Banks bucked corporate earnings trend in the first quarter, posting profit amid widescale losses of companies in the wake of lockdowns due to the new coronavirus disease 2019 (COVID-19) pandemic.
Stockbroker Colfinancial.com said the nine banks it monitors posted a combined 2.3 percent profit growth, though four of the nine posted lower earnings.
“Compared to our estimates, BDO Unibank Inc., Metropolitan Bank and Trust Co., and the Philippine National Bank performed below expectations, Security Bank Corp., EastWest Banking Corp. and Union Bank of the Philippines Inc. outperformed our expectations while Bank of the Philippine Islands and China Banking Corp. performed in line with expectations,” said Colfinancial.com.
Colfinancial.com said banks continued to benefit from strong lending income in the first quarter with all banks reporting double-digit growth in net interest income.
Even smaller banks which rely heavily on high cost funding reported above 30 percent growth in net interest income as these costs decline, the stockbroker said.
“As a whole, the sector’s net interest income expanded 23 percent during the quarter, driven by positive loan growth and higher net interest margin,” it said.
Trading gains stood at P11.9 billion, ex-BDO, up from P5.2 billion last year, amid a decline in sovereign bond yield. Colfinancial.com noted that BDO suffered an unrealized mark to market losses.
“However, given the strong lending income and robust trading gains, banks took the opportunity to aggressively set aside provisions in anticipation of higher non-profit loans brought about by the COVID-19 crisis. Note that banks’ provisions more than tripled to P24.7 billion during the first quarter,” Colfinancial.com said.
“As a result, annualized credit cost for the sector increased to 132 bps (basis points) from 43 bps a year ago,” it added.
Telcos posted the least decline in profit for the period, benefiting from strong data-revenue growth. This led for the telco sector’s recurring core net income to all by just 3.6 percent at P13.4 billion.
Colfinancial.com said despite the drop, results were in line with estimates.
“Total service revenues of the telco sector grew by 6.0 percent, with Globe Telecom Inc., and PLDT Inc., reporting a 2.4 percent and 9.3 percent increase respectively. Growth was still driven by higher data revenues, which offset the continuous decline of non-data revenues from services such as voice calls and SMS. Globe and PLDT reported a 10.9 percent and 19 percent increase in data revenues respectively,” it said.
Property posted a 12.3 percent decline in profits largely due to the weak performance of the residential and mall segments. The combined revenues of four out of the six realty companies it monitors fell 14.1 percent.
Ayala Land Inc. and Filinvest Land Inc. posted lower revenues as the community quarantine put on hold all selling and construction activities starting March 15.
“This resulted in lower units booked and lower construction completion for existing projects,” Colfinancial.com said.
SM Prime Holdings Inc. managed to grow its residential segment by 22.8 percent as higher completion in the early part of the first quarter offset the negative impact of the quarantine on revenue bookings.
Robinsons Land Corp. had a lumpy booking of residential revenues as a result of the change in their revenue booking policy, Colfinancial.com said.
The combined mall revenues of Ayala Land, SM Prime, Filinvest Land and Robinsons Land declined 19.1 percent.
“Property companies continued to collect rent on their office leasing portfolio, allowing combined office leasing revenues of the four property companies to grow by 18.2 percent,” Colfinancial.com said.
Consumer-related companies posted weaker sales.
Restaurants were the worst performers during the period, with Jollibee Foods Corp., reporting a net loss of P1.8 billion and Shakey’s Pizza Asia Ventures Inc., reporting a 34.7 percent decline in profits to P113.6 million.
Colfinancial.com said most manufacturers also performed poorly with Concepcion Industrial Corp. and D&L Industries Corp. posting profit drop of 62.6 percent and 31.1 percent, respectively.
Universal Robina Corp.’s profit for the period was “flattish” though declining 1.9 percent, as its domestic branded and commodity businesses performed well, it said.
Century Pacific Food Corp. was the only manufacturer that performed well during the quarter, with profits climbing 30.9 percent as consumers stocked up on shelf-stable food products ahead of the start of the enhanced community quarantine (ECQ).
Earnings of retailers were mixed with Pure Gold Price Club Inc. and Robinsons Retail Holdings Inc. at 16.6 percent and 32.7 percent, respectively. Both companies benefited from retailing essentials (groceries, medicine) as demand for basic goods picked up ahead of the ECQ.
Metro Retail Sales Group Inc. underperformed market estimates due to lower-than-expected margins, together with Wilcon Depot Inc., due to lower-than-expected sales and higher operating expenses.
“Among the 10 companies that reported their first quarter results, six companies performed below expectations (Concepcion Industrial, D&L, Jollibee, Shakey’s, Metro Retail, Wilcon), three performed in line with expectations (Century Pacific, Puregold, URC), while only one performed above expectations (Robinsons Retail),” Colfinancial.com said.
The power sector posted a 43.1 percent drop in profit for the period, due to unplanned outages and lower wholesale electricity spot market (WESM) prices.
“Excluding one-offs, power companies’ earnings fell by 29.3 percent during the quarter.
Although overall power demand was still healthy, volumes dropped significantly toward mid-March due to the start of the ECQ,” Colfinancial.com said.
Power generation companies, particularly those with significant exposure to the WESM, suffered weaker profits as WESM prices declined 59 percent during the period..
Manila Electric Co.’s core profits was up 2.3 percent to P5.7 billion. First Gen Corp., posted a 15.5 percent drop in profit to $65 million, though it was better than expected and registered the least decline in profits among power generation companies as bulk of its capacity did not suffer from unplanned outages.
Most of the company’s capacity is also covered by longer term power supply contracts, limiting its exposure to the decline in WESM prices, Colfinancial.com said.
Semirara Mining and Power Corp. and Aboitiz Power Corp. suffered steep declines of 43.1 percent and 48.7 percent, respectively.
“Note that 50 percent of Semirara’s power generation output was sold to the WESM. A sizeable portion of Aboitiz Power’s power generation capacity was also sold at lower than expected prices,” Colfinancial.com said.
The suspension of construction activities during the community lockdown led to a drop in profit for cement companies. All companies reported weak operating performance as measured by earnings before interest depreciation and amortization (EBITDA), which dropped at a median rate of 12.1 percent.
All cement companies reported lower revenues, declining by a median rate of 10.3 percent, attributable to both lower volumes and average selling price for the period.
Colfinancial.com estimates average selling price to have declined by “high single digit” due to price adjustments, while volumes dropped by 5 percent.
“Note that volumes for the first two months of the year grew at a high single digit rate but was offset by the huge drop in March due to the implementation of the ECQ,” it said.
