Last week after publishing its third quarter (Q3) earnings study, INVESTORS took position on Security Bank Corp.
A total of PHP 975.2-M shares of Security Bank were exchanged between 16 and 20 November, as per the data from the Philippine Stock Exchange (PSE).
On Friday, the share closed at P111.5, increasing by 5.7% from a close of P105.5 per share of November 13. To date, the shares has lost 38.1 percent.
“We assume that the Security Bank was one of the most actively exchanged securities this week following the announcement of its third quarter of 2020 financial results,” said Wendy B. Estacio, Senior Market Analysis Analyst at the Philippine National Bank (PNB) Research Division, in an e-mail.
“The institution remains the most capitalized in the sector at the end of September with a common equity tier 1 ratio of 19.1 per cent and a CAR (capital adequacy ratio) of 19.9 per cent, slightly higher than the index banks average of 16.7 per cent and 17.6 per cent respectively. In comparison, SECB has the largest net interest margin in the span [nine months to 2020] at 4.90 per cent (4.22% average) as well as the lowest cost-to-income ratio at 38.4 per cent (48.2 per cent average),” said Estacio.
“The bank also reported the highest pre-provisional rise in operating profit at 120 per cent year-on-year (49 per cent average) and the lowest decrease in bottom-line at 13 per cent year on year (-33% average), despite seeing the largest rise in production at more than 12 times the year-on-year (7 per cent average). SECB increased by 1.9 per cent from 16 to 19 November, while the PSE index increased by 0.4 per cent.”
In an interview with RCBC Shares, Inc. Equity Analyst Daphne T. Yang related the price activity of the Security Bank to the overall success of the PSEi last week, noting that index names such as the Security Bank are typically the first to gain.
On 13 November, the Security Bank announced a net profit of P1 billion to the PSE in Q3, down from P2.7 billion a year ago after it ‘proactively’ increased the loan loss provisions to P10.1 billion to prepare for the possible impairment of the loan assets owing to the coronavirus pandemic. Net profits dropped 13 percent to P6.7 billion in the nine months to September.
In the first 9 months of year 2020, the bank has issued credit loss coverage of P21.1 billion, nearly twelve times more than P1.8 billion of the previous year.
Over the 9 months, the operating sales increased to P40,2 billion by 66% year-on-year with net income in interest increasing by 24% to P23,4 billion. Total trade profits contributed to P9.2 billion a year ago compared with P1.4 billion.
Ms. Estacio’s GNP projection for the full year 2020 of the Security Bank’s net profits to slip by 10% year-on-year to P9.13 billion.
“Management also estimates that the requirements may stay elevated owing to the uncertain macro-environment, which we assume will impose pressures on its capital position. However, we see this possibility as being priced in as the 8.0-fold share price-to-earnings ratio of 2021 P/E is a 45 per cent reduction on its 14.5-fold five-year average,” said Estacio.
“We have a calculated dividend discount model and a target P/B (price-to-book) price target of P137.30 per share… At our target price, the Security Bank would trade just 10.3 times P/E 2021, which is still a hefty 29 per cent discount,” she stated.
For RCBC Securities’ Ms. Yang, the key problem for banks, including the Security Bank, is the rise in non-performing loans (NPLs), noting that the Security Bank is among the banks that “did not provide any feedback on significant NPLs.”
The Security Bank’s gross NPL grew from 1.58 per cent in the previous quarter to 4.03 per cent in the third quarter.
Ms. Yang estimates the bank’s net income turnaround to be around 2022,” as most lenders foresee strong NPLs this year.
“We should assume that the development of the loan will be tempered or that it will boost the obligation or sustain a high degree of provisioning that will in time, hurt revenue. So after this year, we can’t even claim if the banks are going to rebound,” she added.