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Public Financial Holdings
Limited
Neutral
0626.HK, 626 HK
Results above expectations; earnings recovery to
continue in 2H09
Results slightly above expectations: Public Financial (PFH) reported1H09 net profit of HK$118 million, -53.0% y/y, but 5% better than ourestimate. EPS was HK$0.11 and DPS was HK$0.05 (the same as in1H08). We maintain our Neutral rating on the stock.
• Better margin and loan growth offset by higher credit costs in 1H09:
NIM (over average assets) expanded by 14bp h/h to 3.15%, driven bylower funding costs. Loan growth of -0.3% was better than the industryaverage, reflecting the bank’s strategy to expand its balance sheet. Creditcost was 242bp annualized, up from 218bp in 2H08, as theunemployment rate and bankruptcies climbed in 1H09. The NPL ratiowas 1.75%, +67bp h/h. The bank had no exposure to SIVs or USsubprime mortgages as of Jun-09.
• Credit quality to improve in FY10: Given that the unemployment rateseems to be stabilizing, consumer credit quality should be approachingthe trough. We expect the NPL ratio to decrease to 1.84% by end-10from 1.92% at end-09. However, we believe the market has already priced in a relatively positive outlook on credit quality.
• HK$4.5 price target maintained: We reduce our net profit forecasts by 13.2%/2.9% for FY09/10, mainly due to an increase in our credit cost assumptions for 2009 and our lower net interest margin estimate in 2010. We maintain our PT (Jun-10, DDM-derived) of HK$4.5. Key downside risks include credit quality deterioration and net interest margin compression.
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