KUALA LUMPUR (Jan 9): There is a possibility for Public Bank Bhd (KL:PBBANK) to offer "more than biannual" dividend payments, despite not having the highest dividend yield, according to Kenanga Investment Research.

For the first nine months of FY2024, Public Bank has paid a total dividend of 10 sen per share on Sept 23, 2024. It has yet to declare a second dividend for the fiscal year.

For FY2023, the bank paid a first interim dividend of nine sen per share on Sept 22, 2023, followed by a second interim dividend of 10 sen per share on March 22, 2024.

Meanwhile, the research house said the recently completed acquisition of insurer LPI Capital Bhd (KL:LPI) is expected to create synergies through an expanded agent network and better cross-selling opportunities.

Currently, 25% of LPI's business comes from Public Bank, mainly in fire and motor insurance, Kenanga noted. With LPI’s wide agent network and the banking group’s 200 branches, there’s potential for more effective cross-selling of insurance and financing products, possibly including bundled offers.

"LPI's motor accident takaful (MAT) and healthcare products are expected to see the most traction going forward," Kenanga said in a note on Thursday following a recent meeting with the bank.

On Oct 10 last year, Public Bank signed a conditional sale and purchase agreement with the estate of its late founder Tan Sri Teh Hong Piow and his private vehicle, Consolidated Teh Holdings Sdn Bhd, to acquire a 44.15% stake at RM9.80 per share, totalling RM1.72 billion in cash.

The stake acquisition was approved by the bank’s shareholders and completed on Dec 4, 2024.

Kenanga expects the banking group to close FY2024 with a slight increase of one basis point in net interest margin (NIM), which it views as a positive surprise, especially considering earlier concerns about margin retention at the start of the year.

Despite trimming deposit rates, the bank's long-term deposits have been well-received, with Kenanga attributing this to its loyal retail customers.

The research house also noted that the bank plans to gradually release its loan loss coverage (LLC), aiming for credit costs under 10 basis points in the long term, supported by strong asset quality discipline.

With an LLC of 154% in the third quarter of FY2024 — higher than the pre-pandemic level of 120% — Kenanga said the bank expects to write back up to RM855 million in provisions. However, the release is expected to be gradual to "avoid indiscreet restocking of provisions", Kenanga noted.

Kenanga maintains its "outperform" recommendation on Public Bank, with an unchanged target price of RM5.10.

It flagged downside risks including a larger-than-expected margin squeeze, lower loan growth, worsened asset quality, a slowdown in capital market activities, adverse currency fluctuations, and changes to the overnight policy rate.

At the time of writing, Public Bank shares are trading unchanged at RM4.45, translating into a market capitalisation of RM86.38 billion.