Our Sponsor’s Recommendation

We expect BPI’s earnings to grow by 10% this year which is slower compared to BDO (+18%) and MBT (+16%). BPI lagging behind the other two due to higher OPEX is clearly not positive in the short-term.

However, those looking at a longer-term view should consider picking up the stock as success in penetrating higher-yielding microfinance segment should drive ROE higher in the long-run. We have a Target Price of PHP 104.00/share on BPI.

Our Sponsor’s Analysis

Our definition of extreme valuations takes shape after BPI hit a 6-year low of PHP 77.30 recently. At this level, the bank is trading at a forward P/BV of 1.3x, 2.3 standard deviation below its 10-year mean of 2.4x. This is also BPI’s lowest valuation in the past 10 years.

We discuss below our view on the stock:

a. One of the reasons why BPI has been de-rated is due to deteriorating Return on Equity (ROE). Annualized 2019 ROE of BPI is at 10.5%, the lowest since the last five years. Recall though that previously, BPI has been too focused on keeping costs in check which led to a best-in-class ROE of 13%-14%. Now, BPI is addressing this underinvestment through pushing for digitization and opening of another 100 BanKo branches (90 branches last 2018).

b. Overshadowed by the high OPEX is the solid core lending results of BPI in the 1st Quarter. Net interest income was up by 28%, the fastest growth among the Big Three. NIM expansion was also faster at +12 bps qoq compared to BDO (+7 bps qoq) and MBT (-3 bps qoq). Fee-based income is also set for recovery this year following new fee schedule increasing bank fees for deposits and withdrawals.

From: Our Sponsors View And Commentary

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