Company owner/directors, and major fund institutions heavily selling

Transcription

1 PUBLIC BANK BHD Analysis Date: 12/09/2013 (PBBANK) Prepared by: L. C. Chong All figures in thousands of Ringgit Malaysia except per share values and ratios Financial Year: /12/2012 Latest Quarter: 31/12/2012 Price: Stock Category: Investment Grade Overview Public Bank Berhad provides banking and other financial services in Malaysia and internationally. The company s personal and business banking products include savings, current, fixed deposit, and foreign currency accounts; home loans, vehicle financing, working capital loans, loans for the acquisition of assets, residential property financing, passenger vehicle hire purchase financing, personal consumer financing, project financing, guarantee schemes, and share trading and margin financing; and credit and debit cards. Its personal and business banking products also comprise investment products, including unit trust funds, structured investment products, and gold investment accounts; and services consisting of insurance, bill payment, banker s cheques, demand drafts, traveler s cheques, telegraphic transfers, interbank payments, safe deposit box, cash management, and Internet and mobile banking, as well as red carpet banking for performing banking transactions in privacy. The company also offers Islamic banking, investment banking, share broking, trustee, treasury, nominee, unit trust funds sale and management, bancassurance, and general insurance products and services, as well as engages in property and investment holding businesses. It serves individuals, and small and medium size enterprises. The company operates approximately 255 branches, approximately 522 automated teller machines, approximately 532 cheque deposit machines, approximately 405 cash deposit terminals, and approximately 186 cash recycling machines in Malaysia. It also has approximately 122 branches, including 83 in Hong Kong, 3 in China, 24 in Cambodia, 7 in Vietnam, 4 in Laos, and 1 in Sri Lanka, as well as 3 representative offices in Shanghai, Shenyang, and Taipei. The company was founded in 1966 and is headquartered in Kuala Lumpur, Malaysia. Board: Main Board FBMKLCI: YES Industry: FINANCIALS Sub Sector: BANKS Ownership: Corporate Owned (Local) Investment Strategy Portfolio Strategy: Lump Sum + Top Up Averaging Down Method: Dollar Cost/Value Averaging Portfolio Execution: Buy and Monitor Basis for Buying: Basis for Selling: Company owner/directors, and major fund institutions heavily buying EPS QoQ Growth > 15% Price is below Intrinsic Value Price is below or around the fair price derived from EY% High Stock price breaks out of consolidation/dip on an uptrend. Company owner/directors, and major fund institutions heavily selling Fundamental of business turns unattractive or bad Has the stock risen too far from its intrinsic value? Long term trend changed from bullish to bearish Price is above or around the price derived from EY% Low Quarterly EPS drop for 3 consecutive months. The current price is 30% away from my average holding price. L. C. Chong Page 1 of 13

2 Financial Performance ROE 30% 25% 20% 15% 10% Sustainable Profitability 3.00% 2.50% 2.00% 1.50% 1.00% Rating: Excellent Measure 3 Y Avg. 5 Y Avg. 3 Y % 5 Y % Consistency ROE 15% 22.49% 22.77% 4.06% 4.29% 51% ROAA 1.4% 1.91% 1.87% 2.70% 3.31% 42% ROAA Return on Average Assets PBBANK s ROE is the highest in Malaysia banking sector, and it maintains more than 20% ROE for more than 7 years. Besides, PBBANK also recorded highest ROAA in Malaysia banking sector for more 10 years. Based on MorningStar research, large and outstanding banks usually has above 1.4% ROAA. 5% 0.50% 0% ROE 12% 17% 19% 21% 23% 27% 23% 23% 23% 22% ROAA 2.30% 2.40% 2.00% 1.90% 1.90% 1.80% 1.60% 1.80% 2.00% 1.90% 0.00% 16,000,000 Growth Quality Rating: Excellent Result YoY % 3 Y % 5 Y % 10 Y % Consistency Revenue 10.20% 12.10% 8.56% 12.70% 97% 14,000,000 12,000,000 10,000, EPS 11.06% 11.84% 10.31% 13.32% 98% A picture is worth a thousand words 8,000,000 6,000,000 4,000,000 2,000, PAR Adjusted EPS Revenue Linear (PAR Adjusted EPS) Linear (Revenue) 0 L. C. Chong Page 2 of 13

