PBBANK – Fundamental Analysis (6 Feb 2015)

PBBANK Analysis:-

Excel – http://1drv.ms/1zmTgyP

Notes – http://tinyurl.com/lu4rzrn

My View:-

  • Valuation:
    • Absolute EY%:
      • Trailing:
        • FY14 (EPS: 1.237) – Fair value 18.06 (Fair Value Uncertainty: HIGH)
        • R4Q (EPS: 1.237) – Fair value 18.06 (Fair Value Uncertainty: HIGH)
      • Forward:
        • FY15 (EPS: 1.224) – Fair value 17.87 (Fair Value Uncertainty: HIGH)
        • FY16 (EPS: 1.313) – Fair value 19.16 (Fair Value Uncertainty: HIGH)
      • EPS applied to reach the current stock price (18.44): 1.263
    • Dividend Discount Model
      • Base Scenario: 19.23 (Fair Value Uncertainty: HIGH)
      • Good Scenario: 19.59 (Fair Value Uncertainty: HIGH)
      • Bad Scenario: 18.89 (Fair Value Uncertainty: HIGH)
      • Ugly Scenario: 18.57 (Fair Value Uncertainty: HIGH)
    • Residual Income Model (This model is very defensive and sensitive to ROE. I consider the derived price as the bare minimum price)
      • Base Scenario: 5.70
      • Good Scenario: 7.62
      • Bad Scenario: 3.95
      • Ugly Scenario: 2.36
  • In FY14-FY15, intense competition amongst financial institutions for market share as well as the need for higher capital conservation due to the requirements of Basel III capital framework, will continue to put pressure on pricing of products and return on equity. PBBANK growth will be slowing down, and this is proven from the declining ROE in the past 5 years.
  • Post rights issue exercise and after deduction in interim dividend declared, the Group’s CET1 ratio stands at 10.8%. At 10.8% for Group level, we opine that this will be sufficient to cover for the requirements of Basel III on Group’s CET1 ratio of 7% (inclusive of 2.5% capital conservation buffer) as well as a potential implementation of a counter cyclical capital buffer of up to 2.5% by 2019 on Financial Holding Companies.
  • With the full year impact of its enlarged capital after the completion of rights issue coming into effect, ROE will be much lower.
  • Lower dividend payouts in the range of 45-46% is expected
  • With no near term catalyst, I will continue to hold and monitor PBBANK, but will not accumulate PBBANK at this moment. After holding PBBANK for almost 15 years, the dividend gains covered almost 95% of my cost. I will just let it float with so called "cost free".
  • – For latest Banking sector analysis, please visit http://www.midf.com.my/images/pdf/research-Report/Equity-Beat/2015/Banking-Dec%202014%20BNM%20Stats-MIDF-040215.pdf

Latest Financial – Q4 2014 Financial Report (5 Feb 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1869153

At the time of writing, I owned shares of PBBANK.

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