RHB Research has upgraded Public Bank Bhd, Malaysia’s third largest banking group by asset size, to “buy” (from “neutral”) with a target price of RM4.80 (from RM4.70) or a 16% premium over its yesterday’s (April 18) closing price of RM4.14.
The research house attributed its upgrading exercise of Public Bank to recent events such as the escalation of tensions in the Middle East and shift in US Federal Funds (FFR) rate expectations, coupled with the upcoming US presidential election will likely lead to increased market volatility.
“Amid such a scenario, we are tactically upgrading our call for Public Bank as we see room for a big-cap, defensive, quality name in investors’ portfolios to tide through the volatility,” analysts David Chong and Nabil Thoo pointed out in a company update.
Stating that the banking group’s growth prospects have not changed fundamentally, RHB Research further earmarked five reasons for its upgrade:
- Earnings safety. Public Bank’s domestic-driven earnings with stable drivers offer investors good earnings predictability;
- Its stock’s underperformance vs FBM KLCI by 9% YTD (year-to-date): Focus could turn to laggards as volatility rises;
- Valuations: Public Bank is trading at 11.6 times of its 2024F PE (price-to-earnings ratio) and 1.4 times 2024F P/BV (price-to book value), ie close to the mid-point of -1SD (standard deviation) and -2SD levels;
- Low foreign shareholding: This is now at 25.4% vs the recent multi-year low of 25.1% as of end-October 2023; and
- Public Bank being a liquid, big-cap stock.
Loan demand-wise, RHB Research said Public Bank has guided for 2024 loan growth of 5%-6% with key drivers being housing loans (circa 6%), auto (5%-6%) and SME (small medium enterprises) (mid-single digit rate).
“While earnings forecasts are broadly retained, we nevertheless raise our target price to RM4.80 after ascribing a new 2% ESG (environment, social and governance) premium (vs 2% discount previously) following an update to our ESG scorecard post-release of Public Bank’s Sustainability Report 2023,” added the research house.
At 10.19am, Public Bank was up 2 sen or 0.48% to RM4.16 with 1.7 million shares traded, thus valuing the bank at RM80.75 bil. – April 19, 2024
