BDO Unibank not spared by last week’s massive sell-off as investor fears prevail

By Mark T. Amoguis
Assistant Research Head

INVESTORS, spooked by the coronavirus disease 2019 (COVID-19) pandemic, prompted massive sell-offs, making BDO Unibank, Inc. one of the most actively traded issues last week.

A total of 19.81-million BDO shares worth P2.57 billion exchanged hands on the trading floor from March 9 to 13, data from the Philippine Stock Exchange (PSE) showed.

Shares in BDO declined by 10.2% on a week-on-week basis to P127 per share last Friday from P141.50 apiece last March 6. The stock has fallen by 17.5% since the start of the year.

The largest lender in terms of assets was “just swept off” by the overall market sentiment to sell, according to Rachelle C. Cruz, senior equity analyst at AP Securities, Inc.

“It’s the fact that [BDO] belongs to the top five largest companies in the PSEi (PSE index) and given what was happening worldwide… Whenever there’s a worldwide sell-off, expect the ‘glamor index stocks’ will be the first ones to be sold down…,” Ms. Cruz said in a phone interview.

Wendy B. Estacio, senior equity research analyst at Philippine National Bank’s Research Division, shared a similar assessment, adding it was cushioned somewhat by BDO’s earnings performance in 2019.

“[T]he stock slightly outperformed the PSEi’s and financials index’s (week-on-week) decline of 14.4% and 11.3%, respectively. In our view, this was due to the bank’s strong full-year 2019 performance, which exceeded its net income guidance,” Ms. Estacio said in an e-mail interview.

Last Wednesday, the World Health Organization (WHO) declared COVID-19 a pandemic. It was first reported in late December in the city of Wuhan in China’s Hubei Province and has since spread to 123 countries and territories, killing more than 4,000 people and affecting nearly 133,000 more.

In the Philippines, there are 111 detected cases as of March 14, with eight fatalities due to the disease.

WHO’s announcement sent the local bourse on Thursday to a nearly eight-year low finish of 5,736.27 — a level never before reached since Dec. 18, 2012’s 5,636.59 close.

PSEi likewise recorded its biggest single-day decline that day at 9.71%, the lowest in at least 12 years or since the 12.27% drop on Oct. 27, 2008 at the height of the global financial crisis.

That day also triggered the circuit breaker — the second time it was activated since the global financial crisis — which is activated when the PSEi slumps by at least 10%, after the main index declined by 10.33%. This prompted a 15-minute trading halt.

This circuit breaker was triggered again last Friday after the PSEi dropped 10.43% during the morning trading session.

Meanwhile, BDO’s net income jumped by more than a third to P44.17 billion last year, exceeding its P38.5-billion profit forecast amid “strong performance of its core recurring income sources.”

The lender’s total assets went up by five percent to P3.19 trillion last year as loans and receivables increased by 7.4% to P2.23 trillion.

“Despite strong 2019 results, we think that the investors’ fear may prevail while waiting for the full impact of COVID-19 to its operations in [the first quarter of 2020],” PNB’s Ms. Estacio said.

“For the banking sector, focus risk areas are borrowers with the following linkages: tourism, shipping, travel, OFWs (overseas Filipino workers), and SMEs (small and medium enterprises). Banks are currently conducting rapid portfolio review and are preparing for the likelihood of slower loan growth and possibly higher NPLs (nonperforming loans),” she added.

Ms. Estacio expects BDO to book a P43.9-billion net income this year, “driven by slight improvement in net interest margin due to lower cost of funds.”

She clarified, however, that this projection has not yet accounted for the COVID-19 impact.

AP Securities’ Ms. Cruz said that the impact of the COVID-19 to BDO’s loan portfolio this year is not that big.

“The banking sector might see higher bad loans if the virus spread persists. But we don’t see it severely affecting the balance sheet of the banking sector as a whole, especially in terms of capitalization. They’re very much resilient compared to the 2008 global final crisis,” she said.

“The banking sector itself, especially BDO, is very well prepared for this kind of scenario,” she added.

Ms. Cruz pegs BDO’s support and resistance levels at P99 and P130 this week.

“[W]e expect the higher than normal share price volatility to continue because of the overall panic in the market,” Ms. Estacio said.