Bumps ahead for Public Bank?

Analysts say some factors may dampen its outlook

KUALA LUMPUR: Public Bank Bhd may face some resistance ahead in its earnings prospects due to macro factors internally and externally despite its fourth-quarter and full-year earnings for the financial year ended Dec 31, 2011 (FY11) which largely came within expectations of the analyst community.

Notwithstanding its proven management track record, strong banking franchise, efficient operations, superior asset quality and high returns on equity, Alliance Research House in a report issued yesterday said that there could be factors that could dampen the outlook for the third largest bank by assets in Malaysia.

Alliance's banking sector analyst Cheah King Yoong stated that there were three main macro factors which could hinder Public Bank's outlook in the medium to longer term.


Teh has a 24.1% shareholding stake in the bank.
These included the growth rate of property loans which had likely peaked in 2011; the bank not expecting to directly benefit from the Economic Transformation Programme-related business loans compared with its peers; and an internal factor in the succession of its management could also serve as a de-rating catalyst for the stock.

“Public Bank reported flattish market shares in its hire purchase and property financing segments on a quarter-on-quarter basis. This shows that the group is struggling to expand the market share of its core loan segments,” Cheah wrote in his report.

“Since we anticipate the growth rate of property loans to peak in 2011, the bank with high exposure to property lending is expected to be adversely impacted by the slowdown in this particular loan segment,” he added, rating the stock a “sell” with a target price of RM12.30 based on a 10% discount of its Gordon Growth Model valuation which is an implied 2.8 times FY12 forecast price to book ratio.

Public Bank could also face a succession in the leadership of its management. Its chairman and founder, Tan Sri Teh Hong Piow, who at present is still a very hands-on manager heading the bank, will turn 81 this year.

According to Teh's profile in Public Bank's annual report, he was appointed as the CEO since the commencement of Public Bank's business operations in August 1966. Teh was subsequently re-designated as Public Bank's chairman since July 1, 2002. He is also a significant shareholder, owning a 24.1% shareholding stake in the bank.

However, these factors aside, other analysts have a moderately bullish outlook on Public Bank with “hold” and “buy” call ratings on the stock. Of the 21 analysts which have coverage on the stock surveyed on Bloomberg, nine research houses (42.9%) have “buy” calls, while 11 other houses (52.4%) are “neutral” on Public Bank.