PP 7767/09/2011(028730)

19 October 2010
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Group
Company No: 233327 -M

R e su lts N ot e
19 October 2010
MARKET DATELINE

Public Bank Share Price

Fair Value
:
:
RM12.58
RM14.70
9MFY10 Net Profit Rises 19.7% YoY Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (PBBANK; Code: 1295) Bloomberg: PBK MK

Net EPS
FYE PBT Profit EPS Gwth PER NTA P/NTA C.EPS* Div Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM/s) (x) (sen) (sen) (%) (%)
2009 3,321.4 2,517.3 73.3 (4.7) 17.2 3.12 4.0 - 41.3 3.3 24.5
2010f 3,796.5 2,872.0 82.0 11.8 15.3 3.63 3.5 83.4 45.0 3.6 24.1
2011f 4,251.1 3,211.7 91.7 11.8 13.7 4.09 3.1 94.9 48.8 3.9 23.6
2012f 4,610.4 3,476.0 99.2 8.2 12.7 4.58 2.7 107.3 52.5 4.2 22.7
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 3QFY10 net profit up 6.6% qoq – in line ... Public Bank’s 3QFY10
RHBRI Vs.
Above
Consensus

results were within our and consensus expectations with 9MFY10 net profit
In Line
of RM2.2bn (+19.7% yoy) accounting for 75.5-76.5% of our and consensus
Below
full-year estimates.
Issued Capital (m shares) 3,531.9
♦ … and led by stronger net interest and non-interest income as well
Market Cap (RMm) 44,431.6
as lower overheads. 3Q operating income grew by 3.5% qoq on the back
Daily Trading Vol (m shs) 2.7
of +2.8% qoq loan growth (see Table 5) and a slight expansion in NIMs,
52wk Price Range (RM) 10.47-12.82
coupled with stronger non-interest income (+6.7% qoq). Meanwhile,
Major Shareholders: (%)
overheads fell by 6.2% qoq due to lower personnel cost but loan Tan Sri Dato' Sri Dr Teh 23.7
impairment allowances were up +15.8% qoq due to some non-recurring Hong Piow
provisioning. YoY, 3Q net profit jumped 22.5% underpinned by stonger net EPF 14.5
interest (+14.8% yoy) and non-interest income (+15.3% yoy), partly offset
by higher loan impairment allowances (+14.6% yoy). FYE Dec FY10 FY11 FY12
EPS chg (%) - - -
♦ Operating statistics highlights. Annualised loan growth stood at 13.7% Var to Cons (%) (1.7) (3.4) (7.5)
and on track to achieve our FY10 growth assumption of 14%. This was led
by the domestic segment (annualised rate of 16.1%) with growth PE Band Chart
momentum for the SME, mortgage and HP loan segments sustained.
Overseas loan book contracted by an annualised rate of 9.2% mainly due to
PER = 17x
adverse exchange rate impact. Total deposits grew by a slower rate of 2.8% PER = 13x
(annualised), although this largely reflects a drop in wholesale deposits. PER = 9x
Core deposits (which is the focus of the group), however, grew at an
annualised rate of 12.2%. NIM expanded by 6bps qoq (+17bps yoy),
supported by the three rounds of OPR hikes YTD. Meanwhile, non-interest
income stayed healthy as its mutual fund operations benefited from
stronger equity markets and better contribution from the foreign exchange
business. CIR improved further to 30.4% (2Q10: 33.6%; 3Q09: 34.2%). Relative Performance To FBM KLCI

♦ Asset quality intact. Asset quality remains strong with new impaired loan
formation (annualised) falling to 56bps during the quarter, as compared to
79bps in 2Q10 and 70bps in 3Q09. Consequently the gross impaired loans
Public Bank
ratio improved slightly to 1.16% as at end-3Q from 1.21% as at end-2Q10.
Tier-1 and RWCR ratios remained broadly stable at 9.8% (2QFY10: 10%,
after deduction of interim dividend) and 13.6% (2QFY10: 13.9%)
FBM KLCI
respectively.

♦ Forecasts. We are leaving our earnings forecasts unchanged.

♦ Investment case. We have retained our fair value of RM14.70 (based on

target FY11 PER of 16x) and Outperform call on the stock. We continue to
like the stock for its above-industry growth and asset quality. This, in our
view, would be further supported by factors such as the stock’s high David Chong, CFA
weightage in the FBM KLCI and a premium valuation gap that has narrowed (603) 9280 2186
vis-à-vis peers. Public Bank, in our view, is the best proxy to the domestic david.chong@rhb.com.my
economy in terms of loan growth.

