The research house kept the banking stock an Add and its top pick for the sector as it regards the bank as the most defensive amid its expected industry-wide rise in gross impaired loan (GIL) ratio in 2021F as a result of the Covid-19 pandemic. KUALA LUMPUR: Shares of Public Bank rose to a high of RM4.97 in early trade on Tuesday as the record four-for-one shares went ex. At 11.18am, its share price was up 28 sen to RM4.54, after adjusting for the bonus issue. The gains in Public Bank helped push the FBM KLCI higher as the market rebounded after the selloff the previous day on concerns about more stringent lockdowns under the MCO 2.0. The KLCI was up 11.54 points or 0.73% to 1,588.16. Turnover was 2.69 billion shares valued at RM1.93bil. There were 614 gainers, 339 loser and 446 counters unchanged.The bonus shares are expected to be credited into the holders account after market close on Friday.CGS-CIMB Equities Research said following the bonus issue going ex, the bank's share base jumped five-fold from 3.88 billion shares to 19.41 billion shares.“As a result, we adjust our dividend discount model-based target price for Public Bank from RM25 to RM5 (share price adjusted from RM21.30 to RM4.26 due to the bonus issue). The research house kept the banking stock an Add and its top pick for the sector as it regards the bank as the most defensive amid its expected industry-wide rise in gross impaired loan (GIL) ratio in 2021F as a result of the Covid-19 pandemic. CGS-CIMB Research said a potential re-rating catalyst is the expected recovery in core net profit growth to our projected rate of 12% in 2021F. Furthermore, it is positive on the bonus issue as it increases the liquidity of its shares and the lower share price following the exercise raises the affordability of the stock for retail investors. A potential downside risk to its call is a spike in 2021F loan loss provisioning. It also said Public Bank was trading at CY21F P/E of 16.3 times, which is above the five-year historical average of 14.8 times. “We deem its valuation as reasonable given the bank’s strong fundamentals, reflected by asset quality and operating efficiency that are the best in the sector. “We project a recovery in the growth of Public Bank’s core net profit from a decline of 17.9% in FY20F to an expansion of 12% in FY21F. This is likely to be underpinned by our forecast (1) growth of 11.3% in net interest income in FY21F vs. a drop of 7.2% in FY20F, and (2) 41.2% decline in loan loss provisioning in FY21F following a 603.7% surge in FY20F. “We project an increase in GIL ratio for Public Bank from 0.49% at end-Dec 20 to 0.69% at end-Dec 21, in line with the rise in the industry’s GIL. However, we believe that its GIL will still be the lowest among the local banks and also significantly lower than our projected GIL of 2% for the banking industry at end-Dec 21, ” it said.
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