Public Bank stock rating downgraded to Neutral by Nomura on NIM concerns

Nomura/Instinet downgraded Public Bank Bhd (KLSE:PBK) to Neutral from Buy, reducing its price target to MYR5.00 from MYR5.20. The downgrade stems from anticipated lower net interest margins, particularly in H2 2025, leading to reduced earnings forecasts for FY2025-2027 and higher credit cost estimates for FY2025. An overhang from potential share sales by LPI and the Teh family further limits the stock's upside.

Analysis

Nomura/Instinet has downgraded Public Bank Bhd (KLSE:PBK) to Neutral from Buy, revising its price target down to MYR5.00 from MYR5.20. The downgrade is primarily driven by expectations of net interest margin (NIM) compression, with specific weakness anticipated in the second half of 2025. This outlook has prompted a 6% reduction in Nomura's earnings forecast for FY2025 and a 3% cut for both FY2026 and FY2027. Further headwinds are identified through slightly increased estimates for gross impaired loans and credit costs in FY2025, attributed to ongoing weakness in overseas markets. The new price target is derived from a lower average return on equity assumption of 12.0% for FY2026-27, down from 12.3%. Compounding these fundamental concerns is a technical overhang from potential share sales by LPI and the Teh family, which could limit share price appreciation for a stock currently trading at 1.4 times its FY2025 price-to-book value.

Key Decisions for Investors

• Given the downgrade to Neutral and multiple headwinds including margin pressure and reduced earnings forecasts, investors should reassess any existing bullish thesis on Public Bank.
• Monitor the bank's upcoming financial reports for early indicators of the forecasted net interest margin compression, which is the core of Nomura's downgrade thesis.
• Consider the technical overhang from potential large share sales as a significant risk that could cap near-term upside potential, even if fundamental performance exceeds these revised, lower expectations.