SHARE DATABank of Philippine Islands:Earnings miss estimates on weaker trading gains, slower loan growth

4Q15 profits weaken. BPI booked Php4.4Bil in profits in 4Q15, down 16% year-on-year amidst lower non-interest income. This brought its full-year profit to Php18.23Bil, 1% up from the previous year. BPIs earnings missed both COL and consensus forecasts, representing 94% and 93% of estimates respectively. The underperformance resulted from the continued slowdown in the lending segment, lower trading gains, as well as weaker-than-expected fee-based revenues. The full-year performance translates to an ROE of 12.3%. (see Exhibit 1)

Lending business slows in 4Q15. BPIs net interest income rose 9.3% to Php10.0Bil in 4Q15, matching its slowest year-on-year growth rate over the last 10 quarters. Recall that net interest income grew 10.7% in 3Q15 and 12.1% in 1H15. The slowdown was largely volume based, with loan growth reaching just 9.1% as of end 2015, its slowest pace since 1Q10. This is also much weaker than or loan growth forecast of 15% for 2015. Meanwhile, we estimate that net interest margin remained steady at ~2.8%, in line with our estimates. For FY15, BPIs net interest income remains up 11% to Php38.6Bil. This, however, is weaker than expected (at 98% of full-year forecast) amidst the slowdown in volume growth in 4Q15.

Non-interest income ends lower in 4Q15. Non-interest income ended lower at Php5.3Bil in 4Q15, down 15% year-on-year. Non-interest revenues were dragged by trading and FX gains dropping 44% to ~Php600Mil during the quarter amidst the volatile trading environment. Meanwhile, while no details were explicitly given, we estimate that fee-based revenues also weakened during the quarter. We believe that this is likely because of the high base set in 4Q14 as well as the impact of the slower volume growth in 4Q15. As a result, non-interest income declined 1% year-on-year to Php20.7Bil, representing just 94.5% of our 2015 forecast.

Reiterate HOLD rating. We currently have a HOLD rating on BPI with an FV estimate of Php89.00/ sh based on 2.0X 2016E P/BV. Although we continue to like BPI given its size and its track record of superior profitability and asset quality, we believe that its current valuations are not attractive. The recent slowdown in loan growth also raises concerns on the sustainability of the banks profitably going forward.

Rating HOLDTicker BPIFair Value (Php) 89.00Current Price 87.70Upside (%) 1.48

Charles William Ang, CFAcharles.ang@colfinancial.com

Year to December 31 (Php Mil) 2012 2013 2014 2015E 2016ENet Interest Income 27,453 30,324 34,808 39,541 45,367 % change y/y 6.14 10.46 14.79 13.60 14.73Non-Interest Income 19,931 22,174 20,979 21,918 22,887 % change y/y 25.42 11.25 -5.39 4.48 4.42Income Before Tax 19,573 23,147 23,020 25,075 28,193 % change y/y 21.25 18.26 -0.55 8.93 12.43Net Income 16,291 18,811 18,039 19,478 21,899 % change y/y 27.06 15.47 -4.10 7.98 12.43EPS (in Php) 4.58 5.29 4.64 4.96 5.58 % change y/y 27.05 15.47 -12.24 6.86 12.43

RELATIVE VALUEP/E(X) 19.73 17.09 19.47 18.22 16.21P/BV(X) 3.31 3.08 2.46 2.27 2.07ROAE(%) 17.49 18.66 14.51 12.96 13.36Dividend Yield (%) 2.54 1.99 1.00 1.99 1.99*source: COL est imates

FORECAST SUMMARY

MONDAY, 22 FEBRUARY 2016

ABSOLUTE PERFORMANCE

MARKET DATA

1M 3M YTDBPI 2.21 1.10 4.59PSEi 9.16 -2.26 -2.53

Market Cap 344,581.23MilOutstanding Shares 3,929.09Mil52 Wk Range 80 - 1073Mo Ave Daily T/O 176.78Mil

SHARE PRICE MOVEMENT

70

80

90

100

110

22-Nov-15 22-Dec-15 22-Jan-16 22-Feb-16

BPI PSEi

P H I L I P P I N E E Q U I T Y R E S E A R C H

MONDAY, 22 FEBRUARY 2016 page 2BPI I EARNINGS ANALYSIS

Exhibit 1: Results Summary

source: BPI, COL estimates

COL ConsensusNet interest income 9,134 9,982 9.3 34,808 38,640 11.0 97.7 NANon-interest income 6,215 5,274 -15.2 20,979 20,720 -1.2 94.5 NAOperating expenses 8,507 8,978 5.5 29,960 31,870 6.4 97.0 NANet income 5,237 4,390 -16.2 18,039 18,230 1.1 93.6 92.8

% Change % FY15EIn PhpMil 4Q14 4Q15 % Change FY14 FY15

P H I L I P P I N E E Q U I T Y R E S E A R C H

MONDAY, 22 FEBRUARY 2016 page 3BPI I EARNINGS ANALYSIS

Investment Rating Definitions

Stocks that have a BUY rating have attractive fundamentals and valuations, based on our analysis. We expect the share price

to outperform the market in the next six to twelve months.

Stocks that have a HOLD rating have either 1.) attractive fundamentals but expensive

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 inline or underperform the market in the next six to twelve months.

We dislike both the valuations and fundamentals of stocks with a SELL rating.

We expect the share price to underperform in the next six to twelve months.

Securities recommended, offered or sold by COL Financial Group, Inc.are subject to investment 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 its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.

Important Disclaimers

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