{"id":327738,"date":"2024-05-03T01:54:40","date_gmt":"2024-05-02T17:54:40","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=327738"},"modified":"2024-05-03T01:54:42","modified_gmt":"2024-05-02T17:54:42","slug":"stock-in-focus-unionbank-of-the-philippines-ubp-3-may-2024-by-ap-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-unionbank-of-the-philippines-ubp-3-may-2024-by-ap-securities\/","title":{"rendered":"Stock in Focus: Unionbank of the Philippines (UBP) – 3 May 2024 by AP Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>UBP<\/td><\/tr>
Company Name<\/strong><\/td>Unionbank of the Philippines<\/td><\/tr>
Broker<\/strong><\/td>AP Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>3 May 2024<\/td><\/tr>
Recommendation<\/strong><\/td>Hold<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 52.46<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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Management mentioned that they would be momentarily pausing Uniondigital\u2019s lending activities in order to place them under review. This is likely due to the fact that its target market may actually be contributing to the elevated non-performing loans (NPL) and provisioning levels. Coupled with the bank\u2019s already sub-par ROE level of 8.0% (excluding one-offs), the struggles of Uniondigital further lend validity to our call that investors not currently holding UBP shares should avoid the upcoming SRO. <\/p>\n\n\n\n

With regard to UBP itself, we continue to rate the stock as a HOLD given that the coming quarters could see better operating profits post-Citi integration, although the outlook is likewise accompanied by continued provisioning risks.<\/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

Upon adjusting for non-recurring integration costs (P1.1-Billion) and one-off provisioning (estimated at P0.31-Billion), we reckon that UBP\u2019s earnings for the first quarter should have come in at P3.09-Billion. While higher than the unadjusted level of P2.01-Bn, this is still a far cry from analysts\u2019 expectations, accounting for only 20.4% of consensus expectations. Much of the earnings disappointment can be traced back to the decline in the bank\u2019s credit quality and subsequent recognition of provisions.<\/p>\n\n\n\n

Margins taste higher yields, but loan growth is a head-scratcher<\/h3>\n\n\n\n

Net interest income expanded by 17.0% as UBP continued to reap the benefits of its retail-centric strategy. The greater concentration of higher-yielding consumer loans allowed asset yields to climb 80bps YoY (to 8.5%), which when coupled with the 200bps improvement in UBP\u2019s CASA ratio (to 62%) resulted in net interest margins thickening to 5.7% (+60bps YoY). <\/p>\n\n\n\n

Net interest income would have likely come in higher though were it not for the bank\u2019s surprisingly weak loan growth which registered at only 7.0% versus the industry\u2019s 9.3%. This can be chalked up to the 6.0% contraction in commercial loans, which offset the high double digit broadening of consumer loans.<\/p>\n\n\n\n

Cost-to-income subsiding<\/h3>\n\n\n\n

With the Citi-integration having wound down in Q1, we note that this allowed operating costs to progress at a softer rate. The quarter\u2019s cost-to-income of 60.0% represented a 3ppt decline versus the prior year\u2019s. Upon stripping out non-recurring integration costs, cost-to-income further receded to 54.0% which is closer to industry-levels.<\/p>\n\n\n\n

UBP boasts above-average NPLs<\/h3>\n\n\n\n

The bank\u2019s non-performing loans (NPL) levels continued to remain head and shoulders above its competitors, with the NPL ratio now rising even further to 7.1%. Note that the prior quarter\u2019s 6.3% was already almost double that of the industry\u2019s 3.5% average. What is even more eye-popping however, is UBP\u2019s NPL cover which stands at only 57%, way below the 100% range that is typical among banks. <\/p>\n\n\n\n

While UBP may argue that they have sufficient collateral to cover for the NPLs, we nevertheless think that this is still risky given that there is no guarantee that the collateral can be sold and redeemed at a fair price. All in all this translated to the quarter\u2019s provisioning expenses delivering another sucker punch to the gut, coming in 101.7% higher YoY (excluding one-offs).<\/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>