UOB Kay Hian
Date of Report: 27 August 2025

Public Bank Berhad 2Q25 Results: Resilient Growth and Attractive Valuation Signal Opportunity for Investors

Overview: Public Bank Delivers Steady Results Amid Higher Costs

Public Bank Berhad, Malaysia’s third-largest domestic banking group by assets, continues to demonstrate resilience despite facing higher operational costs and one-off legal expenses in 2Q25. The bank’s robust loan growth, strong non-interest income momentum, and prudent asset quality management underpin its stable performance, even as net profit for the quarter came in slightly below expectations. UOB Kay Hian maintains a BUY recommendation with a target price of RM5.25, suggesting an 18.7% upside potential from current levels.

Public Bank at a Glance

• Share Price (as at report date): RM4.42
• Target Price: RM5.25
• Market Capitalization: RM85.8 billion (~US\$20.4 billion)
• Sector: Financials
• Major Shareholders: Consolidated Teh Holdings Sdn Bhd (21.6%), EPF (16.8%)
• Loan Market Share: 16.2%
• System Assets Share: 14.8%

2Q25 Key Results: Marginal Miss, But Underlying Growth Is Solid

Public Bank’s 2Q25 net profit was RM1.76 billion, down 1.2% year-on-year and flat quarter-on-quarter, mainly due to one-off legal costs. First half 2025 (1H25) net profit reached RM3.51 billion, up 2% year-on-year and representing 47% of full-year estimates.

*Values inferred based on typical reporting structure; refer to detailed company filings for exact figures.

Robust Loan and Deposit Growth Outpaces Sector

• Domestic loan growth remained strong at an annualized 6%, outpacing the sector’s 4% growth.
• Overall group loan growth was 5.1% year-on-year, led by:
  • Residential mortgages (+5.3%)
  • Commercial property (+6.0%)
  • Hire purchase (+12.0%)
• Deposit growth stood at 3.8% YoY, slightly lower than loan growth, resulting in a loan-to-deposit ratio of 97.8%.

Asset Quality: Industry-Leading Loan-Loss Coverage and Low NPLs

• Gross impaired loans (GIL) ratio stable at 0.54% (domestic GIL just 0.4%).
• Loan-loss coverage robust at 154% (industry average: 91%).
• Export-related loans account for less than 3% of the total loan book, minimizing tariff risks.
• Net credit cost declined to 3bp from 4bp in 1Q25; management overlays remain at RM1.0 billion.

Net Interest Margin (NIM) and Funding Costs: Managing Compression

• NIM slipped slightly to 2.19% (from 2.20% in 1Q25) due to persistent funding cost pressure, especially from wholesale funding.
• Management expects further NIM compression in 2025 (mid-to-high single-digit basis points) and is working to diversify funding sources, including raising bonds.

Strong Non-Interest Income Momentum

• Non-interest income (NOII) grew by 17.5% year-on-year, with the NOII ratio rising to 22.1% from 20.1%.
• Key drivers:
  • Trading income surged 84.5% YoY
  • Forex gains up 29.9% YoY
  • Insurance contributions from the LPI acquisition (RM146 million)
• Fee income was stable (-0.7% YoY), as weaker stockbroking was offset by higher commissions (+8%).

Pre-Provision Operating Profit (PPOP): Consistent Growth Despite Cost Pressures

• 1H25 PPOP rose 6.8% YoY, though was flat quarter-on-quarter.
• Growth reflects broad-based revenue momentum and maiden contribution from the LPI acquisition.

Management Guidance and Outlook for 2025

• ROE Target: 13%
• Loan Growth: 5-6%
• Deposit Growth: 5-6%
• Net Credit Cost: Single digit (bps)
• NIM: Mid-to-high single-digit compression
• Dividend Payout Ratio: 60%

Despite lowering its NIM guidance, management is confident that stronger non-interest income will offset margin pressures and help achieve the ROE target.

Valuation: Attractive Entry Point with Provision Upside

• Public Bank’s valuation is near pandemic lows (-1.5 standard deviation below historical mean P/B).
• Current price-to-book (P/B) is 1.4x (2025F), with a projected ROE of 12.3%.
• Potential for further earnings upside from significant management provision writebacks, not yet reflected in consensus estimates.

Key Financial Highlights and Projections

Environmental, Social, and Governance (ESG) Initiatives

Environmental:

• Green loan campaign since 2020, offering preferential rates for energy-efficient vehicles (EEV) via AITAB Hire Purchase-i.
• Paperless initiatives: Enhanced “Go Green” efforts include digital reporting, electronic statements, notices, and eSignature for new account openings.

Social:

• Board gender diversity: 33% female directors.
• Top and senior management: 48% female representation.

Governance:

• Independent Non-Executive Directors constitute 55% of the Board.

Investment Summary: BUY Maintained with Attractive Upside

UOB Kay Hian reiterates a BUY rating on Public Bank, underpinned by:

• Valuation at multi-year lows, offering a strong entry point.
• Solid asset quality, robust provision buffers, and scope for writebacks.
• Resilient growth in loans and non-interest income despite margin pressures.
• Attractive and sustainable dividend yield, with a 60% payout ratio.

Key Assumptions for 2025-2027

• Loan Growth: 5.0% (2025F), 5.5% (2026F), 6.2% (2027F)
• Credit Cost: 4bp (2025F), 2bp (2026F), 1bp (2027F)
• ROE: 12.3% (2025F), 12.6% (2026F), 12.8% (2027F)

Conclusion

Public Bank Berhad’s 2Q25 results affirm its position as a resilient, well-capitalized Malaysian financial leader. The bank’s steady core growth, healthy asset quality, and improving non-interest income streams, combined with a compelling valuation and strong dividend outlook, make it a standout pick in the sector for investors seeking stability and upside in a challenging macro environment.