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MONDAY, 22 FEBRUARY 2016

Bank of Philippine Islands:

Earnings miss estimates on weaker trading gains,
slower loan growth

4Q15 profits weaken. BPI booked Php4.4Bil in profits in 4Q15, down 16% year-on-year amidst lower
non-interest income. This brought its full-year profit to Php18.23Bil, 1% up from the previous year.
BPI’s earnings missed both COL and consensus forecasts, representing 94% and 93% of estimates
respectively. The underperformance resulted from the continued slowdown in the lending segment,
lower trading gains, as well as weaker-than-expected fee-based revenues. The full-year performance
translates to an ROE of 12.3%. (see Exhibit 1)

Lending business slows in 4Q15. BPI’s net interest income rose 9.3% to Php10.0Bil in 4Q15,
matching its slowest year-on-year growth rate over the last 10 quarters. Recall that net interest income
grew 10.7% in 3Q15 and 12.1% in 1H15. The slowdown was largely volume based, with loan growth
reaching just 9.1% as of end 2015, its slowest pace since 1Q10. This is also much weaker than or loan
growth forecast of 15% for 2015. Meanwhile, we estimate that net interest margin remained steady at
~2.8%, in line with our estimates. For FY15, BPI’s net interest income remains up 11% to Php38.6Bil.
This, however, is weaker than expected (at 98% of full-year forecast) amidst the slowdown in volume
growth in 4Q15.

Non-interest income ends lower in 4Q15. Non-interest income ended lower at Php5.3Bil in 4Q15,
down 15% year-on-year. Non-interest revenues were dragged by trading and FX gains dropping 44%
to ~Php600Mil during the quarter amidst the volatile trading environment. Meanwhile, while no details
were explicitly given, we estimate that fee-based revenues also weakened during the quarter. We
believe that this is likely because of the high base set in 4Q14 as well as the impact of the slower
volume growth in 4Q15. As a result, non-interest income declined 1% year-on-year to Php20.7Bil,
representing just 94.5% of our 2015 forecast.
Reiterate HOLD rating. We currently have a HOLD rating on BPI with an FV estimate of Php89.00/
sh based on 2.0X 2016E P/BV. Although we continue to like BPI given its size and its track record
of superior profitability and asset quality, we believe that its current valuations are not attractive. The
recent slowdown in loan growth also raises concerns on the sustainability of the bank’s profitably
going forward.

FORECAST SUMMARY
Year to December 31 (Php Mil)
Net Interest Income
% change y/y
Non-Interest Income
% change y/y
Income Before Tax
% change y/y
Net Income
% change y/y
EPS (in Php)
% change y/y
RELATIVE VALUE
P/E(X)
P/BV(X)
ROAE(%)
Dividend Yield (%)
*source: COL est imat es

2012
27,453
6.14
19,931
25.42
19,573
21.25
16,291
27.06
4.58
27.05

2013
30,324
10.46
22,174
11.25
23,147
18.26
18,811
15.47
5.29
15.47

2014
34,808
14.79
20,979
-5.39
23,020
-0.55
18,039
-4.10
4.64
-12.24

2015E
39,541
13.60
21,918
4.48
25,075
8.93
19,478
7.98
4.96
6.86

2016E
45,367
14.73
22,887
4.42
28,193
12.43
21,899
12.43
5.58
12.43

19.73
3.31
17.49
2.54

17.09
3.08
18.66
1.99

19.47
2.46
14.51
1.00

18.22
2.27
12.96
1.99

16.21
2.07
13.36
1.99

SHARE DATA

HOLD

Rating
Ticker
Fair Value (Php)
Current Price
Upside (%)

BPI
89.00
87.70
1.48

SHARE PRICE MOVEMENT
110

100

90

80

70
22-Nov-15

22-Dec-15
BPI

22-Jan-16

22-Feb-16

PSEi

ABSOLUTE PERFORMANCE
BPI
PSEi

1M
2.21
9.16

3M
1.10
-2.26

YTD
4.59
-2.53

MARKET DATA
Market Cap
Outstanding Shares
52 Wk Range
3Mo Ave Daily T/O

344,581.23Mil
3,929.09Mil
80 - 107
176.78Mil

Charles William Ang, CFA
charles.ang@colfinancial.com

2 34.8 source: BPI.4 1.274 8.237 9.870 18.507 5.0 NA 93.PHILIPPINE EQUITY RESEARCH Exhibit 1: Results Summary In PhpMil 4Q14 4Q15 % Change FY14 Net interest income Non-interest income Operating expenses Net income 9.3 -15.6 92.390 9.808 20.0 -1.134 6.7 NA 94.5 NA 97.230 11.720 31.2 6.960 18.982 5.978 4.5 -16.640 20.215 8. 22 FEBRUARY 2016 BPI I EARNINGS ANALYSIS page 2 .2 5.1 % FY15E COL Consensus 97.039 FY15 % Change 38. COL estimates MONDAY.979 29.

22 FEBRUARY 2016 BPI I Fax: +632 635-4632 EARNINGS ANALYSIS Website: http://www. Pasig City. Philippine Stock Exchange Centre. the share price of the stock may perform merely inline or underperform the market in the next six to twelve months. 2401-B East Tower. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. 1605 Philippines Tel: +632 636-5411 MONDAY.com page 3 . 2. Exchange Road. Ortigas Center. Inc.) attractive fundamentals but expensive valuations. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change without notice. We expect the share price to underperform in the next six to twelve months. we do not guarantee its accuracy and it may be incomplete or condensed.colfinancial.are subject to investment risks. based on our analysis. Although information has been obtained from and is based upon sources we believe to be reliable.) attractive valuations but near term earnings outlook might be poor or vulnerable to numerous risks. Stocks that have a HOLD rating have either 1. including the possible loss of the principal amount invested. and may trade them in ways different from those discussed in this report.PHILIPPINE EQUITY RESEARCH Investment Rating Definitions BUY HOLD SELL Stocks that have a BUY rating have attractive fundamentals and valuations. We expect the share price to outperform the market in the next six to twelve months. Important Disclaimers Securities recommended. Given the said factors. We dislike both the valuations and fundamentals of stocks with a SELL rating. offered or sold by COL Financial Group. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of securities of the companies mentioned in this report.