3 20,000,000 15,000,000 10,000,000 5,000, ,000,000 10,000,000 Cash Flow Growth Quality Rating: Excellent Result YoY 3 Y 5 Y 10 Y Consistency Ops. Cash ########## 29.46% % 62.25% 7% Owner 13.38% 11.87% 12.46% 14.86% 98% Net Opera ng Cash Flow is inconsistent, but this is a norm in banking sector. On the other hand, PBBANK maintains a very good and consistent growth of owner earnings. 15,000, ,000,000 0 Net Ops. Cash Owner Linear (Net Ops. Cash ) Linear ( Owner ) Sustainable Competitive Advantage 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% NIM 3.80% 4.10% 3.60% 3.40% 3.20% 3.20% 3.20% 3.40% 3.30% 3.10% NPM 23% 25% 24% 22% 22% 25% 26% 28% 27% 28% Cost/income 38.70% 37.90% 35.50% 34.80% 33.10% 31.20% 32.60% 30.70% 29.80% 30.50% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Rating: Excellent Measure 3 Y Avg. 5 Y Avg. 3 Y % 5 Y % Consistency NPM 10% 27.48% 27.16% 0.18% 2.79% 54% NIM 3.22% 3.22% 4.62% 0.33% 61% Cost/Income 30.32% 30.61% 0.33% 1.35% 91% NPM Net Profit Margin; NIM Net Interest Margin PBBANK maintains the highest Net Profit Margin in Malaysia banking sector. PBBANK saw its NIM compressed, but to a lesser degree. Its NIM (2.31% in 1HFY2013) is s ll compe ve if compare to MAYBANK (2.45%) and CIMB (2.89%). On the banking industry front, the net interest margin compression will persist as compe on for both loans and deposits market share remain intense. As for Cost/Income, among all banks, PBBANK maintains the lowest Cost/Income ratio. L. C. Chong Page 3 of 13

4 25.00% 20.00% 15.00% Capital Adequacy Rating: Excellent Measure 3 Y Avg. 5 Y Avg. 3 Y % 5 Y % Consistency Core Cap % 11.07% 0.44% 6.99% 27% Risk. Cap % 14.75% 1.39% 1.94% 55% Core Cap. Core Capital Ratio; Risk. Cap Risk Weighted Capital Ratio PBBANK capital ra o is marginally higher than the required 7%. PBBANK s capital posi on is very healthy % 5.00% 0.00% Core Cap % 13.80% 11.40% 10.20% 9.10% 8.30% 10.50% 11.30% 11.20% 11.40% Risk. Cap % 18.00% 17.30% 15.80% 13.60% 13.70% 14.60% 14.20% 15.60% 14.60% Asset Quality % % % % % 80.00% 60.00% 40.00% 20.00% 0.00% NIL 2.00% 2.10% 1.70% 1.60% 1.40% 1.00% 1.40% 1.10% 0.90% 0.70% LTD 90.70% 77.10% 79.40% 74.10% 71.60% 78.30% 79.20% 87.60% 87.80% 87.10% LLC 67.60% 79.00% 91.70% 99.90% % % % 94.20% % % 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Rating: Excellent Measure 3 Y Avg. 5 Y Avg. 3 Y % 5 Y % Consistency NIL 0.84% 0.91% 22.60% 11.55% 89% LTD 87.41% 86.07% 0.29% 3.16% 9% LLC % % 14.54% 5.30% 37% NIL Net Impaired Loans; LTD Loans/Deposit; LLC Loan Loss Coverage PBBANK s Net Impaired Loans is the lowest in Malaysia banking sector. Would it be too cau ous in giving out loans? PBBANK recorded a strong annualised growth of 13.6% to RM240.4 billion as at the end of June As a result, the Group maintained a stable and healthy loan todeposit ra o of 86.4% as at 30 June In the past 10 years, PBBANK s loan to deposit ra o is sustainable from 74% to 90%. PBBANK also maintained a higher and more prudent Loan Loss Coverage ra o of 126% (FY2012) and 123.2% (H1 FY2013) as compared to the banking industry s coverage ratio of 99.2%. L. C. Chong Page 4 of 13

5 Economic Moats Cost Advantage Not available or no moat found Switching Costs I don t have statistics, but based on my observation, people tend to stick with PBBANK due to branding. Another important is inertia. Many people don t switch banks, even if they feel that they re being nickeled and dimed by their current bank. Network Effect Not available or no moat found Rating: Wide 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Key Ratios for Economic Moats ROE 12% 17% 19% 21% 23% 27% 23% 23% 23% 22% Cost/Income 38.70%37.90%35.50%34.80%33.10%31.20%32.60%30.70%29.80%30.50% NIM 3.80% 4.10% 3.60% 3.40% 3.20% 3.20% 3.20% 3.40% 3.30% 3.10% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Intangible Assets Not available or no moat found The financial ra os as men oned before proves that PBBANK has wide economic moats. The bank s management is prudent and corporate governance is prominent. The Malaysia Ra ng agency rated Public Bank for AAA, this can be showed that the bank is strong in financial posi on by having a healthy asset quality, high profit and resulted in high liquidity level. Besides that, the long term deposits of Public Bank are being rated as A3 by the Moody s and they remarked Public Bank s financial strength at grade C. Efficient Scale PBBANK generated RM290,000 of revenue per employee in 2012 as compare to RM209,000 in This is a very huge improvement. In my opinion, part of the reasons of this tremendous increase are PBBANK employees were responsible for high ROAA, but PBBANK was also better at squeezing their customers assets for more revenue (primarily through fees). L. C. Chong Page 5 of 13

