April 29, 2014

BPI posts P3.6b in 1Q14 net income

In a disclosure to the Exchange, Bank of the Philippine Islands (BPI, Buy) announced 1Q14 net income of P3.6b in 1Q14, down 57% YoY. The bank attributed the decline mainly to the absence of trading gains this year and the high earnings base of 1Q13 (BPI recorded extraordinary trading gains of P5.7b). Net interest income grew 15% to P8.1b as net interest margins were relatively steady at 3.02% in 1Q14 from 3.04% in 4Q13. Meanwhile, non-interest income (excluding trading gains) grew 16% to P4.3b.

In anticipation of rising yields, the bank significantly reduced its held-for-trading and available for sale portfolios from P92.1b in end- 2013 to just P48.1b in 1Q14. Further, the bank grew its loans by 25% to P641.7b and assets by 29% to P1,214.6b. These were supported by the 30% growth in deposits to P993b. Opex grew by just 2% to P6.7b.

Our take: BPI’s 1Q14 results are trailing our 2014 estimate of P17.1b and consensus estimate of P20.5b. We surmise that the underperformance was caused by either a bigger than expected shortfall in trading gains (notwithstanding the expected lower trading gains this year) or higher than expected provisions.

We maintain a favorable view on the bank’s efforts to reduce its investment portfolio while shortening its duration, but we are wary of any potential trading losses as the bank pares down its portfolio. Further, we remain watchful on how the bank’s margins will behave moving forward. If indeed margins have already stabilized, we expect the bank’s sustained loan growth to also spur a faster growth in net interest income. - WealthSec