KUALA LUMPUR (Feb 3): Public Bank Bhd (KL:PBBANK) upcoming fourth-quarter results, scheduled for release on Feb 26, are expected to reflect the financial impact of the goodwill impairment at its subsidiary, Public Financial Holdings (PFH).

However, Maybank Investment Bank (IB) noted that this impact is expected to be cushioned by ongoing write-backs, with the dividend payout remaining largely unaffected.

Maybank IB maintained its 'buy' call on Public Bank, with an unchanged target price of RM5.20. 

The research house noted that Public Bank's 73.2%-owned PFH had recorded a significant goodwill impairment on its wholly owned subsidiaries, Public Bank (HK) Ltd and Public Finance Ltd, as well as Winton (BVI) Ltd.  

The impairment was approximately HK$810 million (RM463 million), excluding which PFH would have made a loss of HK$189 million.  

The impairment took the carrying value of the goodwill at PFH down to HK$1.96 billion, from HK$2.77 billion.

The group's share of PFH’s reported loss, which totalled RM581 million, amounted to RM425 million, translating into a 6% reduction in the bank’s projected earnings for the financial year ended Dec 31, 2024 (FY2024).

Excluding this charge, the impact on Public Bank’s overall financial forecast is a more modest 1.1%.  

The goodwill impairment at PFH was determined based on a number of key assumptions, including a pre-tax discount rate of 9.7%, and an average long-term growth rate of 2.8%.  

"We think that the assumptions are fairly conservative already, especially the discount rate used, and do not think that further impairments are likely, unless there is an acute deterioration in the operating environment in Hong Kong." 

Meanwhile, Public Bank maintained its higher dividend policy, and the research house does not expect its dividend payment in FY2024 to be impacted, given the adequacy of its capital base.  

Maybank IB forecast Public Bank's dividend per share at 21 sen for FY2024, against 19 sen in FY2023, on a dividend payout ratio of 58%.

To recap, Public Bank (HK), formerly known as Asia Commercial Bank (ACB), was acquired by Public Bank in May 2006 for HK$4.5 billion.  

The bank primarily focuses on retail and commercial lending, with a presence that includes 30 branches in Hong Kong, one branch and four sub-branches in Shenzhen, and representative offices in Shanghai and Shenyang, China. 

Public Finance, a subsidiary of Public Bank (HK), specialises in personal financing, and operates 40 branches across Hong Kong. 

In addition to its core lending activities, Public Bank (HK) offers wealth management and stockbroking services. 

Winton (BVI), operating under a moneylender’s licence, runs three branches in Hong Kong. The company provides personal loans, vehicle financing to owners and buyers of licensed public vehicles such as taxis and public light buses, as well as engaging in the trading of taxi cabs and licences. It also leases and manages taxis, maintaining its own fleet for rental, and offers general insurance services.  

At the time of writing on Monday, Public Bank’s share price was up one sen or 0.2% at RM4.32, valuing the company at RM83.85 billion.

Read also:
Kenanga sees possibility for Public Bank offering 'more than biannual' dividends, cites synergies from LPI acquisition