Metrobank's loan growth forecast to increase 15% in 2013

Transaction fee income is an impetus for earnings expansion.

According to Maybank Kim Eng, The Philippine financial index has jumped 5% YTD but our top pick in the sector Metrobank (MBT) increased only 2.4%.

Here's more from Maybank Kim Eng:

We believe this provides investors an opportunity to buy MBT as it provides the best value among the top three banks. Investors are getting a major banking franchise that is second only in asset size to BDO Unibank, Inc. (BDO). It also has the largest financial distribution network with 828 branches as of end-2012. This year, it aims to open 30 new branches nationwide.

High NIMs and transactional fees. With past asset quality issues resolved, MBT is now in a better position to grow its loan book and regain market share. It is the leader in the Chinese-Filipino middle market. We forecast loan growth of 15% this year.

MBT’s NIM of 3.7% is also higher than the industry average of about 3.4% as a result of better pricing power due to a low-cost funding base. This also tops our NIM estimate of 3.5% for both BDO and Bank of the Philippine Islands (BPI).

Furthermore, transaction fee income provides an impetus for earnings expansion, especially during high economic growth.

Low credit costs to support earnings. Asset quality improvement also supports the bottomline with lower credit costs. We estimate a 35% cut in provision for loan losses to PHP2.7b with NPL ratio projected at 2% from an estimated 2.1% in 2012 and NPL cover at 118% compared with 113% last year.

Poised to divest non-core assets. MBT can improve its capital base without raising funds that may result in EPS dilution. Another probable divestment after Toyota Motor Philippines is its 49% indirect stake in Global Business Power Corp and 19.7% holdings in Lepanto Consolidated Mining.

Potential gain for each unit is about PHP4.3b or PHP2/sh. Divestment of non-core assets should also improve CET1 ratio to about 12.4% from 9.7%, well above the Philippine central banks’ minimum requirement of 8.5%.

ROE in an upswing, BUY. Management is now more focused on ROE than market share, and we’ve seen ROE in an upswing to 13.1% in 2013F from 7% in 2008. We estimate core earnings at PHP15b (EPS:PHP7.22) this year, representing an 18.5% YoY growth.

Our 12-month target price is at PHP119.30/sh, equivalent to 2.0x 2013F PBV and provides potential upside of 12.5% on top of a 1% dividend yield.