BDO Unibank (BDO)

Buy
Company Snapshot
Price (P) Price Target (P) Shares O/S (million) Market Cap (P million) 52-week High (P) Low (P) 12-mo Avg. Value T/O (P'm) Shareholders SM Investments Free Float 90.30 107.00 3,581 323,353 99.00 55.39 273.668 40.9% 42.9%

Monday , 2 2 A P R I L 2 0 1 3

Price Performance
BDO PSEi 1m +8.5% +8.3% 6m +43.1% +28.1% 12m +48.2% +34.5%

W E A LT H S E C U R I T I E S

Record Earnings

1Q2013 Earnings Surprise. BDO disclosed that its 1Q2013 Net Income reached P10B. This is 257% higher than its 1Q2012 Net Income. Gross Loans continued to expand at 16%, leading to a 14% increase in Net Interest Income. More notably, Non-Interest Income increased by 130% due to increases in fee income and exceptional Trading Gains. Trading Surprises. Though BDO has not described in detail the reason behind the earnings surprise, we surmise that it is a combination of exceptional Trading Gains and the possible early adoption of PFRS 9. The strong Trading Gains is a result of the continued decline of Philippine government bond yields, causing a strong rally in bond prices. Moreover, the banks Available for Sale (AFS) Portfolio had P7.4B in Net Unrealized Gains as of YE2012. If the early adoption of PFRS 9 was indeed implemented, it would allow BDO to capitalize on the strength of bond prices in order to unlock significant value from its Held-to-Maturity (HTM) Investments. The new accounting policy, which would call for a reclassification of HTM Securities, would result to significant one-time gains that would drive the banks bottomline higher. Note that BDOs HTM Investments amounted to P97.0B as of YE2012. Buy BDO. Apart from delivering stellar Trading Gains, we want to highlight that the bank has delivered strong growth in its Net Interest Income, suggesting that the bank has maintained healthy margins amidst a challenging lending environment. Although we are still awaiting details on BDOs results before we upgrade our forecasts and target price, we are encouraged that BDO has disclosed that its FY2013 Net Income guidance amounts to P20B. Considering these, reiterate our BUY rating for BDO with a target of P107 (2.4x 2013E P/BV).

Financial and Valuation Highlights

Amounts in Pmillion

Net Revenues Opex PPOP Net Income ROE ROA EPS BVPS PE P/BV

2010A 51,999 34,789 17,210 8,881 11.3% 1.0% 3.35 31.84 26.99 2.84

2011A 54,678 36,316 18,362 10,588 11.4% 1.0% 3.91 35.03 23.07 2.58

2012E 62,140 39,424 22,716 13,586 10.8% 1.2% 4.27 41.62 21.16 2.17

2013E 66,675 42,601 24,073 13,984 8.7% 1.1% 3.80 44.61 23.78 2.02

2014E 74,104 47,586 26,518 15,148 8.8% 1.0% 4.12 47.93 21.91 1.88

ND Fernandez T: 634.5038 local 8152 E: nd.fernandez@wealthsec.com

Sources: Company data, Wealth Securities estimates

A = Actual calendar/fiscal year results; C = Bloomberg consensus; I = Annualized interim results; E = Wealth Securities estimates

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The information and opinions in this report were prepared by Wealth Securities, Inc. The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Wealth Securities ma kes no representation as to the accuracy or completeness of such information. Wealth Securities may eng age in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within We alth Securities, including traders and sales staff, ma y take a view that is inconsistent with that taken in this research report. Opinions, estimates and projections in this report constitute the current judgme nt of the author as of the date of this report. They do not necessarily reflect the opinions of Wealth Securities and are subject to change without notice. Wealth Securities has no obligation to update, m odify or amend t his report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. T his report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst judgment.

RATINGS DEFINITION

BUY HOLD
Je ro me G o n z a l e z R e se a rch H e a d T: 634.5038 local 8127 jerome@wealthsec.com B e rn a rd A vi a n t e C o n g l o me ra t e s , P o w e r & G a mi n g T: 634.5038 local 8121 bernardavinante@wealthsec.com

Over the next six to twelve months, Wealth Securities expects the share price to increase by 12% or more

Over the next six to twelve months, Wealth Securities expects the share price move within a range of +/-12%

SELL

Over the next six to twelve months, Wealth Securities expects the share price to decline by 12% or more

Mi g u e l A g a ra o Mi n i n g & P ro p e rt y T: 634.5038 local 8164 miguel.agarao@wealthsec.com

N i k ki Y u C o n su me r T: 634.5038 local 8150 nikki.yu@wealthsec.com

Wealth Securities, Inc. 2103 EastTower, PSECenter, Exchange Road, OrtigasCenter, PasigCity 1600 Telephone: 02.634.5038 Facsimile: 02.634.5043

N D F e rn a n d e z B a n ki n g , T e l co s& T ra n s p o rt T: 634.5038 local 8152 ndfernandez@wealthsec.com

S a ra h U y C o n st r u ct i o n T: 634.5038 local 8160 sarah.uy@wealthsec.com

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