{"id":324881,"date":"2023-09-14T02:31:58","date_gmt":"2023-09-13T18:31:58","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=324881"},"modified":"2023-09-14T02:32:00","modified_gmt":"2023-09-13T18:32:00","slug":"stock-in-focus-bdo-unibank-inc-bdo-14-sept-2023-by-ap-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-bdo-unibank-inc-bdo-14-sept-2023-by-ap-securities\/","title":{"rendered":"Stock in Focus: BDO Unibank, Inc. (BDO) – 14 Sept 2023 by AP Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>BDO<\/td><\/tr>
Company Name<\/strong><\/td>BDO Unibank Inc.<\/td><\/tr>
Broker<\/strong><\/td>AP Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>14 Sept 2023<\/td><\/tr>
Recommendation<\/strong><\/td>Buy<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 169.70<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Buying opportunity. Given that BDO suffered the heaviest price decline amongst its peers last week, we would consider the stock ripe for accumulation. At its previous close of P134.20, the bank\u2019s P\/B of 1.39x based on 2023 Book Value per Share (BVPS) is 13.6% lower compared to its 10Y P\/B of 13.6%. With at least 2 to 3 quarters of strong financial performance likely still left in the tank, we continue to maintain a positive view on the stock.<\/p>\n\n\n\n

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Analysis and Opinion<\/h2>\n\n\n\n

New variable rate auction format to take place<\/strong><\/p>\n\n\n\n

The BSP\u2019s shift from a fixed rate to a variable rate format for its overnight repo auctions will officially take place today. The change is meant to further reduce the lag time in transmitting the impact of monetary policy throughout the economy. Under this new approach, the BSP will now have both a target policy rate as well as an overnight RRP rate, whereas previously the central bank treated them as one. The target policy rate will continue to be decided upon during monetary board meetings and will be reflective of BSP\u2019s monetary policy stance. <\/p>\n\n\n\n

The overnight RRP rate however, which is the rate at which the BSP borrows (lends) money from banks via reverse repos (repos) will now no longer be fixed to the policy rate (unlike before when they were the same thing) and will instead be based on the bids which will be submitted by participants in the repo auction. Through this arrangement, the overnight RRP rate will now closely reflect actual market demand for liquidity based on the bids being submitted by auctioneers. <\/p>\n\n\n\n

That way, banks and other institutions can refer to this overnight RRP rate as an indicator of what the true market-determined cost of money should be when they are pricing out loans and other financial products. On their part however, the BSP will continue to guide the overnight RRP rate towards their target policy rate by keeping the two close via the use of other monetary tools.<\/p>\n\n\n\n

Stoking fears of faster Net Interest Margin (NIM) decline<\/strong><\/p>\n\n\n\n

Despite the efficiencies that would result from such an arrangement, stock market players had only one thing in mind regarding the changes: \u201cfaster-than-expected NIM decline.\u201d As shown in the price performances of listed banks yesterday, investors likely worried that the faster transmission of monetary policy could result in quicker than-expected repricing of loans once the BSP starts to cut rates next year. While it is true that lending yields for next year are likely to normalize, the market may have overreacted to this prospect. <\/p>\n\n\n\n

In our view, 2024 could still present a number of points for optimism when it comes to the sector such as: a.) likely pickup in loan growth particularly for corporates\u2019 CAPEX-heavy projects, b.) tailwinds from a potential cut in RRR, and c.) increased fee generation.<\/p>\n\n\n\n

Furthermore, since the new overnight RRP rate would more clearly convey what the market deems be the proper borrowing rate, this would help to deter unreasonable spikes in funding costs brought about by irrational industry players. During 1H 2023, one of the major reasons attributed by banks\u2019 management for the spike in deposit costs was the raising of time deposit rates to exaggerated levels by certain industry players who sought to capture more funding sources.<\/p>\n\n\n\n

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Check how many brokers recommend this stock<\/h2>\n\n\n\n
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All Stock Rankings<\/a><\/blockquote>