I Philippine Equity Research Earnings Analysis

Friday, 03 May 2024

BDO: 1Q24 net income in line with estimates

at Php18.5Bil

Rating Fair Value Current Price Upside Charmaine Co

Research Analyst
BUY 164.00 148.10 10.74%

BDO’s net income rose by 12.1% y/y to Php18.5Bil on the back of higher revenues BDO Unibank, Inc.
in the first quarter. Revenue grew by 12.1% y/y to Php69.9Bil as net interest Ticker: BDO
income and non-interest income grew by 12.8% y/y and 10.5% y/y respectively.
Higher loan volumes and slight improvement in net interest margin were the
drivers behind the increase in lending income. Meanwhile, growth in non-interest
income was mainly due to higher fee income and trading and FX gains. BDO’s first
quarter earnings were in line with both COL and consensus forecasts at 23.3%
Market Cap (mil)
and 22.9% respectively. Note that its 1Q earnings typically account for 22-23% 780,300.29
of its full-year performance. The bank’s results translate into a return on equity
of 14.5%. Outstanding Shares (mil)
5,268.74
• Net interest income up on accelerating loan growth. Net interest income
grew by 12.8% y/y to Php49Bil in the first quarter as loan growth picked Forward P/E
9.88
up. Total loans expanded by 13.3% y/y as loan volumes across all segments
increased. The bank continues to guide low double digit loan growth for
Dividend Yield
2024, with potential upside from capex-led loans. On the net interest margin 2.53
side, we estimate that this expanded by 8bps y/y to 4.47%. This is expected
to remain stable throughout the year, supported by asset growth/rebalancing
and recovery of CASA growth. BDO’s lending income for the first quarter
came in slightly above our forecast at 25.1%. Note that 1Q typically accounts
for ~23% of FY net interest income.

• Increase in cash dividends; distribution of property dividends. BDO

announced an increase in its quarterly cash dividends that will take effect
starting 2Q24. Under the new dividend policy, the bank will be distributing
Php1.0/sh to common shareholders every quarter, compared to Php0.75/sh
previously. The bank will also be distributing property dividends in the form
of treasury shares arising from its merger with SM Keppel Land Inc.

• Realigning estimates, maintain BUY. We are refining our estimates for

BDO following the bank’s first quarter earnings on expectations of slightly
quicker loan growth, stable NIM and higher opex. Our net income forecast for
FY24 remains largely unchanged at Php79.3Bil (+8.1% EPS growth). We also
maintain our BUY rating on BDO, with a FV estimate of Php164.0/sh (based
on 1.5x 2024E P/B).

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Earnings Analysis I BDO: 1Q24 net income in line with estimates at Php18.5Bil Friday, 03 May 2024

Forecast Summary

Year to December 31 (Php Mil) 2021 2022 2023 2024E 2025E 2026E
Net Interest Income 131,346 149,232 186,387 206,245 223,060 250,446
% change y/y -1.76 13.62 24.90 10.65 8.15 12.28
Non-Interest Income 61,354 71,535 84,017 84,569 92,030 100,608
% change y/y 11.13 16.59 17.45 0.66 8.82 9.32
Income Before Tax 55,762 73,193 97,181 103,250 112,951 128,767
% change y/y 21.14 31.26 32.77 6.25 9.40 14.00
Net Income 42,791 57,054 73,411 79,342 86,796 98,950
% change y/y 51.49 33.33 28.67 8.08 9.40 14.00
EPS (in Php) 8.07 10.77 13.86 14.98 16.40 18.70
% change y/y 52.05 33.55 28.67 8.08 9.44 14.07

RELATIVE VALUE
P/E(X) 18.37 13.76 10.69 9.89 9.04 7.92
P/BV(X) 1.87 1.72 1.53 1.37 1.23 1.10
ROAE(%) 10.51 12.93 15.05 14.54 14.28 14.57
Dividend Yield (%) 0.81 1.48 2.02 2.53 2.70 2.70
source: BDO, COL estimates

Share Price Movement

110.00

105.00

100.00

95.00

90.00

85.00

80.00
02/03/2024 02/18/2024 03/04/2024 03/19/2024 04/03/2024 04/18/2024 05/03/2024
BDO PSEi

source: Bloomberg

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Earnings Analysis I BDO: 1Q24 net income in line with estimates at Php18.5Bil Friday, 03 May 2024

Higher revenues continue to drive earnings growth

BDO’s net income rose by 12.1% y/y to Php18.5Bil on the back of higher revenues
in the first quarter. Revenue grew by 12.1% y/y to Php69.9Bil as net interest
income and non-interest income grew by 12.8% y/y and 10.5% y/y respectively.
Higher loan volumes (+13.3% y/y) and slight improvement in net interest margin
(+8bps y/y by our estimates) were the drivers behind the increase in lending
income. Meanwhile, growth in non-interest income was mainly due to higher fee
income and trading and FX gains. BDO’s first quarter earnings were in line with
both COL and consensus forecasts at 23.3% and 22.9% respectively. Note that
its 1Q earnings typically account for 22-23% of its full-year performance. The
bank’s results translate into a return on equity of 14.5%.

