Public Bank Bhd has scored another home run in the RM10 billion and above market capitalisation-financial services category despite prevailing challenges in the operating environment due to the Covid-19 pandemic.
For the fourth year in a row, the country’s third-largest bank with RM451.26 billion in total assets took home The Edge Billion Ringgit Club award for the highest return on equity (ROE) over three years.
Public Bank’s adjusted weighted ROE over its three financial years stood at 12.1% — the highest among its financial services sector peers with a market cap of RM10 billion and above. It also earned the accolade of highest ROE among the Super Big Cap Companies, whose market capitalisation is above RM40 billion.
The banking group delivered an ROE of 10.7% to its shareholders for its financial year ended Dec 31, 2020 (FY2020). However, the return is lower than the 13% in FY2019 and 14.3% in FY2018.
Last year, Public Bank managed to maintain its track record for unbroken profitability for 54 consecutive years. Its net profit attributable to shareholders came in at RM4.87 billion in FY2020, 11.6% lower than in FY2019. The decline in profit was attributed mainly to a one-off net modification loss arising from Covid-19-related relief measures offered to individuals and businesses; a reduction in the overnight policy rate (OPR) by 125 basis points, which affected Public Bank’s net interest margin; as well as a higher pre-emptive provisioning set aside due to the pandemic.
The group’s net income increased by 1.9% year on-year to RM11.31 billion in FY2020, owing mainly to higher operating income and higher net income from its Islamic banking business. Its net interest income, which accounted for 63.5% of the group’s total net income, dropped by 3.4% y-o-y to RM7.18 billion in FY2020 as a result of interest margin compression.
Aside from achieving the highest ROE among the public-listed local banks in FY2020, Public Bank also achieved the lowest cost-to-income ratio at 34.6%, and the lowest gross impaired loans ratio at 0.4%.
The group completed its four-for-one bonus issue — a pleasant surprise that it sprang during the trying times brought by the pandemic — on Jan 29, 2021. Its issued share capital expanded five-fold to 19.41 billion shares, from 3.88 billion shares. The bonus issue resulted in Public Bank shares being more affordable, and enhanced its appeal to a wider group of investors.
Between Dec 31, 2017, and Dec 31, 2020, Public Bank lost 12% of its market value as its shares slipped from a high of RM4.55 on Jan 22, 2019 to a low of RM2.41 on March 19, 2020. Since then, its shares have gained some lost ground, closing at RM4.12 on March 31, 2021.
Public Bank’s shareholders have received regular dividend cheques in the past three years. It declared a dividend per share of 13.8 sen for FY2018, and this increased to 14.6 sen for FY2019, with a payout ratio of 47.9% and 51.4 % respectively. In FY2020 the group declared a lower dividend of 13 sen per share, with a higher payout ratio of 51.8%.
In a Nov 5 research note, CGS-CIMB Research says it has reduced its FY2022 net profit forecast for Public Bank by 10.1% to RM5.43 billion from RM6.04 billion, owing to Cukai Makmur, but its FY2023 net profit forecast was raised by 1.5% from RM6.6 billion to RM6.7 billion on an OPR hike assumption.
The earnings forecasts had factored in Cukai Makmur, which was announced during Budget 2022, and an assumption of a 25bps hike in OPR in the middle of next year.
Cukai Makmur is a one-off special tax proposed by the government, where a higher tax rate of 33% versus the current statutory tax rate of 24% will be imposed on companies’ FY2022 pre-tax profit in excess of RM100 million.
CGS-CIMB Research recommends that its clients add more Public Bank shares to their portfolio, as the brokerage believes it is the most defensive group against credit risks from the pandemic, supported by the strongest asset quality, with the lowest gross impaired loan ratio of only 0.35% and the highest loan loss coverage of 275.1% as at June 30, 2021.