Bank of the Philippine Islands net profit up 27% to PHP16.3b in 2012

Thanks to a 25% jump in non-interest income.

According to Maybank Kim Eng, Bank of the Philippine Islands (BPI) posted a 27% increase in 2012 net profits to PHP16.3b, generally in line with the analyst's expectations and market consensus. This was largely due to a 25% jump in non-interest income, driven by the substantial PHP4b trading gains booked in 1Q12. Gross revenue rose 13.2% while ROE reached 17.5%. The implied 4Q12 earnings of PHP3.1b fell 3% YoY on flat net interest income and higher costs.

Here's more from Maybank Kim Eng:

Strong credit demand but margins still thin. Net interest income grew 6% to PHP27.4b in 2012, in line with our target. The bank reported a 10-bp contraction in net interest margin due to non-remuneration of reserve-eligible funds and the 100-bp cut in policy rates last year.

Nevertheless, loans expanded 16% to PHP527b on double-digit growth across market segments. Consumer and mid-market loans grew 17%, while top tier corporate loans went up 12%. Meanwhile, deposits were robust, increasing 18% to PHP802b, while assets under management rose 11% to PHP743b.

Robust provisioning despite low NPL. Operating expenses grew much faster in 4Q12, up 9% YoY from just 3% in 3Q12. As projected, outlays increased 6% in 2012 mainly from technology expenses, rent, and regulatory costs.

Due to higher revenue, cost-to-income ratio came in lower at 52.6% from 56.2% in 2011. Asset quality continues to improve with 30-day NPL ratio down to 1.5% from 1.9% in 2011. Despite this, provision for credit losses climbed 35% to PHP2.9b due to additional provisions for non-credit related items and foreclosed assets.

Forecasts maintained, still HOLD. BPI is looking at a 12-15% lending growth this year, slower than our 17% forecast. Pending the release of the bank’s detailed results, we are maintaining our earnings estimate of PHP17.6b (EPS: PHP4.95) in 2013, an 8% growth.

With no definite details on the ongoing M&A talks with Philippine National Bank, we estimate BPI shares are fully valued at 3.5x 2013F PBV and 20.9 PER. As it is trading above our TP of PHP89.50, equivalent to 3x 2013F PBV relative to 17% ROE, we maintain our HOLD rating.