Analysts: Public Bank needs to raise capital

PETALING JAYA: Analysts believe Public Bank Bhd, which posted an increase of 5% in net profit for the first quarter ended March 31, 2014, will need to raise capital to fulfill capital requirements.
MIDF Research in a note yesterday said that its common equity tier-1 (CET1) ratio, which will be among the lowest after the adjustment for regulatory reserves, will require the bank to undertake fund raising exercise via right issue.
"Collective assessment (CA) ratio was 0.71% and this needs to be raised to 1.2% by Dec 31, 2015 to meet the requirements by BNM. This will result in a drop in CET1 ratio by 0.6% with the transfer from retained earnings as regulatory reserves," it said.
Maybank IB Research expects the CET1 ratio to slip to 8% from 8.5% at end-Mar 2014 when it raises its CA ratio to 1.2% from 0.7% presently.
MIDF Research has maintained Public Bank's credit cost assumption of 20 basis points for FY14, while FY14 and FY15 net profit estimates imply return on equity (ROE) of 20.4% and 20.0% respectively.
Kenanga Research believes the group will continue to grow from strength to strength despite keen competition and tough operating environment, and not be surprised if loan growth hits 11%-12% judging from the underlying growth momentum, as compared to 10%-11% guided by the management.
"However, its net interest margin is expected to continue to be under pressure, as this could be a structural issue and it also may not be able to achieve ROE target of more than 20% as our revised ROE estimates are 19.8% and 19.6% respectively," it added.
Maybank IB Research said Public Bank's net interest margin (NIM) compression is within estimate of 9 basis points for FY14 but expects NIM to stabilize into FY15 on the back of a 25 to 50 basis points rate hike expectations towards this year end, coupled with the recent 30 basis points hike in hire purchase rates.
"Annualized loan growth of 9.8% is trending slightly below our full year forecast of 10.4%, but loan growth forecasts are maintained for now," it added.
MIDF Research acknowledged Public Bank's share price is trading at a rich valuation compared to peers due to its resilience, with a stable asset quality and low credit cost.
However, with no near term re-rating catalyst, MIDF Research has maintained a "neutral" call on Public Bank, with an unchanged target price of RM18.60.
Maybank IB Research has maintained a "sell" call on the group, with RM18.00 target price, stressing that its valuations are not cheap amid declining ROEs to about 19.8% in FY14.
Kenanga Research still expects Public Bank to dish out about 45% of its net profit as dividend, which translate into 54.0sen in FY14 and 60.0sen in FY15, while upgrading its rating from "market perform" to "outperform" , with a higher target price of RM21.90.
Public Bank shares closed 18 sen higher at RM20.38 yesterday.