Please read important disclosures at the end of this report. Page 1 of 6

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 19 October 2010

Table 2 : Quarterly Results

QoQ YoY
FYE Dec (RMm) 3Q09 2Q10 3Q10 Comments
(%) (%)
Net Interest Income 1,194.9 1,337.9 1,371.7 2.5 14.8 Higher qoq thanks to +2.8% qoq loan growth and +6bps
(+ Islamic Banking) expansion in NIM.

Higher yoy on the back of strong +13.6% yoy loan growth,

higher Islamic income and higher NIM. Yoy loan growth was
mainly from mortgage, HP and SME (see Table 5).

Annualised loan growth was 13.7%, in line with

management’s target and our full-year assumption.

Non-interest Income 369.6 399.4 426.1 6.7 15.3 Stronger qoq with most major line items reporting qoq
improvement while yoy growth was led by higher unit trust
management fees of RM122.6m (3Q09: RM104.1m) and
higher income from foreign exchange businesses of
RM64.5m (3Q09: RM47.4m).

NAV under management stood at RM39.3bn as at end-Sep

‘10, up 16.3% yoy (Sep ‘09: RM33.8bn) and 7.7% qoq (Jun
‘10: RM36.5bn).
Operating Income 1,564.4 1,737.3 1,797.8 3.5 14.9

Less: Overhead (535.1) (583.1) (547.1) (6.2) 2.2 Lower qoq mainly due to lower personnel cost (-8.5% qoq).
Expenses
3Q10 CIR stood at 30.4%, down as compared to 33.6% in
2Q10 and 34.2% in 3Q09.
Pre-provision 1,029.3 1,154.2 1,250.7 8.4 21.5
Profit

Less: Allowance for (176.4) (174.7) (202.3) 15.8 14.6 Higher qoq mainly due to higher individual assessment
impairment on loans allowance of RM114m (vs. 2Q10: RM85.9m) due to certain
(+ impairment non-recurring charges while collective assessment
write-backs) allowance was flat qoq.

YoY higher with higher collective allowance of RM130m

(3Q09 GP: RM78.7m) cushioned by lower individual
allowance (3Q09 SP: RM155.1m).

Charge-off rate flattish at 14bps (2Q10: 12bps; 3Q09:

13bps)

Annualised new impaired loans formation improved to

56bps vs. 2Q10: 79bps (3Q09: 70bps).
Operating Profit 852.9 979.5 1,048.4 7.0 22.9

Associates 3.6 2.5 2.9 17.0 (18.7)

Pretax Profit 856.5 982.0 1,051.4 7.1 22.8

Less: Tax (209.1) (235.0) (257.1) 9.4 23.0

Effective Tax Rate 24.4 23.9 24.5 2.2 0.2
(%)
Profit After Tax 647.4 747.0 794.3 6.3 22.7

Minorities (8.4) (12.9) (11.6) (10.3) 38.5

Net Profit 639.0 734.1 782.7 6.6 22.5
Source: Company, RHBRI

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 19 October 2010

Table 3 : Cumulative Results

YoY
FYE Dec (RMm) 9MFY09 9MFY10 Comments
(%)
Net Interest Income 3,446.3 3,974.2 15.3 Primarily driven by strong loan growth of +13.6% yoy (mainly driven by
(+ Islamic Banking) SMEs and retail - see Table 5 for breakdown) and +19.3% growth in Islamic
income.

Non-interest Income 1,028.0 1,210.7 17.8 Led by higher unit trust management fees (RM353.9m vs. 9MFY09:
RM261.3m) and forex income (RM191m vs. 9MFY09: RM135.1m), partly
offset by lower gain from sale of available-for-sale securities (RM5.2m vs.
9MFY09: RM37.9m).
Operating Income 4,474.2 5,184.9 15.9

Less: Overhead (1,548.2) (1,720.4) 11.1 Higher operating expenses due to business expansion and to grow loan base.
Expenses
Pre-provision 2,926.1 3,464.6 18.4
Profit

Less: Allowance for (513.1) (516.7) 0.7 Higher collective allowance of RM391.9m vs. GP of RM235.4m from continued
impairment on loans loan growth; offset by lower individual allowance of RM255.5m vs. SP of
(+ impairment RM442.5m due to improvement in asset quality.
write-backs)
Credit charge was 36bps vs. 40bps in 9MFY10.

