PETALING JAYA: Public Bank Bhd
’s (PBB) focus on the small and medium enterprise (SME) financing to improve net interest margins (NIMs) is timely but likely to be met with competition from other banks, says Kenanga Research.
According to the research house, the bank said it intends to stay conservative by managing risk and its move to release its loan loss coverage level indicated a steadier grip on asset quality consistent with the positive outlook for Malaysia.
The bank’s exposure to the Johor-Singapore Special Economic Zone initiative will be selective and diversified and weighted towards SMEs due to their higher margins.
Such companies also stand to benefit from the supply-chain spillover from upcoming developments such as data centres and other infrastructure projects, the research house noted in a report on the banking group.
“PBB looks to close financial year 2024 (FY24) with a positive landing for NIMs (stable to one basis point, from FY23’s 2.2%), which was a positive surprise to us given much conservatism on margin retention at the start of the year,” the research house said.
Led by the trimming of deposit rates (October 2024 fixed-deposit board rates up to 2.5%), the group saw favourable reception for its longer-term deposits (year-on-year, September 2024 at 4% versus the industry’s 3.3%), which we attribute to its sticky retail clientele,” Kenanga Research noted.
The research house said PBB’s recent purchase of a 44.15% stake in LPI Capital Bhd is expected to generate synergistic gains, allowing it to capitalise on the latter’s agent network and enhanced cross-selling opportunities.
“We gather that 25% of LPI’s business presently originates from PBB, predominantly in its fire (mortgage) and motor (hire purchase) class products.
“The completion of LPI’s acquisition presents more opportunities for collaboration between the two by tapping into its wide agent network of over 3,000 people and PBB’s 200 physical branches,” the research house added.
It added the larger footprint would enable more effective cross selling of both insurance and financing products, which could also be bundled for more attractive propositions.
Kenanga Research retained its “outperform” call on PBB with a target price of RM5.10 a share, based on a price to book value of 1.54 times and return on equity of 13%.
“While the stock may not have the highest dividend yield, the possibility of a more than biannual dividend payments could be of interest to selective investors,” the research house noted.
