PBBANK: Financial Group Posts Sequential Profit Growth on Cost Efficiencies, ‘Buy’ Rating Reaffirmed
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The financial group reported a broadly flat net profit year-on-year for the first nine months of 2025 (9M25), reaching RM5.35 billion. Despite this, the firm demonstrated robust sequential improvement, with net profit rising 4.7% quarter-on-quarter. These results were largely in line with market expectations, with year-to-date earnings accounting for approximately 74% of the full-year forecast. The annualised Return on Equity (ROE) for 9M25 stood at 12.6%.
Net income for 9M25 saw a 5.9% year-on-year and 2.0% quarter-on-quarter increase, primarily driven by stronger net interest/financing income, which grew 2.5% year-on-year, and a robust 19.0% year-on-year jump in non-interest/financing income. This surge in non-interest income was largely underpinned by higher net gains and losses on financial instruments, along with a 10.9% year-on-year increase in Forex income.
Performance Review
Operating expenses increased 5.7% year-on-year, partly due to a one-off compensation payout in an earlier quarter, but notably decreased by 2.4% quarter-on-quarter. This disciplined cost management contributed to an improved cost-to-income ratio of 34.9%, positioning it well below the industry average of 44.8%. Loan growth also remained healthy, strengthening net interest income, with the group’s domestic loans rising at a pace of 6.1% and total deposits growing by 4.0%.
Challenges and Outlook
Despite the positive performance, the group faced challenges from net interest margin (NIM) compression, which declined by 8 basis points quarter-on-quarter following recent interest rate cuts, bringing the year-to-date NIM down to 2.16%. Deposit competition remains stiff, leading to elevated funding costs. Management expects NIM to remain under pressure in the fourth quarter, though the bank is mitigating the impact through portfolio optimisation.
Management anticipates an intense operating environment in 2025, marked by competition, continued NIM compression, and a cautious macroeconomic backdrop. Nevertheless, healthy loan growth is projected, supported by resilient demand in residential property, stronger hire purchase activity, and a strategic focus on business and SME lending. Non-interest income is expected to maintain its strong sequential momentum, bolstered by unit trust, bancassurance sales, and treasury income. Asset quality remains a key anchor, with impaired loans staying low at 0.5% and substantial management overlays providing additional buffers. The credit cost is expected to remain in the single digits for the full year.
The group maintains its 2025 ROE guidance of 12.5%-13.0%, although it flags potential downside risks from persistent margin pressure. A rise in the dividend payout ratio to 60% is expected, subject to regulatory approval. Furthermore, the first tranche of the ROFS programme is now more likely to commence in 2026 due to market conditions.
Investment Rating
TA SECURITIES has reiterated its ‘BUY’ recommendation for the stock, maintaining a target price of RM0.25, which implies a 25.0% upside from its last traded price of RM0.20. The valuation is based on an implied price-to-book value of approximately 1.5x, derived from the Gordon Growth Model, and includes a 3% ESG premium.
