Public Bank loses a bit of glitter as “cukai makmur” may erode earnings

THAT bellwether Public Bank Bhd’s near-term prospect seems muted has prompted two local research houses to downgrade its stocks to “hold” from “buy” previously.

While the bank’s 3Q FY2021 results were within expectations, Maybank IB Research has lowered Public Bank’s FY2022 net profit by 10% to account for the impact of cukai makmur (windfall tax) while maintaining its FY2021 earnings.

“Correspondingly, our target price is lowered to RM4.10 (from RM4.70 previously) on a lower FY2022 PBV (price-to-book value) target of 1.5 times (1.7 times previously) on the back of a lower FY2022 ROE (return on equity) of 11.1% versus 12.3% previously,” justified analyst Desmond Ch’ng in a results review.

“We have lowered our FY2022 net profit forecast by 10% to factor in the impact of cukai makmur which we estimate would raise its tax charge by another RM479 mil next year. This brings down its FY2022 ROE to 11.1% from 12.3% previously.”

According to Maybank IB Research, Public Bank’s 3Q FY2021 core net profit of RM1.36 bil (-2% year-n-year [yoy]; -2% quarter-on-quarter [qoq]) took the bank’s 9M FY2021 core net profit to RM4.27 bil (+4% yoy) which is within expectations at 75%/77% of its/consensus’  full-year forecasts.

Although Public Bank’s 3Q FY2021 operating profit was 2% lower yoy, this was partially offset by a 3% yoy decline in provisions. At the moment, 25% (RM81.9 bil) of the group’s domestic loans were under repayment assistance (RA) as of end-October, rising marginally from 23% as of end-July.

Elsewhere, TA Securities Research also downgraded Public Bank’s rating to “hold” with a lower target price of RM4.20 (from RM4.70 previously).

“Our valuation is based on an implied PBV of circa1.54 times based on the Gordon Growth Model. Given that the total return has reduced to between 7% and 12%, we downgrade our recommendation from buy to ‘hold’,” projected analyst Li Hsia Wong.

Despite Public Bank’s management expecting a more sanguine outlook, potential downside risk to earnings includes weaker-than-expected asset quality and impact from the lingering effects of COVID-19, according to the research house.

On the cukai makmur front, TA Securities Research raised the tax rate assumption in FY2022 to account for the windfall tax.

“With that, we adjusted our FY2021/2022/2023 net profit forecast to RM5.56 bil/RM5.36 bil/RM6.83 bil from RM5.4 bil/RM6.08 bil/RM6.91 bil previously,” added the research house.

At 10.26am, Public Bank was up 3 sen or 0.76% to RM3.99 with 4.84 million shares traded, thus valuing the company at RM77.45 bil. – Nov 30, 2021

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