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On Thursday, Citi analyst Yong Hong Tan upgraded Bank of the Philippine Islands (BPI:PM) (OTC: BPHLY), a prominent Philippine bank with a market capitalization of $12.32 billion, from Neutral to Buy, while also increasing the price target from PHP133.00 to PHP151.00. The adjustment comes as the perceived risks associated with the Bangko Sentral ng Pilipinas (BSP) implementing fee limits on fund transfers seem to have diminished. These regulations were initially expected to commence on April 1.
The upgrade reflects Tan's outlook for the bank's improved net interest margins (NIM) following reserve requirement ratio (RRR) cuts. The bank has demonstrated strong dividend consistency, maintaining payments for 31 consecutive years, with increases in the last three years. Additionally, expectations for a moderation in dividend payout growth contribute to a more favorable long-term growth rate forecast for the bank. Citi also lowered the cost of equity (CoE) estimate slightly from 12.6% to 12.5%, reflecting the reduced earnings risk from the potential fee cuts.
The new price target of PHP151.00 is based on an expectation that the bank will maintain a price-to-book (P/B) ratio of 1.6 times, alongside a return on equity (ROE) profile of 15%. The analyst's statement highlighted these factors, indicating a more robust financial outlook for BPI.
The positive sentiment from Citi comes at a time when the Philippine banking sector is navigating regulatory changes and market dynamics. BPI's stock rating upgrade to Buy suggests confidence in the bank's ability to maintain profitability and growth amidst these conditions.
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