CRITIQUE PAPER

IN
HUMA 102

Submitted by:
Sotto Neil Bryan D. Time: 10 AM
17000082100

Submitted to:
Winnie Ann V. Badoles LPT.
The 5 Cheap Bank Stocks and How to Profit from them.

This is a financial adviser that tell us what the different banks are good in investments. This are some
examples of banks that called them 5 cheap bank stocks and they told us how to get profit from them.
“How much did a bank started them capital?” Did this bank is safety for investment? This are example
of questions that many business man, business woman or a simple citizen that want to start a business.
I will show you how this bank get their capital doubled in a short time. Let’s get started.

1. Philippine National Bank

Price: Php49.25
Discount to Book Value: 40.2 percent
Philippine National Bank (PSE: PNB) is one of the country’s largest private universal banks in terms
of assets, loans and deposits with 711 branches and 1,501 ATMs strategically located nationwide.
PNB’s revenues from interest income have been growing by an average of 12 percent annually, from
Php11.6 billion in 2008 to Php36 billion last year. This consistent growth in revenues brought net
income to increase by nine times or an average of 24 Percent per year from P1.1 billion 10 years ago
to Php9.5 billion in 2018.This year, PNB reported its net income for the first quarter grew by 30 percent
to Php1.9 billion from Php1.4 billion in the same period last year on the back of a 37-percent growth
in interest revenues. PNB has successfully raised $750 million from what could the largest dollar bond
issuance by a Philippine bank in history. The bank plans to use the proceed to support its loan growth.
PNB is the best performing bank stock so far with 19 percent year-to-date gain but still trading at 40
Percent discount to its book value of Php82 per share. Trading at Price-to-Earnings (P/E) ratio of only
7.57 times as against bank sector’s average of 11 times, the stock has potential appreciation of 66
percent should it trade at par with its book value.

2. East West Banking Corporation

Price: Php11.62
Discount to Book Value: 38.7 percent
East West Banking Corporation (PSE: EW) is one of the fastest-growing universal banks in the
country. It provides a wide array of products and services focused on consumer and middle market
segments. EW is majority owned and controlled by Filinvest Development Corporation of the Gotaniun
Family, one of the country’s leading conglomerates with diverse interests in real estate development,
banking, sugar and power generation. Net income of EW has been growing by an average of 25 percent
per year for the last nine years from Php621 million in 2009 to Php4.5 billion last year on the back of
16 percent annual revenue growth. This year, EW reported its total net interest income for the first
quarter grew by 36 percent to Php1.3 billion from Php945 million last year as revenues increased by
18.7 percent to Php6.9 billion. EW’s average return on equity for the last seven years is about 11
percent, which is higher than the banking sector’s average of 8.9 percent. EW is the most underpriced
banking stock in the list with Price-to-Earnings (P/E) ratio of only 5.3 times. EW has yet to recover as
the stock ended the first half with loss of 2.35 percent. With a huge discount touts book value of 38.7
percent, sustained growth in earnings this year should support the stock’s recovery.
3. Rizal Commercial Banking Corporation
Price: Php28.10
Discount to Book Value: 33 percent
Rizal Commercial Banking Corporation or RCBC (PSE: RCB) is among the top largest private
domestic banks in terms of assets, with 332 branches and 1,117 ATMs (as of April 2019) all over the
Philippines. RCB’s net income growth for the past 10 years has been limited only to a single digit
growth of seven percent per year from Php2.1 billion in 2008 to Php4.3 billion last year with revenues
growing also by the same percentage. This year, RCB’s first quarter net income grew by 15 percent
from Php1.1 billion last year to Php1.3 billion on the back of a 31.5 percent growth in interest revenues,
which increased to Php9.1 billion from Php6.9 billion a year ago. RCB has one of the highest cost-to-
income ratios at about 119.8, which is higher than the banking sector’s median of 108. It also has a
provisioned bad debt provision of 0.41 percent, which is slightly higher than the sector’s median of
0.35 percent. At a Price-to-Earnings (P/E) ratio of 12.1 times, the stock is trading at a relatively more
expensive multiple compared to the banking sector’s median of 11.38. Although the stock has a huge
discount to its book value of 33 percent, its return on equity is only 5.3 percent, which does not make
the company a bargain.

4. Union Bank of the Philippines

Price: Php61.25
Discount to Book Value: 17.5 percent
Union Bank of the Philippines (PSE:UBP) is the most technology driven bank in the industry with its
innovative real-time business solutions to meet changing customers’ needs. Owned by one of the
largest conglomerates in the country, Aboitiz Equity Ventures, UBP’s net income has been growing
by an average of 13.5 percent per year from Php2.0 billion in 2008 to Php7.3 billion last year.
The rise in net income has been supported by the 11.8 percent annual growth in UBP’s interest revenue
from Php10.4 billion in 2008 to Php31.6 billion in 2018. This year, UBP reported that its interest
revenues for the first quarter grew by 28 percent from P7 billion last year to P9 billion this year.
Net income, however, fell by 26 percent from Php2.9 billion last year to Php2.1 billion due to higher
costs and bad debt provisioning. UBP’s share price closed the first half of the year with a 13 percent
loss. Trading at par with the sector’s median Price-to-Earnings (P/E) ratio of 11.4 times, the stock
needs a compelling growth story to drive its share price above market average.

5. China Banking Corporation

Price: Php27.45
Discount to Book Value: 16.1 percent
China Banking Corporation (PSE:CHIB) is one of the leading private universal banks in the Philippines
with 621 branches and 972 ATMs strategically located all over the country. A member of the SM
Group, the country’s largest conglomerate, CHIB has one of the highest average returns on equity at
10 percent, higher than the sector’s average of nine percent. CHIB’s net income has been growing by
an average of 10.8 percent per year from Php2.9 billion in 2008 to Php8.1 billion in 2018 on the strength
of an annual 11 percent growth in interest revenues. For the first quarter of this year, CHIB reported
its net income increased by 24 percent to P1.8 billion from P1.5 billion in the same period last year, as
interest revenues grew by 51 percent from P7.5 billion to P11.4 billion. CHIB’s current discount to
book value at 16 percent translates to Price-to-Book Value (P/BV) ratio of 0.84, which is 24 percent
lower than its historical five-year average of 1.1 times since 2013. The Price-to-Earnings (P/E) ratio of
CHIB is only at 8.7 times, which is 24 percent lower than the sector’s median of 11.4 times. Further
growth in earnings coupled with improvement in the bank’s cost-to-income ratio should enable
The stock to appreciate by 31 percent eventually back to its historical Price-to-Book Value average.