JPmorgan: 14 apr pbbank (overweight)

• Public reported 1Q08 net profit of M$717MM, which is 29% of
the consensus full-year estimate of M$2,469MM and 28% of
JPMorgan’s forecast of M$2,535MM. The strong 51% Y/Y and
24% Q/Q growth in earnings was partially driven by the
M$200MM goodwill payment received from ING during the
quarter. Stripping out the M$200MM, net profit grew 9% Y/Y but
declined 11% Q/Q. The lower Q/Q figures were mainly a result of
higher specific provisions Q/Q (caused mainly by the 7 year rule
for aged NPLs where loans are completely written off).

• Net interest income continues on the uptrend, increasing 3% Q/Q
and 17% Y/Y driven by continued strong expansion in both the
lending and deposit-taking businesses as well as further
improvement in asset quality. Note that loans grew 6% Q/Q and
21% Y/Y, and deposits grew 4% Q/Q and 24% Y/Y. Non-interest
income, stripping out the M$200MM goodwill payment, came in
8% lower Q/Q but 1% higher Y/Y. Fee income declined 16%
mainly due to poorer unit trust sales. The sales of its unit trust
products at launch in 1Q08 are going at one-third 4Q07 levels. Its
net NPL ratio declined to 1.09% from 1.23% in 4Q07 and 1.52% in
1Q07. With regards to the specific provisioning made for the aged
NPLs mentioned above (estimated at M$20MM+), the prospect of
recovery is high based on our conversation with management.

• No dividends were declared in 1Q08 and none were expected. We
maintain our OW rating on Public Bank with a Dec-08 price target
of M$13.80. Our price target is based on a two-stage DDM. We
believe that key risks are an unexpected weakening of consumer
sentiment, and compressed margins as competition becomes more
intense. Note that the foreign shareholding level is at 33.1% as at
31 March 2008.