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Investors snatch up Security Bank after Q3 earnings data

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INVESTORS took positions on Security Bank Corp. last week after it released its third-quarter (Q3) earnings report.

A total of 9.113 million Security Bank shares worth P975.2 million were traded between Nov. 16 and 20, data from the Philippine Stock Exchange (PSE) showed.

The stock closed at P111.5 apiece on Friday, up 5.7% from its Nov. 13 closing price of P105.5 per share. Year to date, its price per share has lost 38.1%.

“We believe Security Bank was among the most actively traded stock this week following the release of its third-quarter 2020 financial results,” said Wendy B. Estacio, senior equity research analyst at Philippine National Bank’s (PNB) Research Division, in an e-mail.

Ms. Estacio added that SECB — Security Bank’s stock ticker symbol — leads in most of the key metrics compared with other listed banks in the PSE index (PSEi).

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“The Bank remains the most capitalized in the industry with end-September CET1 (common equity tier 1) ratio of 19.1% and CAR (capital adequacy ratio) of 19.9%, meaningfully higher than the average of index banks at 16.7% and 17.6%, respectively. In addition, SECB had the highest net interest margin in [the nine months to 2020] at 4.90% (4.22% average) and the lowest cost-to-income ratio at 38.4% (48.2% average),” Ms. Estacio said.

“The bank also registered the highest pre-provision operating profit growth at 120% year-on-year (49% average) and the lowest decline in the bottom-line at 13% year-on-year (-33% average), despite having the biggest increase in provisions at over 12 times year-on-year (seven-times average). From November 16 to 19, SECB rose by 1.9% while the PSE index was up by 0.4%.”

In a phone interview, RCBC Securities, Inc. Equity Analyst Daphne T. Yang attributed Security Bank’s stock movement to the overall performance of the PSEi last week, adding that the first to benefit usually are index names such as Security Bank.

On a Nov. 13 disclosure to the PSE, Security Bank reported a net profit of P1 billion in the third quarter, down from P2.7 billion a year earlier after it raised loan loss reserves “proactively” to P10.1 billion to account for the likely impairment of loan assets due to the coronavirus pandemic. In the nine months to September, net income fell 13% to P6.7 billion.

The bank also set aside P21.1 billion as provisions for credit losses in the first nine months of 2020, around 12 times higher compared with P1.8 billion last year.

During the nine months, operation income rose 66% year-on-year to P40.2 billion as net interest income grew by 24% to P23.4 billion. Net trading gains amounted to P9.2 billion from P1.4 billion a year earlier.

PNB’s Ms. Estacio forecast Security Bank’s full-year 2020 net income to decline by 10% year-on-year to P9.13 billion. 

“Management also expects provisions to remain elevated due to the volatile macro environment, which we think may put stress on its capital position. However, we view this risk as priced in, as the stock’s 2021 P/E (price-to-earnings ratio) of 8.0 times is a 45% discount to its five-year average of 14.5 times,” Ms. Estacio said.

“We have a weighted dividend discount model and target P/B (price-to-book)–based target price of P137.30 per share… At our target price, Security Bank will only trade at a 2021 P/E of 10.3 times, which is still a hefty 29% discount,” she said.

For RCBC Securities’ Ms. Yang, the major concern for banks including Security Bank is the growth in nonperforming loans (NPLs), noting that Security Bank is one of the banks that “did not give any guidance on big NPLs.”

Security Bank’s gross NPL rose to 4.03% during the third quarter from 1.58% in the previous quarter.

Ms. Yang expects recovery in net income for banks to be “around 2022” as most of the lenders expect high NPLs for this year.

“[W]e can expect that loan growth will be tempered, or that they will increase the provision or maintain an elevated level of provisioning, which in time, will hurt income. So until next year, we cannot really say that the banks will recover…,” she said.

Ms. Yang placed Security Bank stock’s support and resistance levels at P103.04 and P111.70, respectively. — Michelle Anne P. Soliman

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