Broker: Maybank Investment Bank Berhad
Date of Report: May 22, 2025

Public Bank Q1 2025: Lowered Profit Outlook Amid Economic Headwinds, but Resilient Fundamentals Support “Buy” Call

Overview: Public Bank Navigates Softer Economic Prospects

Public Bank Berhad, one of Malaysia’s leading retail banks, posted a 1Q25 net profit of MYR1.75 billion, up 5.6% YoY but down 3.0% QoQ. Despite the profit growth, this result came in below expectations, achieving only 23% of both the full-year forecast and consensus estimates. The shortfall was primarily attributed to lower-than-expected non-interest income (NOII) and the anticipation of a softer economic environment.
Key highlights from Maybank Investment Bank’s latest review include a downward revision in Malaysia’s GDP growth forecast, adjustments to Public Bank’s earnings projections, and an updated target price, reflecting ongoing macroeconomic challenges and sector-specific dynamics.

Macroeconomic Backdrop: Growth and Rate Outlooks Recalibrated

– Malaysia’s 2025 GDP growth forecast has been revised down to 4.1% (from 4.9%), with 2026 now projected at 4.2%. – The possibility of a 25 basis points rate cut this year is not ruled out, potentially lowering the Overnight Policy Rate (OPR) to 2.75% from 3.00%. – These macro adjustments have significant implications for Public Bank’s loan growth, net interest margin (NIM), and credit costs.

Revised Economic Assumptions for Malaysia

Public Bank’s Earnings: Forecasts Trimmed, Dividend Yield Remains Solid

– FY25E/FY26E net profit forecasts have been cut by 3.4% and 3.8% respectively. – Loan growth assumptions lowered by 0.3-0.4 percentage points, now at 5.1% for FY25E and 4.8% for FY26E. – NIM forecast reduced by 4bps each year. – Credit cost projections increased by 50%, from 3bps to 4.5bps. – The revised dividend payout ratio remains at 60%, translating to an attractive yield of 5.2% in FY25E and 5.4% in FY26E.

Key Financial Assumptions Adjusted

Target Price Lowered, “Buy” Rating Maintained

– Target Price reduced from MYR5.30 to MYR5.05. – Valuation is based on FY25 PBV of 1.6x, with COE at 9.1% and ROE at 12.5%. – Despite the lower TP, Public Bank remains a “Buy” with an implied 14% upside from the current price of MYR4.43.

Company Profile and Market Position

Public Bank is a dominant force in Malaysia’s retail banking sector, with strong market shares in residential property, commercial property, and auto financing. As of the latest data: – 52-week price range: MYR4.00 to MYR4.82 – Market capitalization: MYR86.0 billion (USD20.0 billion) – Major shareholders: Consolidated Teh Holdings (21.6%), Employees Provident Fund (15.3%), Kumpulan Wang Persaraan (4.1%) – Free float: 59.9% – Issued shares: 19,411 million

Key Performance Metrics

Q1 2025: Detailed Financial Performance

– Interest income grew 1.8% YoY to MYR4.75 billion. – Net interest income up 2.7% YoY. – Islamic banking income rose 8.4% YoY. – Non-interest income jumped 18.9% YoY, primarily due to strong forex and investment income and the consolidation of LPI Capital’s general insurance results. – Operating expenses increased 5.1% YoY, mainly on higher personnel and administrative costs. – Net profit reached MYR1.75 billion, a 5.6% YoY gain, but was down 3% sequentially. – Cost-to-income ratio at 35.0%, slightly higher than the prior year. – Tax rate at 22.5%.

Segmental and Balance Sheet Analysis

– Group loan growth in Q1 was 6.1% YoY, with domestic loan growth at 6.3%, outpacing the industry’s 4.3%. – Main growth drivers: mortgages (+5.5% YoY), commercial properties (+6.8% YoY), hire purchase (+12.5% YoY), and SME commercial property financing (+8.4% YoY). – Deposit growth was 4.0% YoY, with CASA growth at 2.1% YoY, bringing the CASA ratio to 27.5%. – NIM declined 2bps QoQ to 2.19%. Management expects mid-single digit NIM compression for the year. – Impaired loans remained stable with a gross impaired loan (GIL) ratio of 0.53%. Coverage ratio was 159.9% (233.4% including regulatory reserves). – Net credit cost was 4bps in Q1, in line with management’s low-single digit guidance. – Capital ratios stable: CET1 at 14.1%, total capital ratio at 16.8%. Management’s optimal CET1 target is 13%.

Management and Structural Updates

– Management overlays of MYR1.21 billion remain as a buffer against asset quality deterioration. – No fixed timeline yet for the distribution of shares by the family of Tan Sri Teh Hong Piow or the LPI Capital 1.1% shareholding in Public Bank. These are expected in the second half of 2025. – Exposure to companies with US trade is less than 3% of total loans, limiting direct impact from US trade tensions.

Risk Factors and Strategic Observations

– As Malaysia’s third-largest domestic financial institution, Public Bank’s performance is closely tied to the local economic cycle. – A slowdown in domestic consumption could dampen loan growth and earnings. – The bank’s predominantly retail focus makes it vulnerable to changes in consumer and SME sentiment.

Shareholding and Valuation Trends

– Foreign shareholding at 25.85% as of end-March 2025. – Historical valuation metrics show the bank trading near its mean on both PER and P/BV bases.

Key Financial and Operating Ratios

Conclusion: Well-Managed Bank, Attractive Yield, Prudent Guidance

Despite a more challenging economic outlook and downward earnings revisions, Public Bank remains one of Malaysia’s best-managed banks. The group’s solid asset quality, ample provisioning buffers, prudent capital management, and consistent dividend payout policy underpin its investment appeal. The revised “Buy” rating and target price of MYR5.05 reflect confidence in the bank’s resilience and long-term value, even as near-term headwinds persist.