{"id":330286,"date":"2024-11-07T00:51:57","date_gmt":"2024-11-06T16:51:57","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=330286"},"modified":"2024-11-07T00:52:02","modified_gmt":"2024-11-06T16:52:02","slug":"stock-in-focus-unionbank-of-the-philippines-ubp-7-nov-2024-by-rcbc-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-unionbank-of-the-philippines-ubp-7-nov-2024-by-rcbc-securities\/","title":{"rendered":"Stock in Focus: Unionbank of the Philippines (UBP) – 7 Nov 2024 by RCBC 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>RCBC Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>7 Nov 2024<\/td><\/tr>
Recommendation<\/strong><\/td>Hold<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 40.00<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
<\/div>\n\n\n\n

We set our Target Price for UBP at Php40.00, using a 5-year historical average price-to-book (PB) valuation to a five-year average, prompting us to lower our rating from BUY to HOLD. We believe UBP is fairly valued at its current levels because of its bad asset quality, with an NPL ratio of 7.2%. We also stress again that UBP is the only bank that posted negative loan growth in our coverage, which may be why its share price is down 23% year-to-date, the worst-performing in our basket.<\/p>\n\n\n\n

<\/div>\n\n\n\n

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

Net income increases 6% year-on-year (y\/y)<\/strong> <\/p>\n\n\n\n

Union Bank of the Philippines (UBP) recorded a net income of Php8.6 billion, 6% higher y\/y and above our expectations. Net interest income climbed 14% to Php42.6 billion, with net interest margin (NIM) expanding by 56bps despite the slide in loan growth by 1%. Non-interest income slipped by 3% to Php15.1 billion, mainly due to the 8% decline in fee income, wiping out the nearly doubled trading income (+98%). Operating expenses were down by 2%, primarily because the integration of the Citi acquisition has concluded. This, along with the high topline, resulted in an improved cost-to-income ratio of 57%.<\/p>\n\n\n\n

Negative loan growth <\/strong><\/p>\n\n\n\n

Among the six banks we cover, UBP was the only one that posted a negative loan growth, sliding by 1% in the first nine months. The bank noted an 8% jump in consumer loans, primarily from the 21% growth in credit card loans, although tempered by the 3% decline in home and other consumer loans. Corporate loans also dropped by 9%. Nonetheless, with the interest rate and RRR cuts, we expect loan growth to recover to high single digits. <\/p>\n\n\n\n

Continued NIM expansion<\/strong><\/p>\n\n\n\n

UBP\u2019s NIMs improved by 58bps y\/y and by 14bps q\/q to 5.9% in 3Q 2024 on the back of higher yields from its focus on consumer loans. We expect NIMs to sustain at their current levels next year as we think the reserve requirement ratio (RRR) cuts will complement the further easing of monetary policy.<\/p>\n\n\n\n

Asset quality remains a concern<\/strong><\/p>\n\n\n\n

Provisions rose by 45% y\/y to Php13.5 billion, leading to a higher NPL ratio of 7.2%
vs. its 5.5% recorded in the previous period. On a quarterly basis, the NPL ratio eased from 7.4 in 2Q, as management noted that they have written off one of their legacy accounts. Despite the improvement on a quarterly basis, this remains way above the industry average of 3.8%. This puts the bank in a challenging situation when faced with inflationary risks.<\/p>\n\n\n\n

<\/div>\n\n\n\n

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