{"id":327049,"date":"2024-03-07T01:28:36","date_gmt":"2024-03-06T17:28:36","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=327049"},"modified":"2024-03-07T01:28:38","modified_gmt":"2024-03-06T17:28:38","slug":"stock-in-focus-security-bank-corp-secb-7-march-2024-by-ap-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-security-bank-corp-secb-7-march-2024-by-ap-securities\/","title":{"rendered":"Stock in Focus: Security Bank Corp. (SECB) – 7 March 2024 by AP Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>SECB<\/td><\/tr>
Company Name<\/strong><\/td>Security Bank Corp.<\/td><\/tr>
Broker<\/strong><\/td>AP Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>7 March 2024<\/td><\/tr>
Recommendation<\/strong><\/td>Sell<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 103.43<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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Given the combination of disappointing earnings and provisioning risks, we would recommend investors to SELL and instead switch to other banking names, even though upside to consensus Target Price remains high. BDO remains a solid option given its large loan market share, and investors may use any dips as buying opportunities. For a potentially solid dividend play, we would also recommend CHIB given its high CET1 and exceptional ROE (north of 15%).<\/p>\n\n\n\n

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

Earnings drop the ball<\/h3>\n\n\n\n

SECB\u2019s profits for the year fell flat, accounting for only 89.4% of analysts\u2019 projections. The main reason for the poor performance stemmed from the heavy provisioning that the bank was forced to undertake, following the premature easing in this department last 2022. Moving forward, we think that the questionable credit quality of the bank\u2019s loan portfolio may mean that provisioning pressures are yet to fully abate in the coming months. All in all, SECB\u2019s 2023 results translate to an ROE of 6.95% (-147bps), way below the industry\u2019s 12.77%.<\/p>\n\n\n\n

Q4 benefits from flat interest expense<\/h3>\n\n\n\n

Net interest income was an area of strength for SECB as full year figures grew by 18.8% to P34.8-Billion. Q4 performance in this metric was even stronger than usual, as growth landed at 38.1% YoY and 11.4% QoQ. The hefty expansion in net lending revenues for Q4 stemmed mainly from the sequential drop in interest expenses (-8.8% to P3.3-Bn), contrary to the trend currently being seen in the industry. We attribute this mainly to the contraction in high cost certificates of deposit, increase in CASA deposits, and maturing of a previously existing bond. <\/p>\n\n\n\n

As a result, NIM ended the year at 4.49% which is 26bps higher versus last year. With regard to the progression in SECB\u2019s loan portfolio, gross loan growth clocked in at only 6.6% which is slower than the industry\u2019s. Lending to corporates and small businesses dipped by 0.6% which explains why loan expansion remained mild.<\/p>\n\n\n\n

FOREX losses are a pain<\/h3>\n\n\n\n

Non-interest income closed the year at P8.2-Billion, down 20.80% versus last year\u2019s levels. While fee-based revenues continued to trend upwards, the damage was caused primarily by losses in forex worth P2.1-Billion, a steep reversal from last year\u2019s gain of P967-Million. As a result, 2023 pre-provision operating profit (PPOP) came in only flat at P16.9-Billion, an increase of only 0.8% as net interest income gains were mostly offset. On a brighter note, Q4 PPOP of P4.6-Billion displayed faster growth relative to full year results despite the forex losses, up by 18.2% YoY and 12.6% QoQ as a result of the faster gains in net interest income.<\/p>\n\n\n\n

Provisions drag earnings through the mud<\/h3>\n\n\n\n

The final nail in the coffin however, comes in the form of the heavy provisioning expenses which were booked by the bank this year. Provisioning as a whole (P4.8-Billion) was up by 69.0%, with Q4 levels being particularly heavy at P2.2-Billion, already equivalent to 83.1% of the entire amount booked for 9M 2023. <\/p>\n\n\n\n

While industry provisioning is generally going down, SECB\u2019s is moving in the opposite direction. This is an indication of the growing credit risks in the loan book, and moving forward we think that the risks of further provisioning pressures remain. The NPL and NPL coverage ratios both stick out like sore thumbs with year-end levels of 3.36% and 82.0% respectively. <\/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>