BDO's 19% drop in trading gains offset by 96% rise in FX operations

Treasury was flat but relatively strong against peers.

According to Maybank Kim Eng, BDO’s 2015 net profit of PHP25b (+10% YoY) was well in line with expectations and met company guidance. This translated to ROE of 13.4%, the highest among big- sized banks. There was significant pick-up in 4Q15 earnings, reaching PHP7.4b (+22% YoY, +26% QoQ) on better fees and trading gains. Additionally, 4Q provision for credit losses went down 74%. We maintain BUY rating based on GGM-based TP of PHP117. 

Here's more from Maybank Kim Eng:

Above-industry loan growth
Loans grew 17%, outpacing industry growth of 13%. Consumer grew the fastest at 29%, including contribution from the newly acquired rural bank One Network Bank (ONB). Consumer/middle market loan contribution improved to 51% from 48% in 2014. This resulted in higher asset yield (+8bps) which was offset by higher funding cost (+8bps).

The latter can be attributed to full impact of PHP10b subordinated debt issued in Dec 2014 as well as higher TD rate. Indeed, average 91-day T-bill rate went up by ~50bps YoY. Deposits increased 11.5% with CASA growing 19%. LDR went up to 75% from 71% in 2014.

Treasury support remains strong
Trading gains dropped 19% to PHP4.74b, which was fully offset by a 96% rise in FX operations to PHP2.43b. Combined, treasury was flat but relatively strong against peers. Fee-based income also went up 8%, causing gross revenue to jump 10% YoY.

Solid asset quality sustained
BDO expects NPL formation to remain benign. Gross NPL inched up 11% to PHP15.79b, owning half of new NPL from ONB. Despite this, NPL ratio declined to 1.2% from 1.3% in 2014, enabling BDO to trim its provision for credit losses by 41% to PHP3b in 2015. Credit cost fell to 24bps from 48bps in 2014 while NPL cover dropped to 166% from 188% in 2014. 

Factoring in 2015 results, we maintain our FY16 earnings target of PHP25.55b (+3.5% YoY). We expect a 10% increase in net interest income and fees which would offset lower treasury gains assumption of PHP5.2b (-28%).