Stocks in Focus: WED 21 OCT 2020

BPI: 3Q20 net income down 34% y/y;

above COL estimates

Lower non-interest income and higher provisions drag earnings. BPI’s 3Q20 net income (AS OF OCT 20, 2020)
fell 34% y/y to Php5.5Bil, driven by the decline in non-interest income (-18% y/y) and INDICES
significant increase in provisions. Provisions jumped to Php6.1Bil from Php1.1Bil last year Close Points % YTD%
due to the COVID-19 pandemic. This brought the earnings for the nine-month period lower PSEi 6,278.59 165.88 2.71 -19.66
by 22% y/y to Php17.2Bil. Despite the decline, this ended above COL estimates (83.3%) and All Shares 3,760.85 79.59 2.16 -19.12
Financials 1,268.21 59.20 4.90 -31.95
in line with consensus forecast (77.8%). The outperformance vs our forecast was mainly
Holding Firms 6,447.56 144.81 2.30 -15.08
driven by lower than expected tax expenses and slightly higher than expected non-interest Industrial 8,352.31 75.63 0.91 -13.31
income. We believe the decline in the bank’s effective tax rate during the third quarter Mining & Oil 7,644.92 283.06 3.84 -5.52
(~20% vs ~25% in 3Q19) was likely caused by higher deferred taxes from the increase in Property 2,995.06 103.84 3.59 -27.91
provisions. Meanwhile, the bank’s net interest income expanded by 10% y/y. The 9M20 Services 1,469.47 16.54 1.14 -4.03

earnings translate to an annualized ROE of 8.3%.

Dow Jones 28,308.79 113 0.40 -0.80
S&P 500 3,443.12 16.20 0.47 6.57
Maintain BUY rating. We currently have a BUY rating on BPI with a FV estimate of Php81/ Nasdaq 11,516.49 37.61 0.33 28.35
sh based on a 1.20X 2021E P/BV. Although we believe there could be negative sentiment
once the bank’s NPL ratio starts increasing in the third quarter and net interest margin
INDEX GAINERS
will be pressured next year as loans gradually re-price, we believe most of the negatives
Ticker Company Price %
have already been priced in. We continue to like BPI as we expect it to be one of the major
BPI Bank of the Phils Islands 75.80 9.86
beneficiaries of the economic growth after the effect of pandemic eases.
AGI Alliance Global Inc 8.00 6.67
DMC DMCI Hldgs Inc 4.65 5.44
SECB Security Bank Corp 100.00 5.15
Other News: RLC Robinsons Land Corp 15.24 5.10

TEL: TEL eyes bigger budget for 5G expansion next year INDEX LOSERS
Ticker Company Price %
MPI Metro Pacific Inv Corp 3.95 -1.50
BLOOM Bloomberry Resorts 7.37 -1.47
MER Manila Electric Co 285.00 -1.45
COVID-19 Update LTG LT Group Inc 11.18 -0.89
ICT Int'l Container Term 116.20 0.00
Total Cases Total Deaths Total Recoveries

Philippines 362,243 (+1,509) 6,747 (+60) 311,506 (+911) TOP 5 MOST ACTIVE STOCKS
Ticker Company Turnover
USA 8,581,956 (+62,497) 227,357 (+1,147) 5,586,588 (+43,538) ALI Ayala Land Inc 751,265,800
GTCAP GT Capital Hldgs Inc 724,751,600
BDO BDO Unibank Inc 620,508,800
Worldwide 41,459,170 (+437,142) 1,135,645 (+6,769) 30,887,418 (+270,869)
JFC Jollibee Foods Corp 529,473,900
BPI Bank of the Phils Islands 484,036,300

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.
 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

THU 22 OCT 2020

Market Summary:

The local equities market continued its rally on Wednesday as both local and foreign
investors bought shares on increasing optimism on the recovery of the economy.

The PSEi advanced 165.88 points or 2.71% to close at 6,278.59. The top movers were BPI
(+9.86%), AGI (+6.67%), DMC (+5.44%), SECB (+5.15%), and RLC (+5.10%). On the other
hand, the only decliners were MPI (-1.50%), BLOOM (-1.47%), MER (-1.45%), and LTG
(-0.89%).

Value turnover increased to Php10.5Bil from Php8.2Bil in the previous session. Meanwhile,
foreigners turned net buyers after 28 straight days of net foreign selling, accumulating
Php343.2Mil worth of shares.

