Alliance Global: On a Slump

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Quick review of the McDonald’s operator in the Philippines

Alliance Global (AGI), a 133.5 billion peso Tan-led holding company, recently reported 1.5% rise in revenue for its 2017 operation compared to prior year and a 0.6% increase in profits.

“2017 has been a rather challenging year for the Group but that never deterred us from pursuing our growth ambitions. As we move forward, we remain focused on investing in our future. We have in fact spent close to P70 billion during the year for our ongoing expansion plans,” says Kingson U. Sian, President of AGI.

AGI has yet to file a complete annual report for its 2017 operations but as of September last year had 122 billion in debt, 77.8 billion in cash, and 157 billion in book value.

AGI’s business includes Megaworld, Travellers, Golden Arches (exclusive McDonald’s franchise), and Emperador. Megaworld produces most of AGI’s profits followed by Emperador.

According to its recent press release, AGI’s McDonald’s business recorded a healthy 33% rise in profits year over year and 12% rise in revenue for 2017.

AGI’s book value has grown at an average of 1.94% in the past ten quarters. The company also took in 30 billion peso in financing activities* in the past three years.

AGI, nonetheless, remains committed to allocating more money in its Megaworld business, 75% to be exact, for its 2018 operations.

COL Financial Group recently raised its fair value for its AGI to 18.34/share and rated its shares a buy. This blog’s estimates, meanwhile, arrived at a per share figure of 23.3/share.

At the time of writing (4/22/2018), AGI traded at 13.14/share.

Investors should consider buying AGI if they could just ignore AGI’s debt intake and weak business growth in recent years.

Disclosure: No shares in AGI.

*earlier blog said debt net repayments; corrected to financing activities.

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Metropolitan Bank and Trust: Markedly Undervalued Bank

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Disappointed bank investors should look at this opportunity

Share price of Metropolitan Bank and Trust (MBT) did not escape the recent Philippine stock market rout so and has fallen nearly 13 percentage points so far this year.

Some of the decline can be attributed to its stock offerings but nonetheless the bank did good in its 2017 operations.

MBT recorded strong 17.8% rise in revenue, or interest income in financial firms term, and a mere percentage points or 0.76% increase in profits.

MBT has allocated 817 million more to its non-controlling interest therefore resulting to lower profitability for shareholders in 2017 compared to 212 million more in 2016.

The second largest bank in the Philippines in terms of assets experienced an interesting 0.71% decline in book value to 204.1 billion giving it a price-book value multiple of 1.3x compared to its industry’s 3x.

MBT had a decline in its Common Equity Tier 1 ratio to 11.79% from 12.54% a year earlier.

The bank’s non-performing loans were maintained at a ratio of 1.01% as of December 2017.

MBT’s profit metric, net interest margin, ended at 3.75% in 2017 compared to 3.43% in 2016.

“We are pleased to report positive results in our core business. The strength of our deposit franchise continues to support our loan growth, particularly in the commercial space as we help finance the expansion plans of our customers. Core revenues increased at a healthy rate, while operating expense growth was capped to single-digit.”

“Our momentum continues to build up, and we are well-positioned to accelerate our growth plans moving forward.”

Metrobank President Fabian S. Dee

In the past three years, MBT raised 74 billion in financing activities and provided 10.3 billion in shareholder dividends.

The bank had 353.6 billion in cash as of December 2017.

COL Financial, a reputable brokerage firm in the country, rated MBT a buy with 103/share value. Personal estimates indicated a per share figure of 146/share.

Disclosure: MBT investor.

East West Bank: An Undervalued Bank

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Strong growth and strong profitability makes the bank of good value

Along with other Philippine banks, shares of East West Bank (EW) has turned south so far this year with 9.23% decline.

The thirteenth largest bank by assets stated it grew its revenue by 17% in 2017 and profits surged by 48%.

“We are pleased to see the 48% increase in net income after 2016’s 70% increase. We appreciate the efforts of EWBankers that made this possible. I am sure these results will only motivate our colleagues to continue to exert efforts to serve our customers better and show their deep appreciation for our customers’ continued trust and confidence in EastWest.”

Tony Moncupa, EastWest CEO said

EW delivered a net profit margin of 7.8% for the recent year compared with 7.7% in 2016.

Exact figures researched by this blog were not available at the time of writing and most figures were retrieved from EW’s nine month operations that ended in September 2017.

EW’s book value was at 37.6 billion giving it a price-book value multiple of 1.2x compared to industry’s 3x.

In September, EW’s capital adequacy ratio was at 12.6% compared to 14% a year earlier.

EW’s non-performing loan ratio, meanwhile, improved to 1.5% compared to 2.7% twelve months earlier.

COL Financial rates EW as a buy with a value of 36.50/share vs. 29/share at the time of writing.

Personal estimates indicated a per share figure of 50/share.

Disclosure: EW bank investor.

China Bank: Conquering Bearish Sentiments

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Steady grower overcomes market trepidations

China Bank (CHIB) recently joined Union Bank in outperforming most of its peers so far this year amid broader market decline. The seventh largest bank by assets provided 4.8% total return to its shareholders.

The bank recently reported 17% rise in net interest income and 15% increase in profits for its 2017 operations.

