KUALA LUMPUR (Nov 10): Public Bank Bhd (KL:PBBANK) fell on Tuesday after the third-largest Malaysian bank by assets cut its guidance and flagged margin pressures.
Return-on-equity will likely come in closer to 12% for the full year, rather than the up to 13% guided previously, analysts wrote in their post-earnings briefing notes. Net interest margin, the difference between what banks earn on loans and pays on deposits, could shrink up to 10 basis points this year.
“We continue to view these revisions as reflecting a more challenging funding environment rather than a deterioration in underlying franchise strength,” CIMB Securities said.
Public Bank fell as much as 20 sen or 4% to RM4.70 on Tuesday, leading decline among banking stocks and dragging on the benchmark FBM KLCI.
Malaysian banking stocks have been hammered by rising bond yields in recent months as bond yields climbed. Higher yields generally hurt banks as they take larger paper losses from lower prices of the bonds they hold, which eats into capital and forces them to book losses if they sell.
Public Bank’s return on equity came in at 11.7% for January-September while net interest margin narrowed nine basis points, underperforming the mid-single-digit decline guided earlier. The bank kept all other guidance, including on loan growth.
Still, Public Bank is up nearly 9% year-to-date while 15 out of 20 analysts tracked by Bloomberg recommend buying the stock. The rest is on "hold" calls as Kenanga Investment Bank and TA Securities downgraded Public Bank after cutting their outlook. The average target price is now RM5.47.
The bank is expected to sustain its loan growth momentum, supported by resilient domestic demand and continued expansion in the small and medium enterprises segment, said Hong Leong Investment Bank and kept its "buy" call.
Further, Public Bank’s plan to return RM3.5 billion back to shareholders, which remained intact, could lift potential dividend yield to around 6% and provide an additional buffer to total returns, while reinforcing its appeal to yield-seeking investors, the house added.