RHB Research said goodwill impairment could be further mitigated by ongoing management overlay reversals.
PETALING JAYA: The anticipated losses and goodwill impairment of Public Bank Bhd
’s (PBB) Hong Kong-listed subsidiary, Public Financial Holdings Ltd (PFH), is expected to have a neutral impact on the banking group.
On Dec 23, 2024, PFH issued a profit warning and is expected to incur a net loss of HK$800mil to HK$1.1bil for financial year 2024 (FY24). This was said to be mainly on account of goodwill impairment of HK$600mil to HK$900mil.
Excluding this, PFH expects to report a loss of about HK$190mil for FY24, noted RHB Research in a report.
To recap, it was noted to be tough for the Hong Kong operations the past two years as loan impairments were high and net interest margins squeezed, on the back of higher funding costs from the rates cycle. This led to the adverse impact on 2023 and results in the first half of 2024.
“On the flip side, we note that asset quality may be stabilising, while gross loans rose by an annualised pace of 3% after having posted annual declines since 2019,” said RHB Research.
PFH’s goodwill stood at HK$2.77bil as at June 2024 and arose from the acquisition of Public Bank Hong Kong back in 2006. Expectations of a challenging operating environment and market conditions in the near-to-mid-term were cited to be the reasons for the goodwill impairments.
On a core basis, PFH’s anticipated net loss for the year is said to be attributable to the higher than expected loan impairment of HK$494mil for FY24.
RHB Research noted that the group pointed to the decline in collateral value and increased delinquencies from hire purchase loans as well as additional provisions for corporate loans.
“Aside from that, other contributing factors mentioned were wider fair value losses on investment properties of HK$50mil and escalation in operational expenditure due to higher staff costs,” it added.
On a brighter note, RHB Research said PFH’s expected core net loss of HK$190mil is not significant at a group level as it takes up about 1% to 2% of 2024 profit after tax and minority interests (Patmi).
While goodwill impairment makes up 4% to 5% of 2024 Patmi, the research house said it could be further mitigated by ongoing management overlay reversals.
“We expect investors to look past the goodwill impairment and continue to focus on the underlying operations instead,” it said. RHB Research retained its forecasts as well as “neutral” call on PBB with a target price of RM4.80.
