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Higher volumes and slight margin improvement lead lending income. MBTs lending
business continued to perform well with net interest income during the third quarter growing SHARE PRICE MOVEMENT
17% y/y to Php15.7Bil. This is largely in line with its 1H17 growth (+16% y/y) but is significantly
faster than its growth in 3Q16 (+8% y/y). The growth was driven by both higher volumes and 120
slight improvement in margins. The bank reported that its loans grew 20% with corporate,
middle market, and consumer expanding 22%, 18%, and 17%, respectively. This drove total
110
interest earnings assets up by 17% y/y. Additionally, we estimate that net interest margins
slightly improved by ~5 basis points to ~3.3%. This came as the increase in asset yields more
than offset the increase in funding costs. For 9M17, net interest income climbed 16% y/y to 100
Php45.3Bil. This ended slightly above our estimates, accounting for 75% of our 2017 forecast.
Note this historically accounts for 73-74% of the full-year total.
90
Provisions jump on one-off item. As mentioned above, the banks provisions in 3Q17 jumped
126% y/y to Php3.4Bil. The sharp increase includes the full one-off provision related to the fraud 80
incident. This brought the year-to-date total to Php5.9Bil, up 26% y/y. Compared to our estimates, 9-Aug-17 9-Sep-17 9-Oct-17 9-Nov-17
which already includes a one-time increase of ~Php900Mil for 2017 (the reported amount of MBT PSEi
the fraud incident), provisions still ended above expectations. Nevertheless, we believe this is a
positive development to the bank given that this removes the uncertainty created by the fraud.
We expect provisions to normalize in the fourth quarter and next year.
ABSOLUTE PERFORMANCE
Maintaining BUY rating. We currently have a BUY rating on MBT with an FV estimate of 1M 3M YTD
Php120.00/sh based on 1.60X 2018E P/BV. We continue to like Metrobank as it is expected to be
one of the major beneficiaries of the growing demand for loans given its size, and highly liquid MBT 8.30 10.62 31.27
and healthy balance sheet. Nevertheless, we will be reviewing our earnings estimates on the PSEi 1.93 6.80 24.68
bank in light of the weaker-than-expected 3Q17 performance.
FORECAST SUMMARY
MARKET DATA
Year to December 31 (Php Mil) 2014 2015 2016 2017E 2018E 2019E
Net Interest Income 45,763 48,974 52,946 60,425 69,963 80,103 Market Cap 303,070.47Mil
% change y/y 19.58 7.02 8.11 14.13 15.78 14.49 Outstanding Shares 3,180.17Mil
Non-Interest Income 29,131 18,428 25,225 23,710 25,315 26,990
52 Wk Range 69.00 - 96.50
% change y/y -28.35 -36.74 36.88 -6.01 6.77 6.62
3Mo Ave Daily T/O 221.92Mil
Income Before Tax 29,121 25,471 26,677 30,030 36,191 41,816
% change y/y -1.04 -12.53 4.73 12.57 20.51 15.55
Net Income 20,113 18,625 18,086 20,166 24,257 27,994
% change y/y -10.56 -7.40 -2.89 11.50 20.29 15.40
EPS (in Php) 7.15 5.86 5.60 6.34 7.63 8.80 CHARLES WILLIAM ANG, CFA
% change y/y -10.90 -18.00 -4.38 13.17 20.29 15.40
DEPUTY HEAD OF RESEARCH
RELATIVE VALUE
charles.ang@colfinancial.com
P/E(X) 13.15 16.04 16.78 14.82 12.32 10.68
P/BV(X) 1.79 1.60 1.53 1.40 1.26 1.13 JOHN MARTIN LUCIANO
ROAE(%) 14.77 11.25 9.43 9.86 10.78 11.14 RESEARCH ANALYST
Dividend Yield (%) 1.06 1.06 1.06 1.06 1.06 1.06 john.luciano@colfinancial.com
*So urce: COL estimates
Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
EARNINGS ANALYSIS I MBT: EARNINGS MISS ESTIMATES ON HIGHER PROVISIONS AND EFFECTIVE TAX RATE
MBT reported Php3.7Bil in earnings during the third quarter, up 5% y/y. This brought the
banks 9M17 earnings to Php13.2Bil, up by 5% y/y from 9M16. Compared to estimates,
9M17 earnings ended below both COL and consensus forecasts, accounting for just 65.4%
and 66.4% of full-year forecasts, respectively. The underperformance was mainly caused by
higher-than-expected provisions (+126% y/y in 3Q17), which we believe was driven by the
one-time increase in provisions related to the recent fraud incident. This was further dragged
by higher effective tax rate which increased to 33.5% in 3Q17 from 23.7% in 3Q16. Meanwhile,
net interest income in 9M17 grew 16% y/y to Php45.3Bil. The 9M17 performance translates to
an annualized ROE of 8.6%.
