PBBank >>> Technical and Fundamental Analysis

PBBank RM7.50 – Technically weak, Fundamentally sound
 Chart-wise, PBBANK fell badly last week (-9%). Usually, its price movements were narrow but it had begun a Wave 5 downside move last week that will carry the stock towards the downside targets of RM6.65 and RM7.25.

 We are projecting a 7% contraction in core net profit earnings for PBBANK in 2009. The recent OPR rate reductions would put downward pressure on banking sector earnings.

 On the fundamental side, our banking analyst has a Buy on weakness call, with 2009’s earnings forecast maintained, but with a weaker loan growth outlook for the banking sector.

PBBANK group’s lending activities are basically focused on the retail sector towards the mid-market commercial enterprises as well as financing of residential properties and passenger vehicles. It is estimated that retail loans account for 79% of PBBANK’s loan portfolio. PBBANK’s banking and finance subsidiaries (namely in Hong Kong, China and Cambodia) all registered strong profitability and loans growth amid the global banking crisis and deepening world recession.

Our weekly chart indicates that PBBANK had entered into a downward phase in the short term. The downtrend is forming a Wave 5 downtrend, after rising to a Wave 4 rebound high on Feb ’09. The weaker trend will unfold towards its support areas of RM7.40 and RM7.25, and downside targets of RM6.65 and RM7.25. As the stock is at the early stages of a Wave 5 move, we believe investors should dispose PBBANK on rallies towards its resistance areas of RM8.00 and RM8.80.
Meanwhile, PBBANK’s latest performance was commendable, as it achieved a 22% increase in its group net profit, 21% surge in EPS, 13% gain on total assets. Its loan market share also increased by 19%, while NPL ratio declined to 0.86% from 0.93%. As uncertainty and concerns of a prolonged deep recession shadow the global and Malaysian banking industry, its management remained confident that the strengthening of its asset quality over the years will augur well for the group. However, despite its recent positive results, we note the possibility of a weaker share price performance ahead for PBBANK amid poor local sentiment in the banking sector, as reflected by the declining KL Finance Index.

In our most recent Equity Focus report on PBBANK, we maintained a Buy call on the stock, keeping our earnings forecasts, which project a 7% contraction in core net profit earnings for 2009, unchanged. This was based on factors such as slower loans growth and OPR rate cuts (which will negatively pressure profits in the banking sector). Despite management’s expectations that growth momentum will continue in 2009, our analyst expects PBBANK to retain more cash amid the deepening global and local economic uncertainties.