6 Market Timing Discounted Cash Flows Valuation Refer Appendix 1 3 Y 5 Y 10 Y Good 12% Base 10% Bad 6% Ugly 2% Good 12% Base 10% Bad 6% Ugly 2% Good 12% Base 10% Bad 6% Ugly 2% Fair Value Buy Under Actual M.O.S. 3% 8% 20% 33% 3% 3% 18% 36% 12% 3% 18% 43% Growth rate applied in Reverse DCF to reach the current stock price (17.74): 10% Refer Appendix 2 Excess Return Valuation (5 Y) (Banks Only) EY% Valuation Refer Appendix 3 Refer Appendix 4 Good Base Bad Ugly EY% High EY% Low Buffer R4Q EPS FY13 EPS* FY14 EPS* Fair Value % 6.27% 10% Buy Under Fair Value Actual M.O.S. 22% 10% 105% 157% Buy Under Sell Above Insider Trading EPS QoQ Growth Refer Appendix 5 (blank) Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 QoQ % # Securities Price % Comments For bank stocks, I usually look at 5 years valua on because of rapid change in the industry. As I don t think PBBANK performance will be in bad and ugly scenario, I will check out the fair value of good and base scenarios. DCF and Excess Return valua on suggests the following value: ogood: obase: Besides, EY% valua on suggests as fair value. In my opinion, PBBANK is currently slightly under valued. I will con nue to accumulate PBBANK whenever possible. L. C. Chong Page 6 of 13

7 Notes Created Date Details Type Source Type 07/09/2013 銀行股後市利淡參導 Sector Analysis Newspaper busy weekly bank.pdf 06/09/2013 Banks 2Q13 review: yet to recover from pre elec on chill Sector Analysis Analyst Report 10/08/ 類消息纏身銀行股震盪 Sector Analysis Newspaper busy weekly banks1.pdf 03/08/2013 发出高息定存优惠银行抢高端客户 Note Newspaper e993b6e8a18ce68aa2e9ab98e7abafe5aea2e688b7.pdf 28/07/ busy weekly 27jul2013 pbbank.pdf Growth Driver;Outlook;Risk Newspaper 24/07/2013 Management will continue to focus on the retail segment and on improving cost efficiency for the remaining part of Outlook Analyst Report Approval rates continue to be fairly stable, resulting in a healthy pipeline of loans for progressive release. As such, management expects the growth momentum for its loans to remain healthy and accelerate at a double digit pace of some 11% to 12% for this FY slightly ahead of our industry s loans growth forecast of 10.3% but in line with our 11% loans growth assump on for the group. Other growth prospects include bancassurance where products can now be customized along with the sale of its unit trust. In the wealth management segment, total net asset value (NAV) of funds climbed from RM54.6bn in FY12 to RM58.9bn in 2Q FY13 with Public Mutual commanding a sizeable 41.0% share of the private unit trust market while the sale of bancassurance products reported RM49.2mn in annual premium equivalent (APE). Elsewhere, management remains unfazed by the attempts of Bank Negara to curb household indebtness. There will be little impact to personal loans with loan tenures of more than 10 years accounting for less than 1% of total loan book value. In fact, management has been winding down the proportion of these loans since Similarly, with regards to measures on mortgage loans, tenures exceeding 35 years are only awarded to individuals who have met stringent criteria in terms of repayment capability. 24/07/2013 The group reported Common Equity Tier 1 (CET1) Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio of 8.5%, 10.4% (vs. 10.8% in FY12) and 12.8% (vs. 14.1% in FY12) respec vely. Analysis Analyst Report L. C. Chong Page 7 of 13

8 Created Date Details Type Source Type 24/07/2013 Unexpected jump in impaired loans, lower than expected loan growth and higher than expected erosion in NIM. Asset quality ratio was flattish, helped by growing loans book despite higher absolute impaired loans (IL for the second consecutive quarter). Net impaired loans formation accelerated resulting in higher absolute amount. While this could be due to the general election impact, close monitoring is needed as this bellwether could provide tell tail signs of warning for the industry. 23/07/2013 The Group s customer deposits also recorded a strong annualised growth of 13.6% to RM240.4 billion as at the end of June As a result, the Group maintained a stable and healthy loan to deposit ra o of 86.4% as at 30 June The Public Bank Group continues to be at the forefront amongst its Malaysian banking peers with the highest net return on equity of 22.6%. The Group also excels in sustaining its strong asset quality and cost efficiency with its low gross impaired loan ra o of 0.7% and cost to income ra o of 31.4% in the first half of release by pbb.pdf Risk Announcement;Growth Driver Analyst Report 12/07/2013 Top 3 banks to benefit from ghter lending criteria, says Moody s Note Newspaper L. C. Chong Page 8 of 13

