April 29, 2014

BDO nets P5.5b in 1Q14, targets P22.8b in 2014 earnings

In its annual stockholders’ meeting last Friday, BDO Unibank (BDO, Buy) said its earnings dropped 45% YoY to P5.5b in 1Q14. The decline was due to the lack of extraordinary trading gains such as those booked last year. Nonetheless, the bank continued to show strength in its core business (+27% for loans, +45% for deposits, +27% for net interest income and +16% for fee income).

To this end, the bank has guided for a P22.8b in net income for 2014, slightly higher than the P22.6b recorded in 2013 and about 10% above the P20.7b consensus forecast. The bank also declared an additional P0.90 in special cash dividend (on top of the P1.20/sh previously declared regular cash dividend).

Our take: BDO’s 1Q14 net income of P5.5b is higher than the P4.2b average earnings that it has been generating in the last three quarters. BDO’s quarterly earnings have startedto gain momentumon strengtheningbalance sheet growth and improving operational efficiencies. Further, the bank said that it aims to surpass last year’s record net income even with lower trading gains this year.

This indicates that the bank is anticipatingcore earnings growth to compensate for the lower (or absence of) trading gains. Given the bank’s preliminary 1Q14 results, we believe that its 2014 earnings guidance is achievable if the bank stays the course and assuming no one-off losses from trading or provisioning.– WealthSec