KUALA LUMPUR: Hwang DBS Vickers Research is retaining its earnings growth projections for Public Bank at 10-14% over FY10-12F, driven by strong revenue flows and stable low provisions given its robust asset quality.

“Our 24-25% ROE projections take into account lower dividend payout (50-55%), but also more conservative loan growth,” it said on Wednesday, March 10.

HWDBS Research projects 12% loan growth for FY10F. It also expects Public Bank’s overseas contribution to normalise following heavy provisioning in FY09.

The research house said that capital issues will have to be looked into. It added Basel 3 is still being discussed and scheduled to be finalised only at end-2010.

While Basel 3 appears punitive to banks, the proposed reforms may not be fully implemented.

Currently, the adjusted calculation for risk weighted assets to incorporate counterparty risks remains murky.

HWDBS Research did not discount a rights issue if Public Bank needs to meet stricter capital requirements.
“Maintain Hold and RM12.20 TP. We now expect ROEs to remain stable, instead of increase. Although earnings are expected to grow at 10%-14% over the next three years and loans at 10-12%, we expect ROEs to remain at 24%-25%.

“Dividend yields are still decent at 4%-5%. The share price has risen 22% over the last 6 months, and coupled with lower dividend payouts ahead, we believe there is limited upside from here. Maintain Hold and RM12.20 target price based on the Gordon Growth Model with the following assumptions: 25% sustainable ROE, 3% long-term growth and 9.8% cost of equity,” HWDBS Research said.