KUALA LUMPUR: RHB Research has deemed Public Bank Bhd as a significant, defensive and high-quality option for investors' portfolios to navigate through market volatility.
Hence, the firm upgraded its call on Public Bank from "Neutral" to "Buy" with the target price raised from RM4.70 to RM4.80.
"We believe recent events such as the escalation of tensions in the Middle East and shift in US Federal Funds (FFR) rate expectations, coupled with the upcoming US presidential election will likely lead to increased market volatility," it said.
The firm noted that the rating upgrade is justified by Public Bank's earnings stability due to domestic-driven earnings with predictable drivers.
"Its stock has underperformed the FTSE Bursa Malaysia KLCI (FBM KLCI) by 9.0 per cent year-to-date (YTD), potentially attracting focus as volatility increases.
"Furthermore, its valuations are attractive, trading near the mid-point of -1 standard deviation (SD) and -2SD levels for 2024, while its foreign shareholding is low at 25.4 per cent compared to a recent low of 25.1 per cent in October last year," it added.
RHB Research said the loan demand remains strong in the consumer sector for Public Bank, with expected loan growth of 5.0-6.0 per cent in 2024.
"Key drivers include housing loans, auto loans, and SME loans. Mortgages are performing well with a solid approval pipeline, while auto loans are supported by robust total industry volume (TIV) growth.
"However, sustainability of auto loan demand is uncertain. Demand for big-ticket items is boosted by improved sentiment and pent-up demand for properties," it added.
Additionally, Public Bank's net interest margin (NIM) pressure is gradually increasing due to competitive mortgage and SME loan rates in the market, but the impact on yields and NIMs will be gradual.
"Despite deposit price competition, Public Bank has maintained discipline. They reduced promotional and board fixed deposit rates in March, which they anticipate a stable-to-single-digit NIM squeeze," said the research firm.
According to RHB Research, Public Bank's asset quality remains strong domestically and in Hong Kong, though there's a slight uptick in gross impaired loans from Vietnam.