Fundamental Analysis for PUBLIC BANK BHD

Transcription

1 Page 1 of 6 Fundamental Analysis for PUBLIC BANK BHD Company Name: PUBLIC BANK BHD Board: Main Board Stock Code (Bursa): PBBANK FBMKLCI: TRUE Bloomberg: PBK:MK Reuters: PUBM.KL Industry: Sub-Sector: FINANCIALS BANKS Company Description: Public Bank was established in August 1966 by its Founder and Chairman, Tan Sri Dato?Sri Dr. Teh Hong Piow. Known for its superior service delivery, super PB Date of Analysis: 26-Mar-12 Price: Financial Year: /12/2011 Stock Grade: Large Capital Growing Potential Risk Profitability Financial Health Profitability 4 Financial Heal 3 Growth 4 Management 5 Potential Risk 5 Management Growth

2 Fundamental Analysis All figures in millions of Ringgit Malaysia except per share values and ratio Measures Profitability Consistently increasing sales revenue /12/31 3,969 4,323 5,045 5,920 7,844 9,558 10,500 9,716 11,036 12,756 I R Comments Consistently increasing Net Income After Tax 922 1,088 1,340 1,536 1,795 2,202 2,623 2,552 3,099 3,524 Consistently increasing EPS Consistently increasing Gross Profit Margin (Preferably > 30%) Consistently increasing Net Profit Margin (Preferably > 10%) Consistently decreasing Accrual Ratio (Preferably < -5%) Financial Health Consistently increasing Net Cash from Operations Consistently increasing ROE (Preferably > 12%) Consistently increasing ROIC (Preferably > 15%) Consistently declining Debt/Equity Ratio (Preferably < 1) Consistently increasing Quick Ratio (Preferably > 1, but 2.5) Short & declining "Cash Conversion Cycle" 41.00% 33.57% 41.93% 34.51% 30.74% 30.29% 36.47% 34.06% 42.94% 40.76% 32% 34% 37% 35% 31% 31% 32% 34% 37% 36% -59% 178% -397% 224% -398% -369% -122% -256% 237% 440% /12/31 2,032 (1,133) 9,192 (2,536) 12,031 14,094 7,513 11,814 (5,615) (15,656) 19% 18% 25% 27% 30% 32% 35% 30% 31% 31% % % % -8.15% -9.92% -8.14% % -8.89% % 47.23% ,548-2,807-4, , Too much cash and equivalent Consistently increasing Free Cash Flow / Sales (Preferably > 5%) 49% -29% 180% -44% 152% 146% 69% 120% -52% -124%

3 Growth Quality of Historical Growth Strong future growth drivers Revenue CAGR: 10% 6% 12% 95% Operating Income CAGR: 16% 12% 12% 91% 3Y: 5Y: 10Y: Regression: EPS CAGR: 11% 9% 20% 97% Net Cash From Operations CAGR: #NUM! #NUM! #NUM! 8% The Malaysian banking system is relatively insulated from the adverse impact from the weakened external environment and is expected to remain stable in 2012, underpinned by strong capitalisation, healthy liquidity position and relatively strong asset quality. Growth in the Malaysian banking sector will be largely driven by domestic economic activities in the coming year. Loan growth should remain moderate, supported by consumer loans and accelerated implementation of the projects under the 10th Malaysia Plan and the Economic Transformation Programme. Low financing cost is expected to continue to support lending activities. Competition will continue to be intense with pressure on interest margin. Furthermore, with the implementation of the Second Financial Sector Masterplan, the Malaysian banking sector is expected to see greater dynamism and innovation. The Public Bank group will remain focused on its organic growth strategies to continue to grow its retail loans, core customer deposits and fee-based businesses. In particular, the group s lending business will continue to be supported by growth in home mortgages, hire purchase financing for passenger vehicles and retail commercial loans to SME. To further enhance its profitability, the group will continue to intensify efforts to grow fee- and transaction-based revenue by promoting sales of unit trust funds, bancassurance and wealth management products. The group will also continue to expand its Islamic banking business by focusing on Islamic consumer financing and retail commercial financing to SME. For its funding base, the group will continue to promote core customer deposits to ensure that it continues to maintain a healthy and liquid balance sheet. Also, the group remains committed to expanding its overseas operations, particularly its Hong Kong and Cambodian operations. To sustain its strong market position, the group will further leverage its wide distribution network, strong sales and marketing force and efficient multiple delivery channels. The group will also continue to enhance its customer relationship management to further enhance customer experience. In addition to providing competitive, innovative and differentiated products and services, efforts to further strengthen the group s superior service delivery standards, such as excellent customer service and fast loan processing turnaround time, will continue to be intensified. Also, the Public Bank group will remain focused on maintaining its risk management practices to ensure that it continues to maintain the best asset quality and remain vigilant due to the economic uncertainties. Increasing Altman Z Score (Preferably 2.6) Declining Beneish Score (Preferably < -2.22) /12/ N/A Potential Risks The risk to global economic growth has increased following the intensification of the euro debt crisis. The weaker external environment could affect the overall growth prospects of the Malaysian economy. However, resilient domestic demand is projected to continue to support economic growth. The Malaysian banking sector, in which the Public Bank group largely operates is expected to experience moderate growth. Furthermore, the group s banking business model, which is based on prudent banking practices, will continue to deliver long-term sustainable growth to the group and its shareholders. The group will continue to enhance its risk management framework and practices, in line with the increased complexity and globalised nature of the banking and financing businesses today. Management Management and Institutional Investors are EMPLOYEES PROVIDENT FUND BOARD are the major shareholders. Holding/Buying Stock Transparency Refer to Stewardship Grades Shareholder Friendliness Incentives, Ownership, and Stewardship I - Importance; R - Rating

