Banks: PNB’s merger benefts on the horizon. Maintain BUY on Philippine National Bank (PNB) on post-rights TP of PHP109. PNB posted 1Q14 net income of PHP1.34b, down 52.6% YoY and resulted in
ROE of 6.3%. This is in line with our full-year estimate of PHP5.43b (25% of FY14F) but lower than consensus forecast of PHP7.28b (18%). Growth mainly came from its core lending business with interest income on loans improving 29.1%. Meanhwile ongoing integration is seen to provide some savings of about PHP500m annually once the bank fully relocates its corporate headquarters to Makati City from Pasay City, which might happen next year. We believe PNB’s main attraction as an acquisition target will continue to support its share price.
Banks: Reaping investment benefits for RCB. Maintain BUY on Rizal Commercial Banking Corp (RCB) on revised TP of 65, equivalent to 1.6x 2015F PBV. RCB posted a 25% YoY drop in 1Q14 net profits to PHP1.33b. This was mainly due to an 80% slump in trading gains to PHP433m (21% of FY forecast). Nevertheless, net interest income came in line with expectations at PHP3.8b (25% of forecast), up 26.3% on the back of a 24% loan growth. Strong lending seen in 1Q14 is a good indication of a favourable return on investments in network expansion and new core banking system. Need for capital remains a
catalyst for M&A oppostunities.
Conglomerates: AGI grows 1Q14 profits 11% to PHP3.9b. Alliance Global Group Inc’s (AGI – Under review) 1Q14 net income was PHP3.9b, 11% higher YoY driven mainly by higher profits from Megaworld Corp. (MEG – BUY),Travellers International Hotel Group (RWM – BUY) and Emperador Inc (EMP – not rated). MEG’s net income rose 49% to PHP2.69b supported by strong residential sales from its various townships and higher leasing income from its office and retail portfolio. Meanwhile RWM, benefited from lower junket commissions and salaries which underpinned a core earnings growth of 86% to PHP1.9b. EMP grew earnings 19% to PHP1.72b driven by higher sales volume and lower advertising expenses Overall profit growth was tempered by a decline in profits from Golden Arches Development Corp (GADC) which suffered from higher raw materials costs.
Conglomerates: DMC grows 1Q14 core profit 39% to PHP2.5b. DMCI Holdings Inc. (DMC – Under review) reported 1Q14 net income of PHP2.5b, down 75% YoY due to onetime gains in 1Q13 from the sale of their stake in Maynilad Water Services Inc. Excluding these, core net income grew 39%. Growth was underpinned by higher profits from coal mining (+756% YoY profit growth to PHP558m), construction (+87% to PHP161m) and real estate (+20% to PHP762m). Coal mining benefited from higher sales volume and higher composite average price per metric ton. Construction margins expanded from building and
infrastructure projects while real estate recognized higher sales for the period. Core profit growth was tempered by the temporary stoppage of nickel operations, scheduled maintenance of Calaca Unit 2 and lower profit contribution from Maynilad.
Utilities: SMC and FGEN to partner with K-water for Angat hydro plant. As reported by Business World, San Miguel Corp (SMC – Not rated) is in talks with First Gen Corp (FGEN – HOLD) to partner with Korea Water Resources Corp (K-water) for the operations and management (O&M) of the 218-MW privatized segment of the Angat hydroelectric power plant. According to SMC’s president and CEO Ramon Ang, SMC and FGEN will take 30-30 interest while K-water will own 40%. However, no definitive agreements with FGEN have been signed yet. Further, Mr Ang said he is expecting the turnover of the asset to K-water next month. Angat dam provides water for the Angat hydro power plant as well as for
irrigation and potable water in Metro Manila.
Banks: Moody’s raises outlook on PNB and RCB. Credit rating agency Moody’s Investors Service raised its outlook on Philippine National Bank (PNB – BUY) and Rizal Commercial Banking Corp (RCB – BUY) to positive from stable on expectations both will have better profitability and financial health. urrently, PNB is rated as Ba2 or two notches below investment grade. PNB’s baseline credit assessments was raised to ba3 from b1, comparable with regional peers as Moody’s sees improvement in PNB’s financial profile following its merger with Allied Banking Corp. Meanwhile RCB’s credit profile is expected to improve, specially once it implements its announced PHP10b Basel III-compliant Tier 2 capital-raising plan. Moody’s notes RCB’s ability to implement capital-raising and maintain capital levels above minimum requirements will enable the bank to support its business growth targets.
Banks: Real estate exposure of 21.8% at end-2013, may push for stress test. The central bank (BSP) is planning to require banks to submit an exit plan if real estate stress test on banks result in significant impact on their credit standing. The stress test looks at the effect of changes in interest rates and other factors that affect the real estate sector. Data released from the central bank show the total real estate exposure of universal, commercial and thrift banks rose 7.1% higher QoQ to PHP1t at end-2013, driven by a 7% rise in real estate loans to PHP843m. Of this, 60% of loans were granted to commercial entities like land developers and construction firms and the rest were made up by loans to borrowers buying residential properties. Meanwhile investments in real estate securities grew 7.8% to PHP163.6b. In all, banks’ real estate exposure represented 21.8% of their total loan portfolio. NPLs were manageable at 2.8%, lower than 3.2% posted last quarter.
Banks: Consumer credit continues growth. As of end-2013, consumer loans of universal, commercial and thrift banks jumped 15% YoY and 2.7% QoQ to PHP721.5b. Consumer lending made up 15.8% of total loan portfolio, lower than regional peers with Malaysia at 60.9%, Indonesia at 28.8%, Thailand at 27%, and Singapore at 26%. Residential real estate loans accounted for 44% of consumer loans and expanded 21.1% to PHP320b. The central bank notes this suggests a notable increase in the purchase or rent of residences near business districts by young professionals, of luxury homes (condominiums) by high-income expatriates, and of properties for the use or investment by OFWs. Auto loans (26% of consumer) rose 16.5% to PHP186.3b, while credit card receivables (22% of consumer) climbed 5.9% to PHP157b. Other consumer loans which include personal and salary loans (8% of consumer) grew 2% to PHP57b. Meanwhile, nonperforming loans (NPL) fell 7% to PHP118b. NPL ratio improved to 5.34% from 6.13% last quarter and 6.71% in end-2012. NPL cover ratio was better at 70.6%. Notably, consumer NPLs are just 0.84% of banks’ total loan portfolio.
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