Annualised net NPL formation was lower at 57bps vs. 60bps.

Operating Profit 2,413.0 2,947.8 22.2

Associates 8.2 8.1 (1.4)

Pretax Profit 2,421.2 2,955.9 22.1

Less: Tax (558.0) (717.0) 28.5

Effective Tax Rate 23.0 24.3 5.2
(%)
Profit After Tax 1,863.2 2,239.0 20.2

Minorities (24.1) (36.9) 53.3

Net Profit 1,839.1 2,202.0 19.7
Source: Company, RHBRI

Table 4 : Ratio Analysis

FYE Dec 1Q09 2Q09 3Q09 4Q09 1Q10* 2Q10 3Q10
Asset Quality (%)
Gross impaired loans/NPL Ratio 0.98 0.93 0.95 0.96 0.94 1.21 1.16
Net impaired loans/NPL Ratio 0.84 0.80 0.82 0.80 0.79 1.06 1.01
Individual allowance/impaired loans (SP / NPL) 15.1 14.3 14.4 16.9 16.9 12.5 13.5
Collective allowance/net loans (GP / Net Loans) 1.5 1.5 1.5 1.5 1.5 1.5 1.5
Loan Loss Coverage 163.8 173.0 171.3 172.4 172.3 133.9 140.2
Core Capital Ratio 7.6 8.7 8.6 9.9 9.6 10.0 9.8
RWCAR 13.3 13.9 12.7 14.2 13.7 13.9 13.6

Margins (%)
Yields On Earning Assets 4.03 3.63 3.63 3.64 3.47 3.72 4.01
Avg. Cost of Funds 2.10 1.67 1.64 1.60 1.48 1.62 1.86
Interest Spread 1.93 1.96 1.99 2.03 2.00 2.09 2.15
Net Interest Margins (ex-Islamic Inc) 2.02 2.02 2.05 2.09 2.05 2.16 2.22
Adjusted Net Interest Margins (+ Islamic Inc) 2.33 2.36 2.40 2.49 2.40 2.53 2.59

Profitability (%)
ROE 24.6 24.5 24.8 25.4 24.5 25.1 25.8
ROA 1.21 1.22 1.24 1.27 1.26 1.34 1.42
Cost / Income Ratio 35.6 34.1 34.2 34.3 35.8 33.6 30.4
Expenses / Avg. Assets 1.01 1.02 1.04 1.05 1.08 1.06 1.00
Provisions / Avg. Net Loans 0.52 0.58 0.55 0.53 0.41 0.49 0.55

Liquidity (%)
Loan Deposit Ratio 73.4 73.2 71.9 79.2 79.8 83.2 85.5
Net Loan Growth (qoq) 4.1 3.0 3.2 3.0 3.5 3.7 2.8
Deposit Growth (qoq) 11.2 3.4 5.1 (6.4) 2.8 (0.6) (0.0)
*Adoption of FRS139 from 1 Jan 2010.
Source: Company, RHBRI

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 19 October 2010

Table 5 : Gross Loan Book Breakdown

FYE Dec 3Q09 4Q09 1Q10 2Q10 3Q10 qoq (%) yoy (%)
Purchase of Securities 2,195 2,383 2,330 2,374 2,101 (11.5) (4.3)
Purchase of Transport Vehicles 31,082 31,628 32,806 33,885 34,498 1.8 11.0
Purchase of Landed Properties 62,572 64,887 67,798 70,914 74,660 5.3 19.3
Residential 36,332 37,953 39,576 41,229 42,827 3.9 17.9
Non-residential 26,240 26,934 28,222 29,686 31,833 7.2 21.3
Purchase of Fixed Assets (ex-landed 330 390 376 399 298 (25.3) (9.8)
properties)
Personal Use 7,926 8,478 8,546 8,758 8,849 1.0 11.6
Credit Card 1,112 1,179 1,162 1,203 1,253 4.2 12.6
Purchase of Consumer Durables 17 16 16 17 17 (1.0) (0.0)
Construction 1,535 1,553 1,548 1,633 1,670 2.2 8.8
M&A 100 100 16 16 8 (46.2) (91.6)
Working Capital 20,256 21,053 21,720 22,416 22,248 (0.8) 9.8
Other Purpose 6,453 5,943 6,110 6,026 6,132 1.8 (5.0)

Total Gross Loan Base 133,578 137,610 142,428 147,641 151,733 2.8 13.6
Source: Company, RHBRI

