Despite a more challenging operating environment, Public Bank Bhd — known for its conservative stance and prudence in banking — has consistently delivered better figures than its local peers on a number of key fronts such as return on equity, cost efficiency and asset quality.

The country’s third largest banking group by assets saw its net profit grow a solid 21% over the last three years to RM5.47 billion in FY2017, from RM4.52 billion in FY2014.

Its net ROE in each of the three years — while having come down from above-20% levels in previous years — is still the best in the industry. It stood at 17.8% in FY2015 before easing slightly to 16.5% in FY2016 and 14.8% in FY2017.

It is no surprise that its weighted ROE over three years was much stronger than its peers during the The Edge-BRC awards evaluation period of FY2014 to FY2017.

Its cost-to-income ratio, at 31.9% in FY2017, is still unrivalled and its gross impaired loan ratio, which has remained low at 0.5%, is by far better than the industry’s 1.6%.

But there are signs that the strong earnings growth Public Bank enjoyed in earlier years is tapering as the challenging times continue.

It recently announced a third-quarter net profit of RM1.38 billion, a 1.5% decline from RM1.4 billion a year ago, in the absence of a one-off capital gain recorded a year ago. Excluding that one-off gain, its net profit would have been up by 1.6%.

A number of analysts trimmed their full-year earnings forecasts for the bank after these results to account for a more cautious loan growth and margin outlook.

Public Bank’s share price hit an all-time closing high of RM25.06 on Sept 19.  The stock closed at RM24.70 on Dec 10, giving it a market capitalisation of RM95.89 billion. It remains the second largest company on Bursa Malaysia, just behind Malayan Banking Bhd, whose market capitalisation stood at RM103.4 billion.

“We believe management’s conservatism bodes well for the current period of external uncertainty as its stable asset quality should mean that it will be able to weather any economic shocks. This should give some value for investors looking for stable stocks. Moreover, we believe that the group will stand to benefit from being retail-centric, especially in the mortgage segment, given that there seems to be a focus on affordable housing from the government,” MIDF Research says in an Oct 26 report.

Founder and chairman Tan Sri Teh Hong Piow is still very much the face of the banking group. He is often credited with having guided it to its unbroken track record of profitability since commencing operations in 1966, despite having gone through several economic crises.

But changes are afoot and questions are being asked if what worked before will continue to work, even as the entire industry moves to embrace digital banking capabilities. In an email interview with The Edge  in October, managing director and CEO Tan Sri Tay Ah Lek revealed that the group has a three-year digital road map that outlines its digitalisation plans towards 2020.

“The road map takes into account current digital trends and the outlook encompassing the bank’s financial technology strategy, customer demand, fintech solutions, the bank’s targets and associated risks involved,” he said.

Meanwhile, Teh, who is in his late eighties, plans to relinquish his chairmanship on Jan 1, 2019, and it will be interesting to see who succeeds him. He will  be retained as an adviser.

Teh’s impending exit could spell changes for the group. Will he sell his shares? Will this spark a merger with another bank? Teh has 23.54% equity interest in Public Bank, held directly and through Consolidated Teh Holdings Sdn Bhd.

The stock continues to be an investor favourite. At the time of writing, Bloomberg data showed seven analysts with a “buy” call, 14 had a “hold” and three, a “sell” call. Target prices ranged from RM21.80 to RM29.10 while the consensus 12-month target price was RM25.21.