The Bellwether Volume 3 No. 3 – March 31, 2015

Dear all, Releasing the 3rd issue of The Bellwether Volume 3, as published by FMIC's Research Department. This is a monthly publication on market action and outlook. The following are the highlights of the issue: US Interest Rate Policy Loses its Sting For Now Yields Rose on Defensive Market Metropolitan Bank & Trust Co. (MBT): Strong Core Business BDO Unibank, Inc. (BDO): The largest branch network   US Interest Rate Policy Loses its Sting For Now The recent and much awaited turning point in US monetary policy was the Fed’s policy language dropping the word “patient” as it held the key rate steady. It was supposed to signal a string of US interest rate policy fireworks, but not a few moderating factors have gotten in the way. A not so hot US economy, strong dollar (the dollar index up +25% since last July and more than +10% this year) and low core inflation (seen to be less than 2% in 2H2014) have convinced some economists that US interest rates are not going to rise earlier and faster such as those from Deutsche Bank. Deutsche Bank predicts the Fed may not at all hike rates in the next two meetings. Yields Rose on Defensive Market Global volatility will continue motivate local traders to remain defensive. Economic data from developed markets point to uneven growth and so we expect monetary policies to continue being accommodative. At the local front, the implementation of non-restrictive trading will contribute to upward bias of yields. Local fundamentals, however, will continue to support low yields. We might see some strong bids around the period of inflation release but the market will take quick profits after the announcement of March inflation figure. Metropolitan Bank & Trust Co. (MBT): Strong Core Business We recommend a Buy rating on MBT. We valued the company using Gordon Growth Model and Residual Income Model, resulting in a price target of Php115.19/sh or 22.7% upside potential. The biggest catalyst for the bank remains to be the SRO deployment in earning assets, excellent asset quality and wide net interest margin. BDO Unibank, Inc. (BDO): The largest branch network We think BDO is fully valued as is thus a sell. Valuation uses the Gordon Growth Model and Residual Income Model, resulting in a price target of Php125.48/sh, very little upside from the current price of Php121.60. Moving forward, the catalysts for the bank would be its wide NIM, better than BPI as of of 9mo14, fastest loan growth among the top three banks at 30%, pay-off of its recent acquisition in terms of the branch reach. Download the full PDF here! DOWNLOAD