It could be a buyer and a target for acquisition.
According to Maybank Kim Eng, heavy speculation surrounding the still-to-be-confirmed rumor of the acquisition of merged entity Philippine National Bank and Allied Banking Corp by Bank of the Philippine Islands has led to a general surge in bank share prices. That of Rizal Commercial Banking Corp’s (RCB) jumped 10% to PHP56.10/sh in the last two weeks.
Here's more from Maybank Kim Eng:
We believe this is because RCB possesses both qualities of a potential buyer and a prospective target for acquisition in the ongoing race for banking supremacy. RCB now trades at 1.55x 2013F PBV, well above its 10-year historical average P/BV of 0.7x.
Earnings revision in 2013. Following release of 3Q12 results, we are keeping our reported 2012 earnings estimate of PHP5.6b (adjusted EPS: PHP4.00), implying a slowdown in 4Q12. Historically, 4Q is RCB’s weakest quarter but there could be an upside surprise from gains in treasury operations.
In 2013, we raised our forecast 4% to PHP6.8b on the back of a more robust loan growth assumption of 16% from 12% previously. We expect our GDP growth forecast upgrade to 6.4% from 5.7% due to accelerating domestic demand will feed into stronger loan growth.
Cleaner balance sheet. RCB will have a cleaner balance sheet next year after it fully writes off remaining deferred charges worth PHP1.9b (less amortization for the year) at end-2012.
This will increase earnings 37% and raise estimated ROE to 16.4% in 2013 from 13.1% this year.
Bad asset disposal. The bank plans to sell non-performing assets to special purpose company Philippine Asset Growth One formed by International Finance Corp, OSK Group-Malaysia and Altus Transaction Services Inc.
Total asset disposal is reportedly worth PHP4.8b or 69% of net investment properties of PHP7b. We assumed a 25% gain which raises our 2013 BVPS 6% to PHP36.75 and Tier 1 capital ratio (under Basel 2) to 14% from 13.8% previously.
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