Sell PBB, Switch To Maybank/CIMB >> Closing The Valuation Gap

Public Bank’s strong share price performance over the past week implies that its valuations (07 April 2014) are now relatively less attractive compared to its peers.

Investors should take the opportunity to switch out of Public bank into liquid, large cap peers such as Mayabnk and CIMB which still have attractive valuations and offer better leverage to the ETP and capital market activities.

Public Bank recent price (early April 2014) surged was mainly driven by its corporate exercise to merge its foreign and local shares as this will lead to an increase in weighting of certain global indexes due to a higher free float factor.

Currently (08 April 2014), only foreigners holding PBB’s PBB-01 shares (30% of capital) have voting rights and this has capped the share’s investability weighting in FTSE and MSCI indices. Note that FTSE has confirmed that the merger will raise PBB’s investability weighting to 80% from 30%.

However, domestically the exercise will not impact PBB’s weightage in the FBM KLCI.

Following PBB’s share price rally (07 April 2014), PBB now trades at 16.7 times 2014 PER and 3.2 times 2014 price to book value compared with its long term average PER of 15 times and P/BV of 3.1 times.

Industry observers think PBB’s currently (08 April 2014) valuations are less attractive given its weaker growth prospects and structurally declining ROE.

Switching to CIMB and Mayabnk may be a better choice.

The valuation gap between PBB and Maybank/CIMB has widened further and is now (07 April 2014) significantly above long term averages.

PBB is currently (07 April 2014) trading at 2014 PER and P/BV premiums of 33% and 88% respectively over Maybank, versus the 10 years average PER and P/BV premiums of 10% and 67% respectively.

Relative to CIMB, the PER and P/BV premiums are currently 37% and 100% respectively versus the 10 year average PER and P/BV premiums of 8% and 73%.

The valuation gap should close, especially given that the ROE spread between PBB and Maybank/CIMB has narrowed.


Industry observers do not discount the possibility of PBB’s strong share price performance sparking interest in the sector.

CIMB, Maybank and HL Bank offer strong leverage to corporate lending and capital market activities, strong growth prospects.