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Friday, March 20, 2009

Public Bank-Buy TP RM9.40

Obtains approval for RM5bn capital raising

The Group announced the obtaining of Bank Negara’s approval for its proposal to raise up to RM5bn nominal value Non-Cumulative Perpetual Securities, under a non-innovative Tier 1 Stapled Securities Programme. (Bursa)

The wording of the announcement may cause a little stir to the investment community, in that the Group has obtained approval to raise such a large quantum. It must however be highlighted that the approval is for a Programme, which will give the Group flexibility to act when required
without having to seek regulatory approvals again for subsequent exercises. In actual fact, the Group can only raise about RM2.7bn in fresh non- innovative Tier-1 capital (Figure 1).
Management has indicated that the Group is looking to raise between RM1.0bn to 1.4bn in the immediate term, at an estimated cost of between 7.5% to 8.0%. With the RM1.4bn raised, core and risk-weighted capital ratios will improve to 9.6% and 14.9% (Figure 3) respectively, giving it one of the better risk-weighted capital ratios in the industry (Figure 2).
We do recognise the need for financial institutions to raise capital especially in these trying times, and Public Bank should be no exception despite the fact that it is widely-acknowledged as one with the best asset quality in the industry and would probably be least affected by rising delinquencies. Though the additional capital raised will cost an approximate RM80+m (RM1.4bn @ 8.0%, net of tax), we are leaving estimates unchanged at this juncture as we opine that the Group will fully maximize the utilisation of these proceeds for the benefit of shareholders to mitigate the “negative” effects of this issue. Future dividend payments may be impaired somewhat, though not significant enough to warrant a de-rating of the stock. Our BUY call and target price is re-affirmed.

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