MBTs lending business continued to perform well with net interest income during the third
quarter growing 17% y/y to Php15.7Bil. This is largely in line with its 1H17 growth (+16% y/y)
but is significantly faster than its growth in 3Q16 (+8% y/y). The growth was driven by both
higher volumes and slight improvement in margins. The bank reported that its loans grew 20%
with corporate, middle market, and consumer expanding 22%, 18%, and 17%, respectively. This
drove total interest earnings assets up by 17% y/y. Additionally, we estimate that net interest
margins slightly improved by ~5 basis points to ~3.3%. This came as the increase in asset yields
more than offset the increase in funding costs. For 9M17, net interest income climbed 16%
y/y to Php45.3Bil. This ended slightly above our estimates, accounting for 75% of our 2017
forecast. Note this historically accounts for 73-74% of the full-year total.
The banks fee-based revenues in the third quarter increased 17% y/y to Php2.9Bil. For 9M17,
total fees rose 6% y/y to Php8.1Bil. This slightly underperformed our forecast, accounting
for just 71% of our full-year estimate. Meanwhile, trading gains was strong during the third
quarter, expanding 130% y/y to Php1.6Bil. The sharp growth was buoyed by the low base set
in 3Q16 (accounts for 8% of full-year). Meanwhile, the year-to-date trading gains declined 5%
y/y to Php4.0Bil. Nevertheless, this is on track to meet our forecasts at 77% of our 2017 forecast.
As mentioned above, the banks provisions in 3Q17 jumped 126% y/y to Php3.4Bil. The sharp
increase includes the full one-off provision related to the fraud incident. This brought the year-
to-date total to Php5.9Bil, up 26% y/y. Compared to our estimates, which already includes a one-
time increase of ~Php900Mil for 2017 (the reported amount of the fraud incident), provisions
still ended above expectations. Nevertheless, we believe this is a positive development to the
bank given that this removes the uncertainty created by the fraud. We expect provisions to
normalize in the fourth quarter and next year.
We currently have a BUY rating on MBT with an FV estimate of Php120.00/sh based on 1.60X
2018E P/BV. We continue to like Metrobank as it is expected to be one of the major beneficiaries
of the growing demand for loans given its size, and highly liquid and healthy balance sheet.
Nevertheless, we will be reviewing our earnings estimates on the bank in light of the weaker-
than-expected 3Q17 performance.
KEY RATIOS
76% FY14 FY15 FY16 FY17E FY18E FY19E
76%
Loan Growth (%) 24.3% 16.8% 19.6% 20.0% 16.2% 14.8%
Interest Earning Asset Growth (%) 17.2% 9.6% 6.8% 16.1% 14.1% 13.0%
Deposit Growth (%) 16.5% 6.2% 10.4% 16.4% 15.4% 14.7%
Commercial Consumer Loan to Deposit Ratio (%) 64.1% 70.5% 76.4% 78.8% 79.3% 79.4%
Commercial Consumer
Nonperforming Loan Ratio (%) 1.0% 1.0% 0.9% 0.9% 0.8% 0.8%
Coverage Ratio (%) 165.2% 110.7% 112.8% 110.0% 110.0% 110.0%
Average Asset Yield (%) 4.1% 4.0% 3.9% 3.9% 4.0% 4.0%
Average Funding Cost (%) 1.1% 1.2% 1.0% 1.0% 1.0% 1.0%
Net Interest Margin (%) 3.2% 3.0% 3.0% 3.1% 3.1% 3.1%
Cost to Income Ratio (%) 54.6% 59.2% 56.5% 56.9% 54.7% 53.6%
Credit Costs (%) 0.7% 0.3% 0.8% 0.5% 0.5% 0.5%
ROAE (%) 14.8% 11.2% 9.4% 9.9% 10.8% 11.1%
ROAA (%) 1.3% 1.1% 1.0% 1.0% 1.0% 1.1%
CET 1 Ratio (%) 12.1% 14.2% 12.5% 11.6% 11.3% 11.0%
Total CAR (%) 16.0% 17.8% 15.4% 14.1% 13.4% 12.9%
Beneficiary of growing demand for loans Raised Php32Bil in stock rights offfering at Php73.50/sh 3/23/2015
Metrobank is expected to be one of the major
beneficiaries of growing demand for loans
given its position as the second largest bank
with Php1.9Tril in assets and a network of 704
branches. Aside from the advantage brought
about by its size, Metrobank has a strong
balance sheet, with an NPL ratio of only 0.94%
and and NPL cover of 112.8%. Finally, it has
a very liquid balance sheet with a loans to
deposit ratio of 76%.
VALUATION ASSUMPTIONS
HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.
SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.
IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.