BDO's net profit up 3% to PHP5.9b in 3Q15

The bank must make PHP7.3b in 4Q15 to meet management guidance for FY15F.

According to Maybank Kim Eng, net earnings went up 3% YoY to PHP5.9b in 3Q15, boosting 9M15 net income to PHP17.6b (+5%). This accounts for only 71% of FY15F of PHP24.9b and 70% of management guidance of PHP25.1b, largely due to higher effective tax rate of 20% in 9M15 from 10% in 9M14. "We attribute this to the change in taxable income sources, more lending and less treasury."

Here's more from Maybank Kim Eng:

Robust loan growth beat expectations at 19%. Corporate loans, boosted by manufacturing and agriculture, rose 15%, middle market jumped 23% and consumer surged 30%. Newly-acquired One Network Bank added 2ppts or PHP20b in credit demand, particularly personal loans. NIM improved 5bps QoQ to 3.14% and was flattish YoY. With better funding mix, net interest income climbed 15% in 3Q15 and 12% in 9M15.

FX gains went up 8% to PHP968m, offsetting the bank’s PHP10m in trading losses. Combined, treasury was down 48% in 3Q15 but was 3% higher to PHP6.3b in 9M15. At 86% of FY15F of PHP7.39b, it is tracking our estimate.

The results are in line on a pre-tax level but effective tax rate of 20% was higher than our projection of 16% and initial guidance of about 15%. To meet our FY15F of PHP24.9b and PHP25.1b guidance, BDO needs to make PHP7.3b (+20% YoY) in 4Q15.

We think this is still doable if the bank maintains growth of 15% in net interest income, at least PHP1b in trading and FX gains, while OPEX and provisions for credit losses mirror 3Q15 with tax rate of 20%. We are keeping our estimates and TP of PHP117, which is based on 2.0x 2016F P/BV relative to 12.7% ROE. BUY.