Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

East West Banking (EW PM) could be a gem for a small cap fund. Especially if it is to be sold. "No. We are not for sale" exclaimed Gotianun family management last year. Filinvest Development, the bank's controlling shareholder, has stated that it is not in any talks to sell bank despite heated speculation as to the contrary. The CEO of Filinvest was adamant that EW is "far too profitable" to be sold. The “float” at 19% is meagre but it has not inhibited GEM investors such as AXA, Dimension, State Street, Skandia, and American Century from accumulating positions.The franchise is consumer-centric and commands a digital focus. Some 22% of Advances relate to Corporate Loans – thus mitigating risks surrounding SME exposure. At 9M20, online and mobile users and transactions rose by 40% and 111% YoY. EW launched and refined its digital proposition last year with offerings such as “EasyWay” (sms, viber, messenger, and email), “EW Mobile/Online” for sole proprietors, “ESTA”, expanding the use of Chatbot for servicing, acquisition etc., “Komo”, digital banking, and an array of digital selling tools.EW commands a PH Score™ of 10. Top decile global fundamental momentum features stellar trends in Profitability, in Efficiency, in NIM, in Liquidity, in Capital Adequacy, and in Provisioning. The valuation variable is highly supportive too. It is only in Asset Quality that the bank does not “tick the right box”: the latter is a caveat as reflected by a surging problem loan ratio and Asset Writedowns, in part related to C19 effects on the Auto segment, which constrained bottom line growth to +28% YoY on a LTM basis. The aggressive Provisioning effort was with Security Bank the highest in the Philippine Banking space.<div class="content-highlight">With EW, the valuation is not so stretched (FV at 7%) while a PBV of 0.42x and Earnings Yield of 34.7% are not unappealing. In addition to both a top decile VFM global ranking and PH Score™, EW is also a “3 year off, 1 year on” stock.</div>

East West Banking (EW PM) could be a gem for a small cap fund. Especially if it is to be sold. "No. We are not for sale" exclaimed Gotianun family management last year. Filinvest Development, the bank's controlling shareholder, has stated that it is not in any talks to sell bank despite heated speculation as to the contrary. The CEO of Filinvest was adamant that EW is "far too profitable" to be sold. The “float” at 19% is meagre but it has not inhibited GEM investors such as AXA, Dimension, State Street, Skandia, and American Century from accumulating positions.The franchise is consumer-centric and commands a digital focus. Some 22% of Advances relate to Corporate Loans – thus mitigating risks surrounding SME exposure. At 9M20, online and mobile users and transactions rose by 40% and 111% YoY. EW launched and refined its digital proposition last year with offerings such as “EasyWay” (sms, viber, messenger, and email), “EW Mobile/Online” for sole proprietors, “ESTA”, expanding the use of Chatbot for servicing, acquisition etc., “Komo”, digital banking, and an array of digital selling tools.EW commands a PH Score™ of 10. Top decile global fundamental momentum features stellar trends in Profitability, in Efficiency, in NIM, in Liquidity, in Capital Adequacy, and in Provisioning. The valuation variable is highly supportive too. It is only in Asset Quality that the bank does not “tick the right box”: the latter is a caveat as reflected by a surging problem loan ratio and Asset Writedowns, in part related to C19 effects on the Auto segment, which constrained bottom line growth to +28% YoY on a LTM basis. The aggressive Provisioning effort was with Security Bank the highest in the Philippine Banking space.With EW, the valuation is not so stretched (FV at 7%) while a PBV of 0.42x and Earnings Yield of 34.7% are not unappealing. In addition to both a top decile VFM global ranking and PH Score™, EW is also a “3 year off, 1 year on” stock.

East West Banking Corp. (EW) : Stellar Value-Quality Trends Though Asset Quality Eroded