Market Talk (PNB, ABC, PBB, ERC)

Banks: PNB earnings down 22% in FY13. Philippine National Bank (PNB – BUY) posted net income of PHP5.1b in FY13, down 22% YoY from PHP6.6b proforma earnings of PNB and Allied Banking Corp (ABC) in FY12. This is lower than our estimate of PHP7.2b and consensus forecast of PHP7b. The decline was mainly due to lower non-interest income (-33.8%) as trading gains fell 42.2% to PHP4.6b while fees and commissions dropped 7.7% to PHP2.4b. Net interest income was flat at PHP13.7b on a 12% increase in loans. In 4Q13, PNB posted net losses of PHP804m due to trading losses of PHP1.6b. We shall provide more details in a later report.

Banks: PBB FY13 net profits rise 53% to PHP1b. Philippine Business Bank (PBB – BUY) turned in net earnings of PHP1b in FY13, up 53% YoY. This is 9% lower than our estimate and consensus forecast of
PHP1.1b. Topline revenues came within expectations as net interest income surged 62% to PHP1.7b. Loan portfolio expanded 51% to PHP31.6b with NIM improvement to 4.52% from 3.84%. Deposits went
up 43% to PHP37.9b and led to loan-to-deposit ratio of 84% from 79% last year. Non-interest income rose 5% to PHP929m as fee income jumped 9% to PHP74m while trading gains climbed 15% to PHP817m. Operating expenses rose 16% to PHP1.4b, led by expansion-related costs such as manpower (+22%), taxes and licenses (+19%) and management fees (+39%). Provisions for credit losses more than doubled to PHP178m. However, provision for income tax came in higher than expected at PHP124m, more than 2x bigger than last year. In 4Q13, net profit only reached PHP1m as bulk (80%) of income tax provision was booked. We shall issue a more detailed report in the coming days.

Utilities: ERC adopts secondary price cap of WESM prices. In a resolution, the Energy Regulatory Commission (ERC) adopted a secondary price cap in the amount of PHP6.245/kWh in the Wholesale Electricity Spot Market (WESM) once the average price threshold of PHP7.808/kWh over a 72-hour rolling period is reached. The cap will be lifted every 12 hours provided that the rolling average is less than the threshold. However, this is still subject to any changes upon the approval of the final WESM offer cap by a tripartite panel composed of representatives from the ERC, WESM operator Philippine Electricity Market Corp and the Department of Energy. The ERC reasoned that the secondary mitigation measure should cater to unreasonably sustained high prices which may be associated with delayed inflow of generation investments for various reasons and even out the interests of suppliers and the consuming public. The proposal is still subject to public consultation. All interested parties have until 22 April to submit comments to the ERC.

-ATR