Date: 1st October 2024
Broker: UOB Kay Hian

Market Performance

Public Bank is highlighted as one of the sector’s laggards, offering an attractive valuation at 1 standard deviation (SD) below its historical mean price-to-book ratio (P/B). As of 1st October 2024, the stock trades at RM4.56, with a target price set at RM5.35. The bank’s stock has gained 12.3% year-to-date.

Earnings and Growth Potential

Public Bank’s expected earnings growth continues to lag behind the broader market, in line with the overall banking sector. The projected earnings growth for the bank is 8%, which is lower than the Kuala Lumpur Composite Index’s (KLCI) growth of 13% for 2024 and 12% for 2025. Despite the moderate growth, the stock is seen as a solid opportunity due to its lagging performance, presenting a better risk-reward balance for investors.

Credit Cost Tailwinds

Public Bank, along with Hong Leong Bank, is expected to benefit from potential credit cost tailwinds. These tailwinds could arise from an improvement in asset quality and the stabilization of impaired loans. As a result, Public Bank could experience enhanced profitability in the latter part of 2024.

Sector Context

The report maintains a “Market Weight” stance on the banking sector. This outlook is largely due to the sector’s limited earnings growth potential relative to the broader market. Public Bank, however, remains a key focus due to its undervalued stock price and potential credit cost benefits, positioning it as a safer bet within the sector’s current landscape.

Analyst Coverage

The analyst responsible for this report is Keith Wee Teck Keong from UOB Kay Hian.