Like most Philippine banks, Banco De Oro has enjoyed a re-rating as the fortunes of the local market have improved. With the shares now at a price to book ratio of about 2.8 and on a prospective P/E ratio of 18, even CEO Nestor Tan thinks the bank, like the stock market, is fully valued for now.
"One risk [the Philippines] faces is that we overheat again because of speculative behaviour," says Tan, "and a contributor to the new wealth effect is the stock market. I wouldn’t want it to go much further from here."
He is in good company. UBS notes in a recent research report that the Philippines is now one of the most expensive markets in Asia, with a prospective P/E ratio of about 18.
Despite the caution, BDO could yet prove to be something of a gold mine for canny investors. Notwithstanding the apparent high valuation, the bank stands to benefit from several unique factors, most of which emanate from BDO’s merger, formally approved in March 2007, with fellow local lender Equitable-PCI Bank.
According to Tan, the merger is proceeding on schedule and without hitches. Branch rationalization means that management has identified 50 to 60 branch locations with overlap between the two banks.