| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates a robust financial performance for the period, with full-year 2025 (FY25) net profit after tax and minority interests (PATAMI) increasing by 1.7% year-on-year to RM7.86 billion. These results were in line with both Public Investment Bank’s and consensus estimates, accounting for 100% of forecasts. The fourth quarter of FY25 (4QFY25) also saw a significant PATAMI rise of 6.6% year-on-year to RM1.92 billion, primarily bolstered by higher non-interest income (NOII) and lower provisions. This strong performance led Public Investment Bank to maintain an “Outperform” call on the stock.
Performance Review
The strong performance in FY25 was largely attributed to robust trading and foreign exchange (FX) income, which helped to offset the impact of margin pressure. Net interest margin (NIM) expanded by 2 basis points quarter-on-quarter to 2.10%, mainly due to reduced funding costs in Malaysia, a result of active liability repricing. This improvement partially mitigated a 20bps NIM contraction observed in Indonesia.
Non-interest income (NOII) was a key driver, experiencing a 3.1% year-on-year growth in FY25, propelled by increased fee income and dynamic trading and FX activities. Asset quality also showed improvement, with gross impaired loans (GIL) strengthening to a low of 1.7% from 2.1% in FY24. Loan loss coverage stood at 103.2%, and credit cost improved by 17 basis points quarter-on-quarter, benefiting from writebacks and recoveries in Malaysia and Indonesia due to refreshed ECL models.
Despite these positive trends, the bank faced some sequential headwinds in 4QFY25, with PATAMI declining 7.6% quarter-on-quarter. This was primarily due to a moderation in trading and FX income and the absence of gains from non-performing loan (NPL) sales. Forex impact continued to be a challenge, resulting in muted loan growth of 0.2% year-on-year, though 3.1% on a constant currency basis. Consumer deposits saw a 1.2% year-on-year fall, notably from Singapore, leading to a decrease in the bank’s CASA ratio to 42.7% from 43.1% in FY24. However, the cost of funds effectively decreased by 21bps year-on-year, validating the bank’s strategy to optimize its deposit franchise.
Future Outlook
Looking ahead, Public Investment Bank has maintained its “Outperform” call for the stock, raising its target price to RM9.20 from the previous RM9.10, representing a 14.4% upside potential from the last traded price of RM8.04. The adjustment reflects a switch in valuation methodology from Dividend Discount Model (DDM) to the Gordon Growth Model (GGM), accounting for consistent earnings and dividend growth, with key assumptions including a Return on Equity (ROE) of 11.1%, a cost of equity of 9.1%, and a long-term growth rate of 3%.
The bank is expected to remain on track with its Forward30 aspirations, with non-interest income identified as a key growth driver, focusing on recurring client franchise income and cross-selling capabilities. For FY26, the bank targets a constant currency asset growth of 5-7%, driven by both loans and debt securities. Net interest margin is anticipated to remain stable, despite potential headwinds from Indonesian and Singaporean operations. NOII is projected to grow stronger than net interest income, with credit cost guidance for FY26 set at 25-35 basis points.
