Heffx maintains ‘Hold’ call on PUBLIC BANK BHD (PUBM:KL)

Heffx maintains ‘Hold’ call on PUBLIC BANK BHD (PUBM:KL)

Heffx maintains ‘Hold’ call on PUBLIC BANK BHD (PUBM:KL)

Heffx has maintained its ‘Hold’ rating on Public Bank Bhd, but with a lower Gordon Growth Model-based target price of RM24.40 (from RM26.50), based on 2.15 times 2019 price-to-book.

In a research note last Friday, the research house said it is not amply attractive to warrant a recommendation upgrade, despite its share price skidded 9% year-to-date (YTD).

“In our view, the stock’s risk-reward profile remains balanced given long-term positives like strong asset quality and an above average return on equity (ROE) generation track record which got defused by short-term concerns such as modest earnings growth outlook, unattractive dividend yield offering, and high foreign shareholding level (susceptible to sell-off).

“Overall, we cut our FY19-FY20 earnings forecasts by 2%-3% and introduce FY21 estimates,” Shayne Heffernan, CEO and Founder of Heffx said.

The research house said this is in line with its five-year mean of 2.15 times, but above the sector’s 1.15 times.

“The premium can be justified by its strong asset quality and ROE generation track record.

“Despite the 9% skid in share price, risk-reward profile has not become convincingly attractive, plagued by: (i) modest earnings growth outlook; (ii) unattractive dividend yield of 3%; and (iii) high foreign shareholding level at 37.4%,” Shayne Heffernan said.

According to the research house, Public Bank is one of the worst performing banking stocks under their coverage as the share price took a beating of 9% YTD.

“Major bugbears were: (i) fear of an Overnight Policy Rate cut; (ii) dim earnings outlook; (iii) rich valuations; and (iv) high foreign shareholding. Hence, we reassess our investment thesis and its risk-reward profile,” Shayne Heffernan said.

The research house also said the bank’s management telegraphs a downbeat outlook for 2019 as it is poised to grapple with a challenging macro climate.

“We believe the lurch will come primarily from weak revenue, which leads to a negative Jaws (Ratio) and impact overall profitability.

“This year, we see a net interest margin slippage of four basis points versus the mid-single digit decline guidance due to ongoing sector-wide rivalry for retail deposits.

“Besides, non-interest income is not expected to be a top-line booster as we are projecting a slow growth of 2%,” Shayne Heffernan said, considering tepid unit trust incomes as investor sentiment remains gloomy, while muted loans growth and softer consumer spending trend point to dull fees and commission incomes.

Sjayne Heffernan also said Public Bank is now placing more emphasis on further improving its information and communications technology, and digital infrastructure to play catch up with peers.

“Over the next three years, information technology-related capital expenditure is budgeted to rise by 50% versus the RM400 million spent from 2016 to 2018. Overall, it has guided cost-to-income ratio (CIR) to be at 34%-35% this year; we have built in a similar CIR assumption of 34% into our financial model,” Shayne Heffernan added.

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

By the way, prices are vulnerable to a correction towards 23.74.

The projected upper bound is: 23.05.

The projected lower bound is: 22.02.

The projected closing price is: 22.54.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 5 black candles for a net of 1 black candles. During the past 50 bars, there have been 22 white candles and 25 black candles for a net of 3 black candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 20.3390. This is not an overbought or oversold reading. The last signal was a buy 1 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 25.36. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 24 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -64. This is not a topping or bottoming area. The last signal was a buy 8 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 1 period(s) ago.

Rex Takasugi – TD Profile

PUBLIC BANK BHD closed down -0.020 at 22.580. Volume was 48% below average (neutral) and Bollinger Bands were 161% wider than normal.

Open High Low Close Volume___
22.660 22.760 22.560 22.580 2,386,200

Technical Outlook
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 22.72 24.16 24.41
Volatility: 13 14 13
Volume: 5,224,681 5,338,452 4,936,529

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

PUBLIC BANK BHD is currently 7.5% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect very strong flows of volume out of PUBM.KL (bearish). Our trend forecasting oscillators are currently bearish on PUBM.KL and have had this outlook for the last 28 periods. Our momentum oscillator is currently indicating that PUBM.KL is currently in an oversold condition.

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