supported by a prospective FY2024 ROE of 12.7%,” it said.