Published November 25, 2008

Public Bank is Asia's priciest banking stock

By S JAYASANKARAN
IN KUALA LUMPUR

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IN a period of grim economic news, Malaysia's third largest lender in asset terms is coming out smelling like roses. According to Citibank's research unit in Kuala Lumpur, Public Bank is currently Asia's most expensive banking stock trading at close to three times book which is almost three times the Asian average.

The stock is already Malaysia's largest bank in terms of market capitalisation (RM29.5 billion of S$12.3 billion) outpacing both Maybank and CIMB, both of which have larger asset bases. And its share price has come off the least compared with other Asian banks, sliding 32 per cent since January compared with the regional average of over 50 per cent.

The statistics say much about Public's conservative management which is still led by its septuagenarian founder and controlling shareholder Teh Hong Piow. Mr Teh built up the bank from scratch and never let it deviate from his stamp of conservatism, a grounding that stood it in good stead as it was one of the few Malaysian banks that didn't make a loss during the 1998 Asian financial crisis.

Even so, there are those who feel that Public's share price level is 'unsustainable.' Both Citibank and Credit Suisse recently called a 'sell' on the stock. Both calls, however, failed to make much of a dent in the bank's share price which has stubbornly stayed at around RM8.40.

One attribute is its solid balance sheet. For the year to December 31, 2007, Public Bank made a profit attributable to shareholders of RM2.12 billion on revenues of over RM5 billion. And its net non-performing loans are below 2 per cent, the lowest in the industry.

The other key attraction of the bank for investors is its high payout ratios. From 2005 onwards, the dividend payout has ranged from 87 per cent to 92 per cent, making the stock a very attractive dividend play. It could be one reason why foreigners still hold over 40 per cent of the stock.

Even so, the bank is expected to scale back. For one thing, its loan growth - which averaged over 40 per cent in 2007 - is expected to come off sharply, estimated by Citibank to drop to 18 per cent this year and 9 per cent the next as the Malaysian economy begins slowing sharply.

Citibank also believes that the bank's management will also cut dividend payouts to shore up its Tier-1 capital ratio which is among the lowest among Malaysian banks because of its aggressive dividend policy. It would also be very much in keeping with Mr Teh's conservatism.

But even at Citibank's target price of RM7.17, Public Bank would still be among Asia's most expensive banks with a price to book ratio of 2.9 times. In contrast, Citibank estimated that the three big Singapore banks, on average, would be priced at 0.9 times book.