Ample Room For Public Bank To Raise Dividend Payout -- CIMB Securities 

KUALA LUMPUR, Feb 12 (Bernama) -- Public Bank Bhd’s (PBB) dividend yield is likely to climb to above 5.0 per cent from this year despite its flattish share price, said CIMB Securities Sdn Bhd. 

CIMB Securities said PBB’s share price had been flattish, likely due to ongoing concerns about a possible share overhang arising from its restricted offer for sale (ROFS) scheme. 

“We believe there is ample room for PBB to raise its dividend payout ratio to at least 60 per cent (FY2023: 55.5 per cent) on a sustainable basis. 

“We currently assume a dividend payout ratio of 58.0 per cent for the financial year (FY) 2025, 58.2 per cent for FY2026, and 58.3 per cent for FY2027,” it said in a note today.

CIMB Securities said PBB recently acknowledged that its group Common Equity Tier 1 (CET1) ratio, at 14.3 per cent in the third quarter of 2024 (3Q 2024), which fell slightly compared to 14.5 per cent in 2Q 2024, is high and very conservative, further hinting that there is scope to take it down further to 13 per cent.

“This implies extra capital of RM3.4 billion or 18 sen per share that may be released if PBB right-sizes its group CET1 ratio to 13.0 per cent,” it added.

PBB also confirmed that the overall impact of Basel III changes would be positive.

CIMB Securities said that assuming that PBB’s risk-weighted assets (RWA)-to–total assets ratio could be lowered to 60 per cent under Basel III, the bank may reduce RWA by RM27 billion or 8.0 per cent to RM316 billion from RM342 billion. 

“This will correspondingly boost group CET1 ratio by 1.2 per cent to 15.5 per cent from 14.3 per cent at end-September 2024 on a proforma basis,” it said. 

CIMB Securities said the 1.2 per cent enhancement to CET1 resulting from Basel III changes translates to further excess capital of RM3.8 billion or an additional 20 sen per share on top of the 18 sen that could be released from right-sizing its capital. 

It added that PBB’s pre-emptive provisioning overlay balance stood at RM1.5 billion at end-September 2024 (end-June 2024: RM1.6 billion), which is exceptionally high considering PBB’s excellent asset quality alongside a low gross impaired loans ratio of 0.6 per cent and strong loan loss cover of 153.6 per cent in 3Q 2024.

“Taking down its loan loss cover to 120 per cent implies potential pre-emptive provisioning writeback of RM855 million or four sen per share, again implying further upside to dividend,” it said. 

Meanwhile, Public Financial Holdings Ltd (PFHL), PBB’s 73.2 per cent-owned subsidiary listed on the Stock Exchange of Hong Kong, reported goodwill of HK$810 million (RM464 million). 

“This is expected to shave off 4.8 per cent from our 2024 net earnings projection for PBB,” it said. 

Overall, CIMB Securities maintained a “buy” call on PBB with a target price of RM5.60 while lowering its 2024 net earnings projection by 4.8 per cent to take into account the estimated RM464 million goodwill impairment from its Hong Kong unit. 

However, the return on equity (ROE) and book value for 2025 are largely unchanged. 

“Key catalysts to our call are upside to dividend payout ratio, better credit costs, potential loan growth upgrade, and stable cost of funds.

“Meanwhile, the downside risks are worsening asset quality if domestic inflation picks up and elevated costs of funds,” CIMB Securities added.

-- BERNAMA