Public Bank - Technically dislike

Market observers said PBB should be able to maintain a dividend payout ratio of about 44% to 45% for 2014 even if it continues to be in capital conservation mode ahead of potentially more stringent BASEL III rules.

Its DPR has been on a downtrend since FY2009 despite solid earnings growth. Its DPR slips to 44.8% in 2013.

Based on guidance, market observers opined that a DPR of 43% to 45% for each of the three years from 2014. This should be largely in line with the management’s intention and translate into a yield of around 3%.

Currently (Feb 2014) it is not a dividend stock anymore but it is in demand because people see it as safe stock given its steady growth every year, sound management, strong asset quality and solid ROE.

The group’s common equity tier 1 ratio, which stood at 8.8% as at end Dec 2014 is already comfortably above the minimum 7% that banks need to meet by 2019. However BNM may also considering introducing counter cyclical capital buffers, which may eventually push up the minimum requirement further ... may push by another 2.5% at most.

As it stands, its CET-1 ratio of 8.8% is at the lower end of the industry average of about 12%.

At current price (10 Feb 2014), PBB’s FY2014 PER of 15.5 times is a 34% premium to the sector average of 11.5 times.

It continues to lead its banking peers with non performing loan ratio of just 0.7% and a cost to income ratio of just 30% plus, squeezing further efficiency could be a challenge. Its ROE has peaked and is now (10 Feb 2014) on a declining trend.