| 3) Shareholders’ Value Creation PBB is a prime example of a company that is focused on creating “shareholder value.” Shareholder value denotes fundamental economic value that is produced by the business, for the benefit of all equity shareholders who have invested their risk capital into the company.
| Price Chart for Public Bank Bhd : Oct 1996 – Oct 2006 |
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The following are noteworthy points on PBB’s achievements in creating shareholders’ value:
- 10-year total return of 311.8%, comprising 173.5% of return from capital appreciation, and 183.3% from dividend income. In stark contrast, the Kuala Lumpur Composite Index (KLCI) returned 12.5% during the same period.
- A sustainable current yield of approximately 7% p.a. from dividends, which means investors in PBB already earn dividend returns higher than the current fixed deposits rates;
- A Return on Equity (ROE) of 20% p.a., making it the most efficient producer of returns per RM of equity invested amongst all Malaysian banks,
| Price Chart for Public Bank Bhd : 1998 – 2005 |
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PBB’s superior ability to generate profits and return on equity to shareholders has resulted in the company attaining “blue chip” status, with institutional and long-term retail investors alike often considering PBB as a core holding in their domestic investment portfolios. Foreign investors often share the same view, as evidenced by the fact that 26 percent of PBB’s shares are owned by international investors.
PBB’s blue chip standing literally means that it will likely be a stock that remains in an investor’s portfolio through good and bad times for the equity market, and especially when periods of economic or market uncertainty cause a desperate search by investors for fundamentally sound companies to weather out the storm. PBB’s safe haven status has inherently reduced its long-term stock price volatility; an attribute that every buy-and-hold investment portfolio craves for. Using a financial measure to showcase this point, PBB currently trades at approximately three times its Price-to-Net Tangible Assets (P/NTA), a premium to its closest rival and Malaysia’s largest commercial bank, Malayan Banking Berhad’s 2.5 times.
Conclusion
PBB is a corporate institution that has enjoyed success in growing into a commercial banking giant, while truly living up to the responsibilities that it owes to its shareholders in providing long-term investment return. Its business finesse and sound corporate governance practices have won it countless accolades from industry, corporate and capital market peers alike.
In short, with a prudent management that is committed in enhancing shareholders’ value, Public Bank Berhad has been a “AAA” success for the investing public with a sterling return of over 300% over the 10-year period. |
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