Price: RM10.10
Target Price: RM11.90
Recommendation: BUY
· Strong volume without sacrificing margins. In response to last year slowdown in customer demand and OPR cut, PBB has since launched a new pricing-led strategy for both asset and liability, to grow its market share. This is already delivering better volume metrics without a drag on margins, and growing net interest income by RM583m per annum. More encouraging, the move highlights the extent to which PBB’s business model relies on pricing to drive volume growth and pushing effectiveness of the vaunted cross-sell strategy. Despite a stronger top-line environment, PBB is pursing more aggressive cost targets (cost to income ratio of 33%), where its historical track record is stronger. We remain optimistic on PBB, and reiterate our BUY rating and RM11.90 price target.
· Volume trends picking up. The Malaysian banking sector offers little volume growth. Bank Negara Malaysia data indicates that property mortgages are again growing at moderate pace (+12.18% YoY) while hire purchase loans are lower at (+4.2% YoY). Momentum for deposit growth meanwhile has decelerated in July where some of the liquidity was diverted to the new government trust fund while the corporate bond segment remains quiet. Against this backdrop, PBB has turned more aggressive in both asset and liability growth, especially on the floating rate loan. This is starting to bear fruit and positioned PBB to benefit from the expected rate hike in 2HFY10.
· Margins pressure has stabilized. However, the upside of this volume turnaround is that it is price driven and comes at the expense of cost of funds without sacrificing of net interest margin. Margins in fact should moderate and pick up slightly in 2HFY09. Hence, with the volume growth we should expect stronger revenue growth. Management expects average borrowing/funding cost to be about 2% in 2010 from FY08’s 2.4%, despite a strong deposit growth.
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