COL Financial Group, Inc. 2


THU 22 OCT 2020
John Martin Luciano, CFA
Senior Research Analyst
Bank of the Philippine Islands
BUY
Php81.00
COL Financial Group, Inc.
DAILY NOTES I PHILIPPINE EQUITY RESEARCH
Stocks in Focus:
BPI: 3Q20 net income down 34% y/y; above COL
estimates
Lower non-interest income and higher provisions drag earnings. BPI’s 3Q20 net
income fell 34% y/y to Php5.5Bil, driven by the decline in non-interest income (-18% y/y)
and significant increase in provisions. Provisions jumped to Php6.1Bil from Php1.1Bil last
year due to the COVID-19 pandemic. This brought the earnings for the nine-month period
lower by 22% y/y to Php17.2Bil. Despite the decline, this ended above COL estimates
(83.3%) and in line with consensus forecast (77.8%). The outperformance vs our forecast
was mainly driven by lower than expected tax expenses and slightly higher than expected
non-interest income. We believe the decline in the bank’s effective tax rate during the
third quarter (~20% vs ~25% in 3Q19) was likely caused by higher deferred taxes from
the increase in provisions. Meanwhile, the bank’s net interest income expanded by 10%
y/y. The 9M20 earnings translate to an annualized ROE of 8.3%.
Exhibit 1: Results Summary
source: BPI, COL estimates
Flattish loan growth; net interest margin decline sequentially. Net interest income in
the third quarter expanded by 10% y/y to Php18.0Bil, slightly slower than the 12% growth
in 1H20. The slower growth was brought about by the flattish loan growth and sequential
decline in net interest margin. The bank’s loan portfolio increased by only 0.9% y/y.
This was slower than the 5.9% growth seen in the second quarter. Overall, growth was
primarily driven by corporate and mortgage loans which expanded by 8.7% y/y and 2.6%
y/y, respectively. Meanwhile, we estimate that net interest margin expanded by ~17 bps
y/y to 3.35%. However, this declined by ~6 bps q/q. As expected, the drop in asset
yields has started to outpace the decline in funding cost. Recall that the BSP has been
aggressively cutting the policy rate in 2020 in a bid to boost the economy, reducing it
by a total of 175 bps to 2.25%. This caused pressure on both loan yields and funding
cost to decline. We expect net interest margin to compress over the next quarters as
loans gradually re-price lower. Net interest income for the first nine months reached
Php54.4Bil, up 12% y/y. This ended in line with our forecast, accounting for 73.1% of our
full-year target.
3
 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

THU 22 OCT 2020

Provisions remain elevated as expected; Asset quality starts to deteriorate. BPI

continued to book elevated provisions in the third quarter on the back of the COVID-19
pandemic. The bank allocated Php6.1Bil in provisions during the quarter, up from Php1.1Bil
during the same period last year. This ended in line with our forecast, accounting for
84.7% of our full-year target. Based on our recent conversation with management, the
bank plans to book Php8-10Bil additional provisions in 2H20, translating to full-year
credit cost of ~155-170 bps.

In terms of asset quality, the bank’s non-performing loan ratio (NPL) during the third
quarter rose to 2.98% from 1.83% in the previous quarter. The increase is expected
following the end of the loan moratorium of Bayanihan 1 in May. This caused the bank’s
NPL coverage ratio to fall to 100.3% from 140.7% in the previous quarter despite elevated
provisioning. We expect the full magnitude of the increase in NPL to show early next year
following the passage of Bayanihan 2, which grants another 60 days grace period.

Non-interest income declines on high base. Non-interest income during the third
quarter declined by 18% y/y to Php7.2Bil. We believe the decline was largely due to the
high base last year as the bank booked significant trading gains in 3Q19. Nevertheless,
we believe fees during the quarter was also likely lower y/y in light of the weaker loan
growth and economic activities due to the pandemic. For 9M20, non-interest income
reached Php23.5Bil, up 5% y/y. This ended slightly above our forecast, accounting for
80.1% of our full-year estimate.

Maintain BUY rating. We currently have a BUY rating on BPI with a FV estimate of
Php81/sh based on a 1.20X 2021E P/BV. Although we believe there could be negative
sentiment once the bank’s NPL ratio starts increasing in the third quarter and net interest
margin will be pressured next year as loans gradually re-price, we believe most of the
negatives have already been priced in. We continue to like BPI as we expect it to be one
of the major beneficiaries of the economic growth after the effect of pandemic eases.

COL Financial Group, Inc. 4

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

THU 22 OCT 2020

Other News:

Research Analysts TEL: TEL eyes bigger budget for 5G expansion next year
John Martin Luciano, CFA TEL is looking to allocate a higher budget for its 5G network expansion next year, while
Frances Rolfa Nicolas
also expecting to increase its ability to deliver fixed wireless services in about a year or
Justin Richmond Cheng
two. Recall that Smart commercially launched its 5G services last July. TEL Chief Executive
Adrian Alexander Yu
Officer Manuel Pangilinan noted that fixed wireless services are important in servicing
Kerwin Malcolm Chan
both the middle and lower segments of the total addressable market. The company
is also planning to roll out more fiber lines and ports nationwide as demand for data
continues to rise. (Source: Bworldonline)

Changes in Shareholdings
Date of Acquired or Price per
Stock Volume Person (Designation)
Disclosure Disposed share
50,000 4.13 Necisto Y. Sytengco, II
22-Oct SBS A (Vice Chairman, SVP Marketing Operations,
50,000 4.17
& Assistant Treasurer)
Source: PSE

COL Financial Group, Inc. 5

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

THU 22 OCT 2020

I M P O R TA N T R AT ING DEFINITIONS
BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

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.

I M P O R TA N T DISC L AIM ER
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 COL’s 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.

CO L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

CO L F IN ANC IAL G R O UP, IN C.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7