Exhibit 1: Results Summary

% FY24E
In PhpMil 1Q23 1Q24 % Change COL Consensus
Net interest income 43,391 48,953 12.8 25.1 NA
Non-interest income 18,919 20,908 10.5 24.2 NA
Fee-based revenues 10,111 10,624 5.1 21.8 NA
Trading and FX gains 1,490 1,980 32.9 34.2 NA
Miscellaneous 7,318 8,304 13.5 26.1 NA
Provisions 3,194 3,366 5.4 25.9 NA
Operating expenses 37,420 42,991 14.9 26.0 NA
Net income 16,499 18,498 12.1 23.3 22.9

Source: BDO, COL Estimates

Net interest income up on accelerating loan growth

Net interest income grew by 12.8% y/y to Php49Bil in the first quarter as loan
growth picked up. Total loans expanded by 13.3% y/y as loan volumes across
all segments increased. Corporate loans grew the quickest, up by 16.6% y/y,
while consumer loans and middle market loans grew by 13.5% y/y and 6.7% y/y
respectively. Management noted that the bank has been seeing more capital
expenditure and project finance type loans in the recent months, driving up
corporate loan growth. The bank continues to guide low double digit loan growth
for 2024, with potential upside from capex-led loans.

On the net interest margin side, we estimate that this expanded by 8bps y/y
to 4.47%. On a q/q basis, however, NIM has contracted by 14bps. According to
BDO, the q/q contraction on NIM is due to the quicker rise in funding cost as its
sustainability bond was reissued at a higher yield and its asset growth continued
to be dominantly funded by higher-costing time deposits. Nevertheless, NIM

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Earnings Analysis I BDO: 1Q24 net income in line with estimates at Php18.5Bil Friday, 03 May 2024

is expected to remain stable throughout the year, supported by asset growth/

rebalancing and recovery of CASA growth. BDO’s lending income for the first
quarter came in slightly above our forecast at 25.1%. Note that 1Q typically
accounts for ~23% of FY net interest income.

Higher fee income and trading/FX gains drive non-interest income

growth

Non-interest income was Php20.9Bil in the first quarter, up 10.5% y/y. This
increase was primarily driven by growth in fee income and trading/FX gains.
BDO collected Php10.6Bil in fee-based revenues, higher than last year by 5.1%.
According to the bank, growth in fee income was led by investment/wealth
management, payments/electronic banking, capital markets, and insurance
brokerage. Meanwhile, trading/FX gains rose by 32.9% y/y to Php1.98Bil. BDO’s
1Q24 non-interest income was roughly in line with expectations as it accounted
for 24.2% of our full-year estimate.

Asset quality remains stable

BDO’s asset quality has remained stable in the first three months of 2024. Its
NPL ratio currently stands at 1.88%, close to last quarter’s 1.85% and better
than last year’s 1.98%. Its NPL coverage ratio (ex-equity reserves) also remains
more than adequate at 148%. Annualized credit cost for 1Q stands at 47bps,
largely unchanged compared to the same period last year. The bank continues
to stay prudent in provisioning as it builds up a cushion for unexpected loss.
Provisions booked in the first quarter were up 5.4% y/y to Php3.4Bil, slightly
above expectations at 25.9% of our full-year forecast.

Increase in cash dividends; distribution of property dividends

BDO announced an increase in its quarterly cash dividends that will take effect
starting 2Q24. Under the new dividend policy, the bank will be distributing Php1.0/
sh to common shareholders every quarter, compared to Php0.75/sh previously.
As a result, expected dividends for FY24 will sum up to Php3.75/sh, representing
a dividend yield of ~2.5%. This is 25% higher than last year’s dividend of Php3.0/
sh. In addition to its regular cash dividends, the bank will also be distributing
property dividends in the form of treasury shares arising from its merger with SM
Keppel Land Inc. According to the bank, the merger will result in the creation of
treasury shares equivalent to approximately 1% of current outstanding shares or
52,687,109 shares.

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Earnings Analysis I BDO: 1Q24 net income in line with estimates at Php18.5Bil Friday, 03 May 2024

Realigning estimates, maintain BUY

We are refining our estimates for BDO following the bank’s first quarter earnings. We
have raised our net interest income forecast by 5.7% to Php206.2Bil for FY24 and by
10% to Php223Bil for FY25 on expectations of slightly quicker loan growth and stable
NIMs. We have also adjusted estimates for operating expenses up to Php174.1Bil for
FY24 and Php188.6Bil for FY25, in part to account for the consolidation of SM Keppel
Land, Inc. Our net income forecasts for FY24 and FY25 remain largely unchanged at
Php79.3Bil and Php86.8Bil respectively.

