KUALA LUMPUR: Public Bank Bhd shares are currently valued below industry average since the passing of its founder Tan Sri Teh Hong Piow, amid market fears of a potential sale or takeover.
Affin Hwang Capital said concerns over Public Bank's share overhang issue may gradually ease over time while the return of investor's confidence is expected to underpin a re-rating of the stock.
Affin Hwang is confident that the bank is able to maintain its stellar performance.
The firm said the share overhang issue occurred around the same time where the industry issue arises such as net interest margin pressure stemming from higher funding cost and deposit competition.
"In the second half of 2023 (2H23), a potential writeback of overlays may stir up interest in the stock, which is now trading at an all-time low of 1.39 times and 1.28x 2023 and 2024 price to book value (PBV) against the past five-year average of 1.7x," Affin Hwang said.
Nonetheless, Affin Hwang reiterated its confidence that the bank will be able to continue its 56-year track record of being in operation and sustaining higher return on equity (ROE).
The firm considered Public Bank to be the most efficient cost-to-income ratio and best asset quality among domestic banks.
"We believe that the group, which has a track record of 56 years of unbroken profitability, will continue to commit to its strong corporate culture (of the highest integrity and credit standards to all stakeholders) as it is driven by a management team which has been in place for years.
"In our view, there is no justifiable reason for Public Bank to be valued at below industry average, even under a takeover scenario, considering the superior asset quality of its books and the fact that the bank is also well-established, being no one in the residential mortgage and SME-lending markets for years," it said.
Affin Hwang maintained its call "Buy" on Public Bank with a target price RM4.80.