Date of Report: October 29, 2024
Broker: Maybank Securities Inc.
9M24 Earnings Overview
BDO Unibank reported a net income of PHP60.6 billion for the first nine months of 2024, representing a 12% year-over-year increase. This performance aligns with the full-year estimates set by both Maybank Securities Inc. and the market consensus, meeting 76% and 75% of their FY24 projections, respectively. The bank’s return on equity (ROE) stood at 15% for the period, showcasing its profitability.
Loan Growth and Consumer Segment Focus
BDO’s earnings growth was largely fueled by robust loan expansion, which saw a 13% increase year-over-year, with consumer loans driving this growth at 16% YoY. This surge highlights the bank’s strategic emphasis on consumer lending, which has contributed significantly to the bank’s sustained income growth.
Net Interest Margins (NIM) and CASA Ratio
The bank’s net interest margin (NIM) for the nine-month period was reported at 4.32%, reflecting a slight dip of 33 basis points from the second quarter due to the declining interest rate environment. The management is actively working to diversify its portfolio, and the CASA (current account and savings account) ratio was steady at 69%, mirroring the figure from the previous quarter. BDO’s cost of funds slightly improved to 1.97%, compared to 2.02% in the prior quarter.
Asset Quality and Non-Performing Loans (NPL)
BDO’s non-performing loan (NPL) ratio improved to 1.82% in Q3 2024, a reduction from 2.06% in Q2. This improvement is attributed to the bank’s focus on higher-quality consumer loans, with its consumer loan NPL ratio decreasing to 5.4% from 5.6%. The NPL coverage ratio remains robust at 178%, underscoring BDO’s commitment to maintaining strong asset quality.
Non-Interest Income and Trading Gains
Non-interest income grew by 6% year-over-year to reach PHP55.3 billion for the nine-month period, driven by trading gains recorded during the third quarter. The bank’s revenue stream benefited from diversified income sources beyond traditional interest-based revenue, contributing to its stability and resilience in fluctuating markets.
Market Position and Strategic Importance
BDO Unibank is the largest bank in the Philippines by asset size and holds the leading market share in loans, deposits, and assets under management (AUM). The bank’s total loans represent 22% of the Philippine banking sector’s loans, highlighting its significant presence in the industry. Additionally, BDO benefits from synergies with SM Group affiliates such as SM Retail and SM Prime, contributing to its strong retail banking footprint and extensive distribution network of over 1,700 branches nationwide.
Share Price Performance and Valuation
BDO’s share price stands at PHP160, with a 12-month target price set at PHP190, indicating a potential upside of 19%. This target reaffirms Maybank Securities Inc.’s “BUY” rating on BDO, driven by expectations of sustained NIM and loan growth. The stock has shown positive performance relative to the Philippine Stock Exchange index over various timeframes.
ESG and Sustainable Finance Initiatives
BDO has developed a sustainable finance program supporting agriculture and renewable energy projects, in partnership with the International Finance Corporation (IFC). The bank issued the first green bond in the Philippines, which raised PHP52.7 billion in January 2022. This bond, along with other sustainable finance projects, has allowed BDO to fund initiatives totaling PHP781 billion as of end-2022, contributing to a renewable energy capacity of 2,252 MW.
Recent Developments and Strategic Moves
- ONB Stake Sale: BDO announced plans to sell 15% of One Network Bank (ONB) to Osmanthus Investment Holdings Pte Ltd, a Singaporean firm, as part of its restructuring strategy.
- Leasing Business Divestment: The bank plans to sell its 88% stake in BDO Leasing and Finance as it refocuses its leasing business.
- Cybersecurity Enhancements: Following a cyber incident affecting approximately 700 clients, BDO has since strengthened its cybersecurity infrastructure, with no reported breaches since 2022.
Key Upside Catalysts and Potential Risks
Upside Catalysts:
- Loan Growth Acceleration: New funding opportunities in public-private partnership (PPP) projects.
- NIM Expansion: Gains from policy rate hikes and growth in higher-yielding consumer and SME loans.
- Cost Management: Enhanced economies of scale, which could improve BDO’s cost-to-income ratio.
- Digital Channel Growth: Expanded reach into underserved markets through digital banking services.
Downside Risks:
- Slower Loan Growth: Potential constraints on credit expansion could impact BDO’s growth trajectory.
- NIM Compression: Aggressive pricing strategies to defend market share might reduce NIM.
- Weak Capital Markets: Sluggish capital markets could impact the bank’s treasury income.
- Asset Quality Concerns: Rising inflation and geopolitical instability may strain asset quality.
This detailed financial performance and strategic outlook from Maybank Securities Inc. offers a comprehensive view of BDO Unibank’s operational health, market positioning, and future growth trajectory as of October 29, 2024.
