Detailed Analysis

Security Bank Corporation (SECB) was not spared from the challenging business environment. The bank was still booking positive net income growth in the first two quarters of the year, but the improvement was halted by third quarter 2020 (3Q20). Earnings during the third quarter slipped by -63.47% year-on-year (y/y) to P1.00 billion as its NII growth continued to slow down between first quarter 2020 to third quarter 2020 (1Q20-3Q20).

During our previous report, we noted SECB’s potential liquidity concerns since its deposits growth has been gradually slowing down. As of end-Sep, its deposit base has contracted by -10.44% y/y to P435.77 billion. This is mostly because of the relatively strong decline in the bank’s Time Deposits, -42.91% y/y. However, the banking industry experienced a relatively stable deposit base growth.

We also highlighted that the bank’s non-core business has been faring well. Its non-interest income has been more than doubling since 1Q 2020, and has helped in minimizing profit crunch. This is also the case across the industry.

Despite the near-term challenges that SECB is facing, it was still able to retain its Baa2 rating with stable outlook from Moody’s. While the bank has pivoted to a more Consumer-centric business model, it is still well-positioned to recover from the pandemic once it gradually pares down its provisions. Its regulatory ratios are likewise well above the BSP requirement.

Recommendation

We are keeping our BUY recommendation for SECB at a target price of P145.00 apiece. We have updated our 2020 net income estimates for the bank to price in its nine-month (9M) performance. Moreover, we have also added estimates for 2022.

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