March 10, 2014

Salient points of BDO’s investors’ briefing

BDO Unibank (BDO, Buy) yesterday held a briefing on its full-year 2013 performance. The salient points from the briefing are as follows:

Net income grew 56% YoY to P22.6b, driven by the 20% growth in net interest income (P43.2b) and 30% growth of non-interest income (P31.8b). The strong growth in net interest income was driven both by higher interest income (5% higher YoY) and lower interest expense (25% lower YoY). The growth in operating expenses (9.5% YoY growth) has largely been contained due to the bank’s focus on cost management.

Provisioning was raised to P7.0b (42% YoY growth) as the bank boosted its buffers against possible losses. On the asset side, loans continued to grow at an above industry rate of 19% to P911.5b. The bank continued to focus on growing its consumer and middle market loans, which stood at 19% and 28%, respectively, of its total loan portfolio.

The bank’s reserve assets grew 144% YoY to P491.5b as the bank channeled excess liquidity from deposits into placements with the BSP. These led to a 35% YoY growth in assets (P1.67t), funded by 44% YoY growth in deposits (P1.35t).

Our take: We see some encouraging signs from the details of BDO’s results. On a quarterly basis, the bank’s interest income increased in 4Q13, showing signs that growth in interest income is now tracking loan growth. Though net interest margin in 4Q13 continued to decline to 3.25%, this was largely a function of the earning asset mix which was driven by the surge in BSP placements.

The bank said that it is lookingto deploy a good portion of these funds this year. Moreover, the bank expects income from treasury sales, which averaged P4b in the past years, to compensate for expected lower trading gains this year. In all, we think that these are factors that will help the bank achieve its goal of hitting its mid-teens RoE target in the next 3 to 5 years. – WealthSec