KUALA LUMPUR: Public Bank Bhd's RM1 billion goodwill impairment at its Hong Kong operations is unlikely to have a material direct impact on its RM3.5 billion capital-return plan, according to CIMB Securities Sdn Bhd.
The bank recently announced a full goodwill impairment of HK$1.96 billion (RM1 billion) at its 73.23 per cent-owned Hong Kong subsidiary, Public Financial Holdings Ltd, following an impairment assessment.
Public Bank said the non-cash charge could reduce its financial year 2026 (FY26) consolidated earnings per share and net assets per share by four sen each.
CIMB Securities estimated the impairment charge, after accounting for minority interests, at RM748.1 million, equivalent to 10 per cent of its previous FY26 reported net profit forecast.
The research firm, however, excluded the charge from its core net profit forecast.
It expects limited impact on Public Bank's regulatory capital, dividend capacity and underlying operations, as goodwill is already deducted when calculating Common Equity Tier 1 capital.
Hong Leong Investment Bank (HLIB) shared a similar view, describing the impairment as largely an accounting adjustment with limited implications for the bank's underlying earnings.
It estimated the attributable impairment at RM772.5 million, which would be reflected in Public Bank's FY26 reported earnings but excluded from its core earnings calculation.
HLIB said the impairment would not affect operating cash flows or the financial positions and regulatory ratios of the bank's Hong Kong operating subsidiaries.
However, it cautioned that the impairment highlighted growing pressure on Public Bank's Hong Kong operations.
Higher funding costs and slower repricing of loans have weighed on net interest margins, raising concerns over the subsidiary's medium-term earnings outlook.
HLIB said sustained margin pressure in Hong Kong warranted monitoring, although it saw insufficient grounds to materially revise its longer-term core earnings assumptions.
It also said Public Bank's RM3.5 billion capital-return programme could lift its prospective dividend yield to about six per cent, providing additional support for shareholder returns.
Separately, Bloomberg reported on Oct 16 that Japan's MS&AD Insurance Group was exploring an acquisition of LPI Capital Bhd, in which Public Bank acquired a controlling interest in December 2024.
CIMB Securities said a potential sale could unlock value for Public Bank, although it remained uncertain whether the bank would be willing to divest its stake.
This was given the recent acquisition and the strategic importance of insurance to its banking business.
On the earnings front, CIMB Securities expects Public Bank to post a largely flat core net profit of RM1.85 billion in the third quarter of FY26, up 0.5 per cent year-on-year and 1.5 per cent quarter-on-quarter.
This would bring its nine-month core net profit to RM5.43 billion, up 1.5 per cent year-on-year.
Earnings are expected to be supported by non-interest income from wealth management activities, including unit trusts and bancassurance, as well as foreign exchange activities.
However, these gains could be partly offset by subdued growth in fund-based income, with net interest margin expected to narrow by another three basis points quarter-on-quarter to 2.05 per cent.
CIMB Securities maintained its "Buy" rating on Public Bank but lowered its target price to RM5.35 from RM5.50.
The firm also cut its FY26, FY27 and FY28 net profit forecasts by 12.5 per cent, 2.1 per cent and 2.5 per cent, respectively, reflecting the impairment and weaker margin outlook.
HLIB also maintained its "Buy" recommendation but lowered its target price to RM5.10 from RM5.30.
It retained Public Bank as its top banking pick for the fourth quarter of 2026, citing its earnings outlook and enhanced capital returns.
Despite near-term margin pressure, both research houses remained positive on Public Bank's outlook, backed by its underlying earnings and capital-return programme
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