9 Appendix 1 Discounted Cash Flows Valuation Discount Rate Margin of Safety Average risk premium Average Risk free rate Unadjusted Discount % Business Risk Factor Financial Risk Factor Discount % Initial RRR Dividend Yield Est. EPS Growth Unadjusted MOS Risk Based MOS 7.60% 3.99% 11.59% % 35% 3% 12% 19% 23% 11.50% 10% Growth Estimation Financial Figures Owner GR. Terminal % Decay Rate (Yr4E Yr7E) Extra Decay (Yr8E Yr10E) 12% Shares Out. FCF Type 2012 Owner Excess Cash Intangibles Assets Intangibles% add to DCF 8% 3% 15% 20% 6% 3, Owner 3, , , % 10% 2% % Projection of Present Value and Fair Value Senario FV 4, , , , , , , , , , DPV 46, , , , , , , , , , PV 51, , , , , , , , , , Fair Value 3 Y: Y: Y: Base 10% Good 12% Bad 6% Ugly 2% FV 4, , , , , , , , , , %DPV46, , , , , , , , , , PV 52, , , , , , , , , , Fair Value 3 Y: Y: Y: FV 4, , , , , , , , , , DPV 44, , , , , , , , , , PV 49, , , , , , , , , , Fair Value 3 Y: Y: Y: FV 3, , , , , , , , , , DPV 42, , , , , , , , , , PV 47, , , , , , , , , , Fair Value 3 Y: Y: Y: L. C. Chong Page 9 of 13

10 Appendix 2 Reverse Discounted Cash Flows Discount Rate Margin of Safety Average risk premium Average Risk free rate Unadjusted Discount % Business Risk Factor Financial Risk Factor Discount % Initial RRR Dividend Yield Est. EPS Growth Unadjusted MOS Risk Based MOS 7.60% 3.44% 11.04% % 35% 3% 10% 19% 23% Growth Estimation Financial Figures Owner GR. Terminal % Decay Rate (Yr4E Yr7E) Extra Decay (Yr8E Yr10E) Shares Out. FCF Type 2012 Owner Excess Cash Intangibles Assets Intangibles% add to DCF 8% 3% 15% 20% 3, Owner 3, , % 10% Projection of Present Value (GR. 10%) FV 4, , , , , , , , , , DPV 46, , , , , , , , , , PV 51, , , , , , , , , , Fair Value 3 Y: Y: Y: L. C. Chong Page 10 of 13

11 Appendix 3 Excess Return Valuation Discount Rate Average risk Average Risk Unadjusted Business Risk Financial Risk Discount % premium free rate Discount % Factor Factor 7.60% 3.99% 11.59% % 11.50% Margin of Safety Initial RRR Dividend Yield Est. EPS Growth Unadjusted MOS Risk Based MOS 35% 3% 12% 19% 23% 10% Financial Figures ROE Shares Out Book Value Dividend Payout Ratio Terminal % 22% 3, , % 3% 24% Projection of Present Value and Fair Value Senario ROE 24% 24% 24% 24% 24% 24% Book Value 17, , , , , , Ba Go Ug Retained 2, , , , , , BaseExcess Return 2, , , , , , PV 2, , , , , , Fair Value Y: ROE 24% 26% 27% 28% 30% 31% Book Value 17, , , , , , Retained 2, , , , , , GoodExcess Return 2, , , , , , Bad PV 2, , , , , , Fair Value Y: ROE 24% 21% 18% 16% 15% 14% Book Value 17, , , , , , Retained 2, , , , , , Excess Return 2, , , , , PV 2, , , , Fair Value Y: 8.64 ROE 24% 19% 17% 15% 13% 12% Book Value 17, , , , , , Retained 2, , , , , , Ugly Excess Return 2, , , , PV 2, , Fair Value Y: 6.90

12 Appenfix 4 EY% Valuation EY% High EY% Low Buffer R4Q EPS FY13 EPS* FY14 EPS* 9.20% 6.27% 10% Fair Value Buy Under Sell Above * Estimations from Reuters or local analysts' reports High EY% Green Zone EY% 9.20% R4Q FY13 FY14 Green Zone Price($) Price Low 8.90% Buy Under % Trading Range 2.92% 6.57% Sell Above % Red Zone EY% 6.27% Red Zone Price($) Low High L. C. Chong Page 12 of 13

13 Appendix 5 Insider Trading Last 3 months or last 30 insider transactions Transaction Date Securities Holder Type of transaction No of securities Price Transacted L. C. Chong Page 13 of 13