4 Stewardship Grades No. Question I R Comments Transparency 1 Does the company overuse "one-time" charges or write-offs? In public announcements, does it consistently disregard GAAP earnings and point to pro forma numbers (i.e., figures "excluding charges...")? 2 Does the firm have aggressive accounting? For example, has there been a major change to accounting practices, such as revenue recognition, during the past three years that may have been intended to hide something? 3 Has the company recently restated earnings for any reason other than compliance with an accounting rule change? Has the company had an unexplained delay in making regulatory filings or reporting quarterly results? 4 Does the company grant options without expensing them? 5 Does the company choose not to provide any balance sheet with its quarterly earnings release? 6 Bonus: Does the company's disclosure go above and beyond what its competitors provide? Shareholder Friendliness 7 Does the company have a separate voting class of shares that an insider controls? 8 Does the company have takeover defenses in place that, if exercised, would significantly dilute existing shareholders or favor the interests of management over shareholders in a takeover situation? 9 Has a majority vote of shareholders on a proposal been thwarted by any of the following: (a) management inaction; (b) management interference in the ballot process; or (c) the existence of a supermajority provision? 10 Are the chairman of the board and the CEO the same person? 11 Has the board or management engaged in significant related-party transactions that cast doubt on its ability to act in shareholders' best interests? 12 Bonus: Is there cumulative voting (i.e., are shareholder votes equal to shares owned times number of directors)? Incentives, Ownership, and Stewardship 13 Has the board agreed to a compensation structure that rewards management merely for being employed, rather than for making value-enhancing decisions? 14 Over the past three years, has the firm given away more than 3% of shares annually as options? 15 In bad times, has the board granted "one-time" "retention bonuses," redefined management goals midstream, repriced options, or bestowed other "extraordinary" perks? 16 Is the CEO's equity stake in the company (including options) too small to align his or her interests with shareholders'? 17 Do directors receive a substantial portion of their compensation in cash, rather than stock? 18 Do the goals set out for top management by the board's compensation committee encourage short-term actions rather than long-term value creation? Is the board's disclosure of such goals insufficient, too generic, or too fuzzy to allow you to answer the preceding question? 19 Given the company's financial performance, the board's and management's past actions, and the above factors, is management inappropriately motivated and/or rewarded? 20 Bonus: Does the board and management have a substantial track record of doing right by shareholders? I - Importance; R - Rating

5 Investment Strategy Position Strategy Position Strategy: Lump Sum + Top Up Averaging Down Method: Dollar Cost/Value Averaging Buy Criteria Criteria 1. The current quarter's EPS is up more than 15% from the same quarter the year before. 2. Price is below Intrinsic Value 3. Estimated by Forecast EPS and 5-Y Median PE 3. Current EY% or Rolling 4Q EY% > 6% 4. Current DY% or Rolling 4Q DY% > 6% 5. Stock price breaks out of consolidation/dip on an uptrend. 6. Comparison of P/B ratio (for Financial stocks only) 7. Company owner, EPF, Khazanah and PNB heavily buying Sell Criteria Criteria 1. Current EY% or Rolling 4Q EY% < 6% for more than 2 years 2. Current DY% or Rolling 4Q DY% < 6% for more than 2 years 3. Quarterly EPS drop for 5 consecutive months 4. Fundamental of business turns unattractive or bad 5. Found a better opportunity to replace this stock 6. The stock drops near to my average cost or hit my stop loss 7. Long term trend changed from bullish to bearish 8. Company owner, EPF, Khazanah and PNB heavily selling. 9. Did I make a mistake? 10. Has the stock risen too far from its intrinsic value? I VI Remarks Remarks

6 Market Timing Analysis Discounted Cash Flow Valuation 3-Y 5-Y 10-Y Fair Value Actual M.O.S. 0% 0% 0% Buy Under Selection 3-Y: Fast-growing company; operates in highly competitive, low margin industry 5-Y: Solid company; operates with advantage such as strong marketing channels, recognizable brand name, or regulatory advantage 10-Y: Outstanding growth company; operates with very high barriers to entry, dominant market position or prospects Price-to-book Ratio Valuation by Price-to-book Ratio: Current EY% or Rolling 4Q EY% > 6% CU EY%: 6.27 R-4Q EY%: 7.17 Current DY% or Rolling 4Q DY% > 6% CU DY%: 4.22 R-4Q DY%: 3.49 Current Cash Return% or MRQ Cash Return% > 6% 56 CU CR%: -38% MRQ CR%: -38% Quarterly Financial Performance Increasing revenue Increasing net profit Increasing EPS Sep-10 Dec-10 Mar-11 Jun-11 Dec-11 2,971 2,992 3,171 3,272 3, Dec-11's EPS 15% from Sep-10 4%