CIMB Research maintains Outperform on Public Bank

KUALA LUMPUR: CIMB Equities Research is maintaining its outperform on Public Bank at RM11.98 and a target price of RM14.20, still pegged to a 10% premium over its DDM (dividend discount model) value.

CIMB Research said on Monday, Jan 25 the DDM parameters remain intact, including a cost of equity of 14.3% and dividend growth rates of 15.7% in the interim growth phase and 6% in the long-term growth phase.

"In the event of a rights issue, our target price would be reduced to RM13.30, which may lead to a review of our recommendation," it said.

The research house said Public Bank’s management confirmed that it does not have any immediate plans for a rights issue unless it has to meet a minimum equity capital ratio of 9-10%.

"We rate the chances of this worst-case scenario happening as low. Furthermore, we estimate that the EPS dilution of such a rights issue would only be about 5%-6%. As such, we retain our positive stance on the stock, which is underpinned by the favourable earnings outlook," it said.

CIMB Research said the stock remains an Outperform based on the potential re-rating catalysts of (1) stronger ROEs of 28-30% for FY10-12, as per the company’s target, (2) increased contributions from Greater China, and (3) new growth avenue in the bancassurance business.