CIMB Research Report

3 April 2008
CIMB Research Report
OUTPERFORM Maintained Public Bank Bhd RM10.80 @02/04/08
The epitome of strength and prudence Target: RM14.60

• Our top banking pick. Public Bank has displaced Maybank as our top pick among
the Malaysian banks. On many scores, it is the undisputed champion, beating all its
Malaysian peers on most operating aspects including ROE, asset quality, loan
growth and efficiency.
• 10 reasons why we like Public Bank. Specifically, we like Public for:
(1) its ROE,which is the highest in the sector and still improving,
(2) most compelling dividend yield,
(3) double-digit earnings growth,
(4) highest loan growth,
(5) superior asset quality,
(6) strong deposit franchise,
(7) greatest efficiency,
(8) new growth avenue in bancassurance,
(9) increased overseas contributions, and
(10) award-winning ability.

• Upping earnings and target price. We are raising FY08-10 net earnings by 1-4%,
primarily for 26-38% cuts in loan loss provisioning. In our dividend discount model
(DDM), we are increasing the assumed dividend growth rate for the interim phase
from 6.7% to 7.2%, resulting in an increase in our target price from RM13.90 to
RM14.60, still pegged to a 10% discount to the DDM valuation.

• Reiterate OUTPERFORM rating. We continue to rate Public Bank an
OUTPERFORM, premised on the re-rating catalysts of
(1) continuing ROE improvement to one of the highest in Asia,
(2) jump in FY08 dividend payment,
(3)stronger-than-expected contributions from Greater China,
(4) lower charge-off rates, and
(5) new growth avenue in bancassurance. Also, with a dividend yield of
9%+, Public Bank has the best yield among the Malaysian banks.

• Undemanding valuations. We consider Public Bank’s end-08 P/BV of 3.8x to be
reasonable given its superior ROE and enticing dividend yield. In fact, we view its
valuation as undemanding as its FY09 P/E of 12.7x is below its 5-year average of
14x and does not fully reflect the improving ROE, dividend yield and asset quality 10reasons why Public Bank is CIMB Investment Bank's top pick
Public Bank is our top pick. As noted in the sector report we released 12 March,
Public Bank is now the top pick in our universe of Malaysian banking stocks. It trumps all its peers in most operating aspects including ROE, asset quality, loan growth and efficiency.

The best gets better. We like the group for its ability to scale new highs in its financial performance. For instance, its ROE of 17% was the highest in 2005 and continued improving to 23.1% in 2007. Public is now gunning for ROEs of 28-30% in the next 2-3 years, which in our view, are achievable in light of its robust loan growth and increased operating efficiency.

Positive developments in 4Q07. Our positive stance on the stock is reaffirmed by
the developments in the latest quarter, i.e. 4Q07:
• our upward earnings revision which lifted the projected ROE from 23-26% to the
mid-20s for FY08 and 30%+ for FY09
• a change in the dividend policy which raised the payout ratio from 70% to 100%
from end-07 onwards. This, coupled with swift earnings growth, will lead to a jump
in FY08 DPS, giving it the best dividend yield among Malaysian banks.
• brisk loan growth of 19.7% for FY07 despite concern over a slowdown in its loan
momentum in the past 2-3 years stemming from an enlarged base and intensified
competition. This lends credence to our expectations of high-to-mid-teens loan
growth in the next three years.One of the 10 reasons why Public Bank is CIMB Investment Bank's top pick

#10: An award-winning bank
Accolades speak for its quality. The quality of Public Bank has been recognised
internationally, having garnered numerous awards from various prominent publications
including Asiamoney, The Asset and Euromoney. This helps in raising the profile of
Public Bank by naming the group as one of the best-run banks, not only in Malaysia
but also in Asia. This should attract investors to the stock.
Public Bank has been consistently recognised as the best bank in Malaysia, as
reflected by the Best Bank Awards by FinanceAsia (from 1999 to 2007) and
Euromoney (from 2002 to 2007). We believe that Public Bank deserves these awards
which are recognition of its achievements, especially in the areas of managing the
bank (reflected by the best ROE of 20%+, strongest loan growth and lowest NPL ratio)
and corporate governance.

**this is complemented by the success of its subsidiary, Public Mutual Berhad
also an award-winning Unit Trust Company.**