"Highest return on equity over three years / Highest growth in profit after tax over three years: Finance — RM10 billion and above market capitalisation: Public Bank

Highest return on equity over three years / Highest growth in profit after tax over three years

Finance — RM10 billion and above market capitalisation

Public Bank - Steady climb

Kathy Fong / The Edge Malaysia

August 28, 2017

Public Bank Bhd’s earnings have just kept growing in the past two years, when banks’ profit margins have been compressed due to provision for non-performing loans.

Its profit after tax grew to RM5.207 billion in the financial year ended Dec 31, 2016 (FY2016), from RM4.06 billion in FY2013. The banking group achieved PAT of RM5.06 billion in FY2015 and RM4.51 billion in FY2014 — a steady uninterrupted growth for three financial years at a time when its peers were hit by high provision for loans, due to the change of economic climate, the slowdown of the property market and the collapse of crude oil prices.

This translates into a compound annual growth rate of 8.6% over the three financial years, making it the winner of The Edge Billion Ringgit Club Best Three-year PAT growth in the Super Big Cap Companies category with a market capitalisation of above RM40 billion.

The banking group’s earnings per share ballooned to RM1.348 in FY2016 from RM1.161 in FY2013. Its EPS was RM1.311 in FY2015 and RM1.237 in FY2014. The profit before tax per employee ratio, meanwhile, has also been on a steady climb to RM351,000 in FY2016 from RM296,000 in FY2013. The ratio was even higher at RM353,000 in FY2015.

It also won The Edge BRC Best Three-Year PAT Gold and Return on Equity Gold Award 2017 in the Finance Sector.

However, the banking group’s ROE has been drifting lower. It slipped to 16.5% in FY2016 from 22.4% in FY2013. Still, Public Bank’s ROE is one of the highest in the local banking industry. In fact, a falling ROE is the trend among domestic banks as a result of stricter capital requirements by regulators as a preventive measure to increase prudence in risk management.

The uninterrupted net profit growth from FY2014 to FY2016 speaks well for the asset quality of the country’s third largest bank in terms of asset size. This is the main reason Public Bank’s shares usually trade at a premium over its peers.

The share price is the highest of all the listed banking groups on Bursa Malaysia. From April 1, 2014, to June 30, 2017, the share price gained nearly 20%. It is not the top performer — Hong Leong Bank gained 28.3% and Malayan Banking Bhd grew 23.3% in the same period — but it has fared better than its other peers.

In terms of price-to-book value, Public Bank is leading the pack among locally listed banks. Based on its close on June 30 of RM20.06, the bank’s shares were valued at 2.26 times P/B, compared with Hong Leong Bank’s 1.51 times and Maybank’s 1.43 times.

The banking group’s gross loan impairment ratio remains low at 0.5% in FY2016. It was 0.7% in FY2013. Its loan loss coverage ratio dipped slightly to 102.7% in FY2016, compared with 120.8% in FY2015 and 122.4% in FY2014. The lower ratio is still above the industry average.

The banking group’s customer deposits have expanded to RM309.97 billion in FY2016, up 23% from RM250.87 billion in FY2013.

Its cost-to-income ratio has inched up to 32.3% in FY2016 from 30% in FY2015 and FY2014. Nonetheless, it is among the lowest in the industry as its peers’ ratios are above 50% or higher.

During the three years under review, Public Bank has expanded its staff strength slightly to 18,651 in FY2016 from 17,924 in FY2013. Interestingly, gross loan-to-employee ratio continued to climb to RM15.76 million in FY2016 from RM12.34 million, despite Bank Negara Malaysia’s cooling measures for the property market. Retail operations generate slightly more than half of the group’s pre-tax earnings.