This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

The words “stability” and “consistency” often spring to mind at the mention of Public Bank Bhd. Founded in 1966 by the late Tan Sri Teh Hong Piow as a “bank for the people”, the banking group that turned 57 this year, has rarely let investors down.

Known to have one of the lowest cost-to-income ratios in the industry, while being in the lead in terms of asset quality among local banks, investors who put their money in Public Bank can rest assured that their investment is working hard to generate returns under the leadership of its CEO Tan Sri Tay Ah Lek.

For the seventh-straight year this year (2017-2023), Public Bank wins The Edge Billion Ringgit Club’s (BRC) highest return on equity (ROE) over three years for the financial services sector among financial institutions that have over RM10 billion in market capitalisation. The bank also took home the BRC top prize for ROE between 2010 and 2013.

With the exception of FY2020, when the bank saw a dip in year-on-year net profit growth, net profit has been on a steady upward trend in recent years. Net profit fell from RM5.51 billion in FY2019 to RM4.87 billion in FY2020 but bounced back quickly the following year, climbing up to RM5.66 billion in FY2021 and then further scaling to RM6.12 billion in FY2022. This brought the bank’s risk-weighted three-year compound annual growth rate (CAGR) for its net profit to 4.3% between FY2019 and FY2022.

Meanwhile, Public Bank’s ROE has climbed steadily from FY2020 to FY2022. It increased from 10.7% in FY2020 and moved up to 11.9% in FY2021 before inching upwards further to 12.4% in FY2022. The three-year CAGR for its ROE was 11.9% between FY2019 and FY2022.

It is worth noting that Public Bank’s pre-tax profit surpassed RM8 billion for the first time in FY2022.

The banking group has also paid generous dividends over the years. Dividend per share increased from 13 sen in FY2020 to 15.2 sen in FY2021 and rose further to 17 sen in FY2022. This translates into a dividend payout of 51.8% (FY2020), 52.2% (FY2021) and 53.9% (FY2022) of the banking group’s net profits.

Dividend yield has also increased over the same period — from 3.2% in FY2020 to 3.9% in FY2022 — in line with the higher dividend payout to shareholders.

Between Jan 3, 2020, and Dec 31, 2022, Public Bank’s share price gained a total of 21.77% from RM3.43 to RM4.17. Its share price saw some weakness this year, though. Year to date, the banking group’s share price slipped 3.5% from RM4.17 at the start of the year to RM4.16 on Oct 25. That said, most analysts tracking the stock remain bullish, with 13 having a “buy” call compared to four “hold” and two “sell” recommendations, with the consensus target price at RM4.66 at the time of writing. That implies 12% upside potential from RM4.16 on Oct 25.

For the second quarter ended June 30, 2023 (2QFY2023), net profit was RM1.62 billion, up 14% from RM1.42 billion in the previous year. This came on the back of revenue amounting to RM6.26 billion, up 25% from RM4.97 billion a year ago. This brought net profit for the first half of 2023 (1HFY2023) to RM3.33 billion, 18% higher than the RM2.82 billion achieved the year before.

Earnings came in within expectations, says Maybank IB Research in an Aug 30 note. The research house notes that Public Bank management’s loan growth target of 4% to 5% for FY2023 is maintained but it had revised net interest margin guidance, expecting to see a NIM compression of “less than 20 basis points” from the “more than 10 basis points” guided earlier.

AmInvestment Research opines that the deposit competition among banks still persists even though deposit rates in recent fixed deposit campaigns have tapered off from the peak seen in 4QFY2022.

“Management continues to guide for a double-digit NIM compression of less than 20 basis points in FY2023 from FY2022’s NIM of 2.39%. We continue to expect pressure on funding costs to abate in sequential quarters due to lower fixed deposit campaign rates offered recently in the market. Also, the gradual expiry of more expensive deposits from earlier campaigns is likely to improve the group’s NIM in 2H2023,” it says.

Public Bank has maintained its ROE target of 12% to 13% while its loan loss coverage ratio is at a healthy 226% as at end-June 2023.

“The stock is trading at a compelling 1.4 times FY2023F book [value], below the five-year historical average of 1.8 times, with a decent dividend yield of 4.7%,” notes AmInvestment Research.

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