in depth analysis mbt

Net investment following our calculation

Net profits attributable to equity investors plummeted 78% in the 3rd quarter (3Q) to P1.9 billion, taking the YTD to P11 billion (-49%). The YTD number is just 52% of our fiscal year estimate.

Provisions rose 4x in 3Q.

The provisions for impairment damages increased to PhP12.6B in 3Q (from PhP3.2B) and took the provisions for YTD to P35.4 Billion (from P7.8 Billion). The rise in requirements was supposed to result in new provisions for bad loans being put aside in the context of the current pandemic.

Higher trade earnings seen in the 3Q

Net interest income rose by 8 per cent to P21.4 billion at a slower rate in 3Q, taking the YTD number to P65.9 billion (+17 per cent). Other profits decreased 8 per cent in 3Q to P9.3 Billion, led by lower selling earnings as well as fee-based earnings, but YTD’s additional income nevertheless rose to P30.5 Billion (+28 per cent).

MBT’s conservative stance

Despite non-performing assets currently at sustainable amounts, MBT’s policy is to remain cautious by creating buffers if the recession tends to linger on. As stated earlier, MBT set aside sufficient provisions for bad loans, almost 5 times more than the previous year. As a consequence, the NPL covering up to 174 per cent from 96 per cent historically endorsed the Bank’s cautious supply policy. As of September 2020, the NPL ratio increased to 2.25% from 1.52% in the same time last year. The growth in NPLs stays within forecasts in the light of a downturn in the economy.

Recommendation

MBT tends to trade on a bargaining basis relative to its historical average. We uphold our BUY recommendation at the target price of P57.00/share, offering a hefty 40%+ share price. MBT is trading at 0.4x price to book ration of 2020, way below its 5-year historical average, with a 60 per cent discount on its book value. We assume that this offers the bank a big ‘Bid’ incentive, as it offers a huge discount not only on its historical average but also on its book value, which is also the third largest bank in the world.

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