“2017 was a pivotal year in the transformation and development of the China Bank Group.

“We grew as projected and I am pleased that our strong fundamentals and solid organic growth gave us the platform to meet the opportunities and challenges in 2018.”

China Bank President William C. Whang

CHIB’s book value ended at an estimated 83.8 billion giving it a price-book value multiple of 1.1x vs. its industry’s 3x.

The bank had an estimated CET 1 Ratio (capital ratio) of 12.9% compared to 11.3% a year earlier.

CHIB’s non-performing loans, meanwhile, improved to 1.8% in 2017 from 1.9% in 2016.

The bank’s profitability, net interest margin, was estimated to decline to 2.9% in 2017 from 3% in 2016.

In the past three years, CHIB raised 7.8 billion in financing activities while having provided 5.2 billion in shareholder dividends.

COL Financial, a reputable Philippine brokerage firm, rated CHIB a buy with a value of 42/share compared to 34.90/share at the time of writing.

Personal estimates indicated a per share figure of 84/share.

Disclosure: No shares in CHIB and UBP.

Union Bank of the Philippines: An Outperformer

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Strong growth protects the bank from gross abandon

Union Bank of the Philippines (UBP) has outperformed its peers so far this year. Shares of the ninth largest Philippine bank by assets climbed 6% while peers have floundered along with the broader market.

In 2017, UBP’s net interest income (fancy name for revenue for banks) grew 18.9% rise while profits dropped 16.4%.

Excluding one-time gains, however, led to an impressive 30% rise in profits.

UBP’s book value stood at 74 billion giving it a price-book value multiple of 1.3x compared to its industry’s 3x.

The bank’s CET 1 ratio improved to 11.5% in 2017 compared to 13% in 2016.

Non-performing loan ratio, meanwhile, was at 3.4% compared to 3.9% in 2016.

“We are pleased to continue making major headway on both our business and digital transformation strategies. Financial results were driven by recurring income across all customer business segments. Simultaneously, we were able to attain milestones on the user experience front: 1) EON Digital Bank as the first with selfie-banking feature in Asia; 2) the UnionBank mobile app and web versions with enhanced transactional capabilities; and 3) the launch of our concept branch, “The Ark”, that introduced the “future of branch banking” in the country. Amid investments in various digital initiatives, the Bank continues to sustain very solid profitability results.”

Edwin R. Bautista, UnionBank President and CEO

In the past three years, UBP raised 21.8 billion in financing activities while having provided 6.6 billion in dividends.

The bank ended with 132.2 billion in cash in 2017.

COL Financial rates UBP as a buy with a value of 107/share vs. 90/share at the time of writing. Personal estimates indicated a per share figure of 142/share.

Disclosure: No shares in UBP.

Security Bank: Overvalued Bank

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Sound balance sheet and profitability admired by investors

Matching the general decline in share prices of its peers, Security Bank’s (SECB) stock has fallen 2.7% so far this year.

The Philippines’ fifth largest bank by assets recently stated that it had 22% rise in net interest income and a 20% increase in profits in 2017.

The bank ended with a book value of 105.1 billion giving it a price-book value multiple of 1.76x compared to its industry’s 3x.

According to its press release, the bank had a net interest margin of 3.3% in the fourth quarter compared to 3.1% a year earlier.

SECB’s non-performing loan ratio, meanwhile, improved to 0.02% from 0.11% a quarter earlier.

The bank’s Total Capital Adequacy Ratio was at 17.7% as of year end.

In the past three years, SECB raised 167.9 billion in financing activities while having provided 5 billion in shareholder dividends.

The bank ended with 139.7 billion in cash in 2017.

COL Financial rated SECB as a hold with 242/share value compared to 244.60/share at the time of writing.

Personal estimates indicated a per share figure of 156/share.

Disclosure: No shares in SECB.

Asia United Bank: Undervalued Bank

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Rising poor quality of loans may deter investors

Share price of Asia United Bank (AUB) has remained nearly flat so far this year compared to declining shares of its peers.

The 14th largest Philippine bank by assets reported 15% rise in revenue, or net interest income, and 23% increase in profits in its 2017 operations.

Exact figures for 2017 operations were not available at the time of writing, so figures as of September 2017 quarter will mostly be used moving forward.

In September, AUB had a book value of 26.5 billion leaving it with a price-book value multiple of 1.1x compared to industry figure of 3x.

AUB also experienced a decline of its capital adequacy ratio of 11.05% compared to 14.82% a year earlier.

Unappealingly, AUB’s non-performing loans (poor quality) ratio rose to 1.31% compared to 0.8% a year earlier.

“We are confident that AUB will show accelerated growth on our core lending business as we cater to the needs of corporates and small and medium enterprises. We are making headways in the consumer market, particularly in credit cards, salary and pension loans.”

AUB President Manuel Gomez

In the past three years, AUB allocated 1.6 billion in financing activities while having provided 485.3 million in shareholder dividends.

AUB also had 42.7 billion in cash as of September 2017.

AUB does not appear to be covered by COL Financial while personal estimates indicated a per share figure of 86/share vs. 59.6/share at the time of writing.

Disclosure: No shares in AUB