“Public Bank is our top pick in the sector as we believe that it is the most defensive local bank against the credit risks arising from Covid-19, ” it said. KUALA LUMPUR: Fresh from Public Bank’s historic four-for-one bonus shares, CGS-CIMB Equities Research has projected a rebound in FY21F core net profit as it raised the target price from RM20.50 to RM25. It said on Thursday the rebound would be underpinned by a 41.2% decline in loan loss provisioning (vs. +603.8% in FY20F), and a 11.5% growth in net interest income vs. 6.9% slide in FY20F. The rebound, it said, follows the expected 17.9% drop in FY20F core net profit caused by the Covid-19 outbreak. “We retain our Add rating on Public Bank, predicated on the potential re-rating catalyst of a projected rebound in net profit growth to 12% in FY21F, based on our estimates. “Public Bank is our top pick in the sector as we believe that it is the most defensive local bank against the credit risks arising from Covid-19, ” it said. CGS-CIMB Research retain its FY20-22F EPS forecasts but changed its assumption for the dividend discount model-based target price. It also withdrew the 10% discount it had imputed to the DDM value for the credit risks arising from Covid-19 as it had raised its projected credit charge-off rate for FY20F to 32bp, in line with Public Bank’s guidance of 30-35bp. “With this, we see minimal downside risk for our earnings forecasts in FY20-21F. Instead, we now peg a 10% premium to our DDM value as we regard Public Bank as the most defensive local bank against Covid-19 credit risks, which could attract investors to switch to Public Bank from other banking stocks amid concerns of an industry-wide rise in gross impaired loan ratio in 2H21F. “Based on our analysis, Public Bank’s provision buffer is more than ample to cover the necessary provisions from even a tripling of its gross impaired loan ratio. Another reason for the premium is the proposed bonus issue which would increase the stock’s liquidity, ” it said.
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