Company Research

Security Bank Corp. FMSBC Equity Research | 15 March 2017

Bloomberg: SECB PM / Reuters: SECB.PS

HOLD
ROE pick up is crucial T arget Price 190.00
FY16 earnings missed expectations on lower trading gains; net Prev. 186.00
interest income in line Last traded price (14 Mar 2017) 200.00
Loan growth was higher than industry at 20% Issued Capital (m shrs) 754
Tempered NIM uptick; slower opex growth
Mkt. Cap (Pm/US$m) 150,708 / 2,995
Maintain HOLD; TP nudged higher to P190
3m Avg. Daily V al (US$m) 3.10
Highlights

FY16 results below our expectations. Security Bank (SECB) recorded net Financial Ratios
income of P8.6bn for FY16, +17% y-o-y. Excluding net income from
2016A 2017F 2018F 2019F
discontinued operations from the sale of SECBs 51.8% stake in Security
Land Corporation, net income would have grown by 11% y-o-y. The PE Pre Ex . (X ) 15.9 15.7 13.1 10.1
results are below our expectations but generally in line with consensus. Div Y ield (%) 1.0 1.1 1.3 1.7
Net interest income (NII) grew by 28% y-o-y to P15.9bn, fairly in line
ROA E Pre Ex . (%) 11.4 9.5 10.5 12.3
with our estimates.
ROA E (%) 11.4 9.5 10.5 12.3
Loan growth remains above industry. Loans grew by 20%, above the ROA (%) 1.4 1.3 1.4 3.3
industry average of 17%. Consumer lending continued on its robust P/Book V alue (x ) 1.6 1.4 1.3 1.2
growth path at 56%, driven by mortgages. Retail lending now accounts
for 13% of the banks total loan book vs 10% at end-FY15. Corporate Forecasts and Financial Summary
and commercial loans, meanwhile, grew by 20%, driven by power,
wholesale and retail trading, as well as real estate. 2016A 2017F 2018F 2019F
Pre- prov . Prof it 10,368 11,486 13,764 17,722
Outlook
Net Pf t (Pre Ex.) 8,554 9,630 11,533 14,894
Core lending to remain robust on strong loan growth; NIM upside EPS (P) 12.6 12.8 15.3 19.8
capped. We expect FY17F earnings to grow at low to mid-teens driven EPS Gt h (%) 4 1 20 29
by expansion in its core lending business. NII growth is expected to Source of all dat a: Company, First Met ro Securit ies, Bloomberg Finance L.P.
remain strong on the back of loan growth of around 20%, driven by
demand from corporates as well as sustained expansion of the retail
banking business. Management sees healthy demand from the Price Relative
corporates even without the roll-out of the governments infrastructure P Relative Index

projects. While we see loans continuing its robust growth, we believe 274.6 213
254.6
upside to NIM may be limited given the current high liquidity in the 234.6
193
173
system at the moment. 214.6
194.6
153
133
174.6

Valuation and recommendation

113
154.6
134.6 93
114.6 73

Maintain HOLD and nudge TP higher to P190. We currently rate SECB a 94.6
M ar-13 M ar-14 M ar-15 M ar-16
53
M ar-17

HOLD with TP adjusted to P190 following some adjustments in opex

Securit y Bank (LHS) Relat ive PCOM P (RHS)
growth and non-interest income. Our TP is derived from Gordon Growth
model (13% ROE, 7% long-term growth, 11% cost of equity), and
implies 1.4x FY17F P/BV.
Equity Research Analyst
Katrina Mercado
+63 (2) 859-0600
 Company Research

Rating System
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

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