PBBANK: Bank Posts Stable Half-Year Performance Amid NIM Pressures, Target Price Maintained
| Investment Bank | RHB Investment Bank |
|---|---|
| TP (Target Price) | RM4.75 (+8%) |
| Last Traded | RM4.42 |
| Recommendation | Neutral |
The bank reported a stable financial performance for the second quarter of 2025 (2Q25), with net profit after tax and minority interests (PATMI) holding steady at MYR1.8 billion, a 1% increase quarter-on-quarter (QoQ) but a 1% decline year-on-year (YoY). This brings the first half of 2025 (1H25) PATMI to MYR3.5 billion, a 2% increase YoY. Despite this growth, the 1H25 results landed at the lower end of the bank’s and consensus full-year 2025 (FY25F) PATMI estimates, and its reported 1H25 Return on Equity (ROE) of 12.6% trails its c.13% target.
Performance Review
Key financial indicators for the quarter remained broadly stable QoQ. On a YoY basis, the 15% rise in non-interest income (non-II) from investment gains, foreign exchange, and insurance contributions partially offset increased net credit charges and lower contributions from associates. Net interest margin (NIM) experienced a slight 1 basis point (bp) dip both QoQ and YoY, primarily due to continued yield pressure from new mortgage and SME loans. Loan and deposit growth maintained annualised rates of 5% and 4% respectively, driven by the domestic market with auto and SME segments being key contributors. Asset quality saw a marginal uptick in the gross impaired loan (GIL) ratio (+2% QoQ) mainly from auto loans, though the loan loss coverage (LLC) remains robust at 154%. Notably, the bank wrote back MYR158 million in overlays during the quarter, contributing to a total of MYR216 million in 1H25 writebacks, significantly reducing the management overlay balance to approximately MYR1 billion.
Challenges and Forecast Adjustments
Management has revised its 2025 NIM guidance downwards to a mid-to-high single-digit squeeze, from a previous mid-single-digit squeeze. This adjustment accounts for the year-to-date 2bps NIM compression against 2024 and the impact of July’s Overnight Policy Rate (OPR) cut. New mortgage and SME loan yields, approximately 30bps below pre-pandemic levels, continue to exert pressure on overall yields. Consequently, the bank’s FY25-27F PATMI forecasts have been lowered by 3% annually, reflecting reduced NIM and associate contributions.
Future Outlook and Guidance
Despite the downward revision in NIM guidance and PATMI forecasts, the bank maintains its c.13% FY25F ROE target, anticipating a stronger second half driven by robust non-interest income from unit trusts, bancassurance, and insurance. Management expects asset quality to remain resilient and foresees further opportunities for overlay writebacks. The bank also reiterates its commitment to a c.60% dividend payout target, which implies a higher payout on 2H25 profits.
Valuation and Recommendation
RHB Investment Bank maintains a Neutral rating on the stock with an unchanged target price of MYR4.75. This valuation includes an intrinsic value derived from a dividend discount model and an additional 2% ESG premium, reflecting the bank’s strong ESG score of 3.1 out of 4, which is above the country median. The last traded price of the stock was MYR4.42, implying an 8% potential upside to the target price.
