Equitable PCI downgraded to 'sell' - ATR-Kim Eng

ATR-Kim Eng Securities has dowgraded its rating on Equitable PCI Bank Inc. to a "sell" from "hold" given its rich valuation and deteriorating balance sheet. "We recommend switching to BPI (Bank of the Philippine Islands)," said ATR-Kim Eng Securities in its client report on August 2. "The stock is now more expensive than industry leader BPI, after rising 21 percent to a six-year high of P87.50 in the last nine trading days–inflating its already steep PB (price-to-book) valuation to 2.4 times from 2 times. Certainly, Equitable's improving returns do not justify its current valuation as its 2006 ROE of 13.3 percent equals its cost of capital." ATR-Kim Eng also noted that Equitable is trading at 19.4 times forecast 2006 PE, against a 13.5 times sector average. The brokerage firm also said that while EPCI remains as a potential takeover target, it is unlikely that bidders would offer significantly more than its current market valuation, even though Equitable should command a premium given its larger footprints in all its key business segments. "Recent major transactions suggest acceptable valuations at about 2 times companies' book valuations," ATR-Kim Eng said. The Union Bank of the Philippines paid about 2 times PB to acquire International Exchange Bank. China Banking Corp.'s (CHIB) placement of a 6.9 percent equity block in May were also priced at 2 times PB. ATR-Kim Emg also said the bank's key balance sheet and off-balance sheet items have been deteriorating. "Loans shrank 6 percent quarter-on-quarter or P8.5 billion to P130 billion in June–a second consecutive quarterly contraction. Hence, it would be tough for Equitable to reach our estimated 5 percent 2006 loan gowth. This would also impact interest spreads in the near-term," it said. - GMANews.TV