FREE Special Report: Financials and Banking Sector Outlook (June 2018)

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Our Partner Broker’s Analysis

The financial index has lost 18% of its value since the PSEi peaked last January 29, and is also down 17% year-to-date. Aside from the fact that 1Q 2018 earnings disappointed due to the drop in trading gains and higher expenses, the large banks were also one of the leaders in the index rally to 9,000. It is no surprise, therefore, that the ongoing lack of confidence in the equities market has spread to banking stocks.

 

Return on Equity (ROE) Deteriorates

Other than lower trading gains, the key culprit to lower ROE of the industry is the large capital-raising made by BPI and MBT this year, with EW, UBP, and RCB set to follow. Historically, it takes about 2-3 years for the big banks to fully deploy the capital into loans. This means that it will take time before sector ROE recovers.

 

Our Partner Broker’s Recommendation

Since the start of the year, we were bullish on banks, and we are keeping our overweight view (albeit with lower Target Prices) as we believe that our investment theses were not impaired by the 1Q 2018 miss in estimates.

We remain a BUY on the Banking Sector because:

1) 1Q 2018 loan growth has been strong at 18% despite higher rates, and we see net interest margins expanding in the next quarters;

2) growth is coming from the lending business leading to more sustainable and quality earnings;

3) the sector de-rating paves the way for positive surprises going forward; and

4) the correction has led to more attractive valuations, with the financial index trading below the 5-year mean.

We prefer to buy the following banks on weakness:

 

Summary of Target Prices:

Metrobank (MBT) – Buy, Target Price: PHP 95.00

Banco de Oro (BDO) – Buy, Target Price: PHP 150.00

Philippine National Bank (PNB) – Buy, Target Price: PHP 67.50

 

This report is prepared by PinoyInvestor’s partner broker below. Sign up to this stock broker to avail of their complete trading brokerage services:

AP Securities (formerly Angping & Associates Securities)
AP Securities (formerly Angping & Associates Securities)

AP Securities (formerly Angping & Associates Securities) is one of PinoyInvestor’s partners in delivering superior and reliable stock research reports that help Filipino investors make smart stock investing decisions! Learn more about them here.