Affin Hwang trims Public Bank's FY26-28 forecasts

KUALA LUMPUR: Affin Hwang Investment Bank has reduced its earnings predictions for Public Bank for the fiscal years 2026 to 2028 by 1-10%. This adjustment was prompted by Public Bank's impairment of Hong Kong goodwill this year and doubts about non-interest income and net interest margin. The bank's nine-month earnings of RM5.35 billion matched expectations.

Public Bank's Q3 earnings fell 3.8% to RM1.77 billion, affected by modest income growth and normalized provisions. The bank's non-interest income suffered due to weaker trading income and reduced treasury asset valuations. Public Bank's asset quality remained stable with a 0.55% gross impaired loans (GIL) ratio, although absolute GIL increased by 12% year-over-year due to loans in Malaysia and Cambodia.

A 3bp rise in household sector GILs was driven by mortgages and hire purchase, likely due to cost pressures. The non-household sector saw a minor 1bp YoY increase in GIL ratio, influenced by higher working capital and commercial property purchase loans in wholesale, retail, and real estate sectors. Public Bank's outlook is more negative due to intense rate competition and potentially higher near-term credit costs, which could lead to margin compression, refined non-interest income growth, and higher credit costs.

Loan growth is expected to surpass the 4-5% target, according to a note. Affin Hwang IB projects earnings recovery in 2027 and expects valuations to benefit from capital returns and dividends. The firm maintains a "Buy" rating on the stock with a lower target price of RM5.45.