Exhibit 2: Earnings Revisions

2024 2025
In PhpMil Old New % Change Old New % Change
Net interest income
195,161 206,245 5.7 202,771 223,060 10.0
Non-interest income 86,390 84,569 -2.1 94,606 92,030 -2.7
Fee-based revenues 48,770 48,629 -0.3 53,712 53,677 -0.1
Trading and FX gains 5,788 5,789 0.0 5,925 5,936 0.2
Miscellaneous 31,832 30,151 -5.3 34,969 32,416 -7.3
Provisions 12,982 13,472 3.8 13,553 13,538 -0.1
Operating expenses 165,619 174,092 5.1 172,243 188,601 9.5
Net income 79,318 79,342 0.0 85,968 86,796 1.0
Source: COL Estimates

We are maintaining our BUY rating on BDO, with a FV estimate of Php164.0/sh (based
on 1.5x 2024E P/B). We continue to like BDO as we believe it is well-positioned for
growth, even amidst challenging economic conditions, with its liquid balance sheet
and wide branch network. As interest rates stay higher for longer, BDO’s strong deposit
franchise will play a key role in managing NIM and enhancing profitability. As of end-
2023, BDO’s CASA ratio remains to be the highest among the top 3 banks.

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Earnings Analysis I BDO: 1Q24 net income in line with estimates at Php18.5Bil Friday, 03 May 2024

Income Statement Company Background

in Php Mil FY21 FY22 FY23 FY24E FY25E FY26E Banco de Oro Unibank (BDO) is a universal
Net Interest Income 131,346 149,232 186,387 206,245 223,060 250,446
bank that provides a wide range of
% Growth -1.8% 13.6% 24.9% 10.7% 8.2% 12.3%
Non-Interest Income 61,354 71,535 84,017 84,569 92,030 100,608 corporate, commercial and retail services.
% Growth 11.1% 16.6% 17.4% 0.7% 8.8% 9.3% BDO is a member of the SM group
Provisions 17,063 16,366 16,396 13,472 13,538 12,133
of companies, one of the Philippine’s
% Growth -43.6% -4.1% 0.2% -17.8% 0.5% -10.4%
Operating Expense 119,875 131,208 156,827 174,092 188,601 210,153 largest conglomerates with business
% Growth 6.4% 9.5% 19.5% 11.0% 8.3% 11.4% interests in commercial centers, retail and
Net Income 42,791 57,054 73,411 79,342 86,796 98,950
merchandising, financial services, real
% Growth 51.5% 33.3% 28.7% 8.1% 9.4% 14.0%
EPS 8.1 10.8 13.9 15.0 16.4 18.7 estate development and tourism. As of end
% Growth 52.0% 33.5% 28.7% 8.1% 9.4% 14.1% 2021, BDO was the largest bank in terms
of assets, loans, deposits, trust assets and
Balance Sheet capital. It had a total of 1,544 branches and

in Php Mil FY21 FY22 FY23 FY24E FY25E FY26E offices, and 4,483 ATMs.
Cash & Reserve Assets 444,103 527,489 515,328 551,313 615,514 742,568
Investment Securities 616,261 722,830 931,885 1,062,385 1,176,315 1,258,240
Loans and Receivables 2,450,903 2,696,901 2,886,028 3,220,647 3,642,534 4,172,855 Loan Breakdown
Other Assets 112,482 127,488 144,420 151,237 158,426 166,007
Total Assets 3,623,749 4,074,708 4,477,661 4,985,582 5,592,790 6,339,670
Deposits 2,820,896 3,220,883 3,567,550 4,024,185 4,559,362 5,156,721
Bills Payable/ Subordinated Debt 204,431 198,891 189,582 177,109 176,978 241,626
Other Liabilities 173,874 193,477 201,975 208,152 214,823 222,027 23.9%
Total Equity 424,548 461,457 518,554 576,137 641,628 719,297
Total Liabilities & Equity 3,623,749 4074708 4,477,661 4,985,582 5,592,790 6,339,670
BVPS 79.4 86.1 96.8 108.2 120.6 135.3
50.0%