Table 6 : Impaired Loans By Sector

FYE Dec Gross Impaired Loan (RMm) Gross Impaired Loan Ratio (%)
Dec 09 Mar 10* Jun 10 Sep 10 Dec 09 Mar 10* Jun 10 Sep 10
Purchase of Securities 2.7 2.7 2.7 6.9 0.11 0.12 0.11 0.33
Purchase of Transport Vehicles 145.1 148.1 152.1 262.2 0.46 0.45 0.45 0.76
Purchase of Landed Properties 564.4 597.4 825.1 737.4 0.87 0.88 1.16 0.99
Residential 452.0 468.5 460.7 463.1 1.19 1.18 1.12 1.08
Non-residential 112.5 128.8 364.5 274.3 0.42 0.46 1.23 0.86
Purchase of Fixed Assets (ex-landed 7.0 7.4 13.4 13.8 1.80 1.96 3.35 4.62
properties)
Personal Use 153.8 145.9 170.4 168.6 1.81 1.71 1.95 1.91
Credit Card 14.0 13.8 13.8 16.7 1.19 1.19 1.15 1.33
Purchase of Consumer Durables 0.2 0.2 0.3 0.2 1.47 1.52 1.78 1.19
Construction 4.9 19.8 18.6 24.5 0.31 1.28 1.14 1.47
Working Capital 410.9 393.5 546.2 496.8 1.95 1.81 2.44 2.23
Other Purpose 16.6 15.7 47.8 39.8 0.28 0.26 0.79 0.65
Total 1,319.6 1,344.4 1,790.5 1,766.8 0.96 0.94 1.21 1.16
*Due to the adoption of FRS139, impaired loans as at 1 Jan was restated by RM439m in the 2Q10 results announcement (vs.
RM68.7m restatement in 1Q10 announcement). The difference is due to more stringent criteria adopted for classification of impaired
loans. Based on the stricter classification adopted, the gross impaired loan ratio as at end-Mar ’10 would have been around 1.2%.
Source: Company, RHBRI

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 19 October 2010

Table 7 : Earnings Forecasts Table 8 : Ratio Analysis & Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Net Interest Income 4,728.0 5,218.0 5,679.0 6,122.7 Asset Quality (%)
(+ Islamic Banking) Gross NPL 0.91 0.86 0.81
Non-interest Income 1,381.9 1,483.8 1,571.3 1,663.9 Net NPL 0.76 0.71 0.66
Operating Income 6,109.9 6,701.9 7,250.3 7,786.6 SP / NPL 17.00 18.00 19.00
GP / Net Loans 1.49 1.49 1.49
Less: Overhead Loan Loss Coverage 181.02 191.57 203.30
Expenses -2,109.9 -2,236.5 -2,379.1 -2,532.6 Core Capital Ratio 10.18 10.25 10.33
Pre-provision RWCAR 14.31 14.32 14.33
Profit 4,000.0 4,465.3 4,871.2 5,254.0
Margins (%)
Less: Allowance for Yields On Earnings Assets 3.68 3.66 3.64
impairment on loans -691.0 -681.6 -633.3 -657.2 Avg. Cost Of Funds 1.74 1.75 1.76
Operating Profit 3,309.0 3,783.7 4,237.9 4,596.8 Interest Spread 1.94 1.91 1.88
Un-adj NIM (ex-Islamic Inc) 2.01 1.99 1.96
Associates 12.4 12.8 13.2 13.6 Adjusted NIM (+Islamic Inc) 2.36 2.35 2.34
Pretax Profit 3,321.4 3,796.5 4,251.1 4,610.4
Profitability (%)
Less: Tax -769.9 -873.2 -977.8 -1,060.4 ROE 24.18 23.79 23.00
ETR (%) 23.2 23.0 23.0 23.0 ROA 1.26 1.29 1.29
Cost / Income Ratio 33.37 32.81 32.52
Profit After Tax 2,551.5 2,923.3 3,273.4 3,550.0 Expenses / Avg. Assets 0.98 0.96 0.94
Provisions / Avg. Net Loans 0.47 0.39 0.37
Minorities -34.2 -51.4 -61.6 -74.0
Net Profit 2,517.3 2,872.0 3,211.7 3,476.0 Liquidity (%)
Loan Deposit Ratio 82.08 83.60 85.15
Net / Gross Loan Growth 14.00 10.00 10.00
Deposit Growth 10.00 8.00 8.00
Source: RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

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Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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