20150729-Maybank_KERPL-PUNJAB_NATIONAL_BANK_PNB.IN_RESPITE_TO_ASSET_QUALITY_STRESS_11页_655kb

Punjab National Bank (PNB IN) Summary

Core Content

• Share Price: INR142
• Target Price: INR175 (+23%)
• Market Cap (USD): 785M
• Average Daily Trading Volume (USD): 12M
• Recommendation: BUY (unchanged)
• Valuation: PNB trades at 0.6x FY17 P/BV, which is considered cheap relative to a cross-cycle average of 1.2x.
• Key Metrics:
  • CASA Ratio: 38.9%
  • CAR (Capital Adequacy Ratio): 12.1%
  • Core Net Profit (FY16): INR40,639 million
  • Core Net Profit (FY17): INR49,844 million
  • EPS Growth Forecast: 33% YoY for FY16, 23% YoY for FY17
  • Operating Income Forecast: INR240,668.2 million for FY16, INR260,762.7 million for FY17
  • Gross NPLs (FY16): 6.5%
  • Net NPLs (FY16): 4.04%

Main Points

• Asset Quality Improvement:

  • Gross NPLs declined slightly from 6.6% in 4Q15 to 6.5% in 1Q16, indicating a positive trend after two years of rising NPLs.
  • This decline was driven by higher recoveries and upgrades of INR24b compared to slippages of INR28b.
  • PNB's high exposure to the power and steel sectors may result in high credit costs of 1.6% for FY16.

• Loan Growth:

  • Domestic loan growth was weak at 9.6% YoY, led by retail and agriculture credit.
  • Wholesale credit contracted by 0.5% YoY.
  • The forecast for loan growth is 11% CAGR for FY16-17.

• Profitability:

  • NIM (Net Interest Margin) dropped 50bps YoY to 2.9%, due to declining base rates and growth in low-yielding secured retail products.
  • Cost-Income Ratio increased slightly to 43.1%.
  • ROAE (Return on Average Equity) is forecasted to rise to 11.7% for FY17.

• Capital and Liquidity:

  • PNB's capital adequacy is strong, with CAR at 12.1% and the lowest capital needs due to weak loan growth.
  • Liquidity ratio remains stable at 73.6%.

• Investment and Dividends:

  • Investment provisions were affected by adverse bond yield movements, resulting in an MTM investment provision of INR3.8b.
  • Net dividend yield is forecasted to rise to 3.9% for FY17.

Key Information

• Market Performance:

  • Share price performance over the past 12 months was -24.2%.
  • PNB outperformed the market by 28.3% in the 12-month period.
  • The 1QFY16 results show a marginal improvement in asset quality, with a 3.3% slippage ratio.

• Valuation Support:

  • The current P/BV (Price to Book Value) is at 0.6x FY17, significantly below the cross-cycle average of 1.2x.
  • The target price of INR175 is based on 0.9x FY17 adjusted P/BV.

• Company Outlook:

  • The economic recovery is expected to further improve asset quality and support earnings growth.
  • PNB is positioned to benefit from a gradual recovery, which supports the BUY recommendation.

Summary Table

Research Team

• India:

  • Vishal Modi: Banking & Financials
  • Jigar Shah: Oil & Gas, Automobile, Cement
  • Anubhav Gupta: Metal & Mining, Capital Goods, Property
  • Abhijeet Kundu: Consumer
  • Neerav Dalal: Software Technology, Telcos

• Singapore:

  • Gregory Yap: SMID Caps, Technology & Manufacturing, Telcos
  • Yeak Chee Keong: Offshore & Marine
  • Derrick Heng: Transport, Property, REITs
  • Joshua Tan: REITs (Retail, Industrial)
  • John Cheong: Small & Mid Caps, Healthcare
  • Truong Thanh Hang: Small & Mid Caps

• Malaysia:

  • Wong Chew Hann, CA: Institutional Research
  • Desmond Chng, ACA: Banking & Finance
  • Liaw Thong Jung: Oil & Gas Services
  • Ong Chee Ting, CA: Plantations
  • Mohsin Aziz: Aviation, Petrochem
  • Jacqueline Ko, CFA: Consumer Staples & Durables
  • Ka Leong Lo, CFA: Consumer Discretionary & Auto
  • Mitchell Kim: Internet & Telcos
  • Osbert Tan: Transport & Industrials
  • Steven St Chan: Banking & Financials
  • Warren Lau: Technology

• Thailand:

  • Maria Lapid: Consumer, Materials, Ind. Estates
  • Sittichai Duangrattanachaya: Services Sector, Transport
  • Sukit Udomsirikul: Retail Research
  • Mayuree Chowvikan: Strategy
  • Padon Vannarat: Strategy
  • Surachai Pramualcharoenkit: Auto, Conmat, Contractor, Steel
  • Suttatip Peerasub: Media, Commerce
  • Sutthichai Kumworachai: Energy, Petrochem
  • Termpron Tantivivat: Property
  • Jaroonpan Wattanawong: Transportation, Small Cap

• Philippines:

  • Luz Lorenzo: Strategy, Utilities, Conglomerates, Telcos
  • Lovell Sarreal: Consumer, Media, Cement
  • Rommel Rodrigo: Conglomerates, Property, Gaming, Ports/Logistics
  • Katherine Tan: Banks, Construction
  • Ramon Adviento: Mining
  • Michael Bengson: Conglomerates
  • Jaclyn Jimenez: Consumer
  • Arabelle Maghirang: Banks

• Vietnam:

  • Thai Quang Trung, CFA: Institutional Research
  • Le Nguyen Nhat Chuyen: Oil & Gas
  • Nguyen Thi Ngan Tuyen: Retail Research
  • Trinh Thi Ngoc Diep: Technology, Utilities, Construction
  • Pham Nhat Bich: Consumer, Manufacturing, Fishery
  • Nguyen Thi Sony Tra Mi: Port operation, Pharmaceutical
  • Truong Quang Binh: Rubber Plantation, Tyres and Tubes, Oil & Gas

Disclaimer

This research report is prepared for general circulation and for information purposes only. It should not be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should be aware that the values of such securities may fluctuate, and each security's price or value may rise or fall. Opinions or recommendations are in the form of technical and fundamental ratings, which may differ due to the use of different methodologies. Investors' returns may be less than the original sum invested.