Key Ratios
FY21 FY22 FY23 FY24E FY25E FY26E 26.1%
Loan Growth (%) 6.5% 10.0% 7.0% 11.6% 13.1% 14.6%
Interest Earning Asset Growth (%) 7.7% 12.4% 9.8% 11.6% 12.4% 13.6%
Deposit Growth (%) 8.1% 14.2% 10.8% 12.8% 13.3% 13.1%
Loan to Deposit Ratio (%) 86.9% 83.7% 80.9% 80.0% 79.9% 80.9%
Corporate Middle Market Consumer
Nonperforming Loan Ratio (%) 2.9% 2.0% 1.9% 1.8% 1.6% 1.5%
Coverage Ratio (%) 93.5% 138.4% 153.3% 158.0% 155.0% 150.0%
Average Asset Yield (%) 4.3% 4.5% 5.8% 6.1% 5.8% 5.7%
Average Funding Cost (%) 0.5% 0.6% 1.5% 1.8% 1.7% 1.6%
Net Interest Margin (%) 3.9% 4.0% 4.5% 4.5% 4.3% 4.3%
Cost to Income Ratio (%) 62.2% 59.4% 58.0% 59.9% 59.9% 59.9%
Credit Costs (%) 0.7% 0.6% 0.6% 0.4% 0.4% 0.3%
ROAE (%) 10.5% 12.9% 15.1% 14.5% 14.3% 14.6%
ROAA (%) 1.2% 1.5% 1.7% 1.7% 1.6% 1.7%
CET 1 Ratio (%) 13.6% 13.4% 13.8% 13.3% 13.3% 13.2%
Total CAR (%) 14.7% 14.5% 14.9% 14.2% 14.1% 13.9%

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Earnings Analysis I BDO: 1Q24 net income in line with estimates at Php18.5Bil Friday, 03 May 2024

Major Corporate Developments (5-Years) Investment Thesis

Major beneficiary of economic recovery
Raised Php60Bil through stock rights offering at Php83.75 at an
01/16/2017 We expect BDO to be one of the major
entitlement ratio of 1:5.095
beneficiaries of the investment driven
Acquired the remaining 60% of the outstanding capital stock of BDO economic growth of the Philippines over
06/30/2016
Life from the Generali Group the next few years as the effect of the
pandemic eases. BDO, as the largest
Acquired 99.59% of the outstanding capital stock of ONB in exchange bank in the Philippines, is well-positioned
07/20/2015
for 64.5Mil BDO common shares
to capitalize on this growth opportunity
given its strong deposit franchise and
liquid balance sheet. Overall, outlook for its
intermediation has improved as loan growth
continues to recover. The bank should also
have some leeway in case there will be an
uptick in non-performing loans given that
its NPL cover remains more than adequate
at 152% as of 3Q22.

Improving net interest margins

We expect the bank’s net interest margins
to improve in the near-term as the central
bank raises interest rates amidst an
inflationary environment. Asset yield should
improve on the back of better asset mix as
the bank redeploys its funds to loans that
carry higher interest rates. Funding costs
are also expected to remain low given the
bank’s substantial low-cost deposit base.

Asset quality remains healthy

BDO’s asset quality remains healthy with
NPL ratio decreasing to 2.23% in 3Q22
from 2.39% in the previous quarter. The
bank’s NPL coverage has also improved
to pre-pandemic levels at 152%. The bank
continues to maintain a conservative stance
on provisioning amid rising inflationary
pressures.

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Earnings Analysis I BDO: 1Q24 net income in line with estimates at Php18.5Bil Friday, 03 May 2024

Valuation Methodology
Valuation Assumptions

Intrinsic P/BV multiple

Normalized ROE 17.0%
Risk-Free Rate 6.0%
Cost of Equity 0.13
Long-Term Growth 4.5%
Justified Multiple 1.50
2024E BV 108.18
Fair Value Estimate 164.00

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Earnings Analysis I BDO: 1Q24 net income in line with estimates at Php18.5Bil Friday, 03 May 2024

Important Rating Definitions COL Research Team

BUY April Lynn Tan, CFA

Stocks that have a BUY rating have attractive fundamentals and valuations based on our First Vice President & Chief Equity Strategist
analysis. We expect the share price to outperform the market in the next six to 12 months. april.tan@colfinancial.com

HOLD Charles William Ang, CFA

Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive AVP & Head of Research
charles.ang@colfinancial.com
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
George Ching
line or underperform in the market in the next six to twelve months.
Senior Research Manager
george.ching@colfinancial.com
SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the Richard Laneda, CFA
share price to underperform in the next six to12 months. Senior Research Manager
richard.laneda@colfinancial.com

Important Disclaimer Denise Joaquin

Research Analyst
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment denise.joaquin@colfinancial.com
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 Charmaine Co
its accuracy and said information may be incomplete or condensed. All opinions and estimates Research Analyst
charmaine.co@colfinancial.com
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
Paolo Miguel Manansala
is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial
Research Analyst
and/or its employees not involved in the preparation of this report may have investments in
paolo.manansala@colfinancial.com
securities of derivatives of the companies mentioned in this report and may trade them in
ways different from those discussed in this report.

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