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Banco de Oro (BDO): Big Miss (1H18 Review)

Banco de Oro (BDO): Big Miss (1H18 Review)

August 3, 2018

 

Banco de Oro’s (BDO) first half 2018 (1H18) net income (reported) was 1% lower at P13.1b versus P13.3b last year, reaching only 42% of its P31b year-end target and 41% of consensus estimates. The disappointing results were largely due to weak non-interest income, down by 2%, due to PFRS9 impact on its insurance portfolio (BDO Life) and weak fee income on suspension of salary loans, higher operating expenses, up by 12% and higher provision for loan losses, up by 22%, as the bank shifted to expected credit loss framework. Excluding the impact of both BDO Life and expansion of One Network Bank (ONB), BDO’s 1H18 net income was up 13% to P13.6b from P12.1b in 1H17, equal to 43% of estimates, still behind.

Sideways Ahead of the Policy Meeting and Q2 GDP Results

Sideways Ahead of the Policy Meeting and Q2 GDP Results

August 3, 2018

 

We expect the PSEi to trade sideways, within the 7,700-7,800 range, ahead of the Bangko Sentral ng Pilipinas’ (BSP) policy meeting and Q2 GDP results on August 9, and more earnings releases from heavily-weighted stocks such as GLO, SM, SMC, TEL, MEG and AGI to be released this week. Yesterday, SMPH and ALI announced their first half 2018 net income: SMPH’s second quarter net income increased by +16% to P9bn, bringing 1H18 to P16.6b up by +16% (in-line) while ALI recorded a 19% growth in 2Q18 resulting in a growth of +18% to P13.6b in the first half (slightly behind). Meanwhile, SECB, which released their earnings this afternoon, was down 18% in 1H18 to P4.3b (-20% for 2Q18, behind) on the back of lower trading gains (-59%,) higher tax expense (+55%) and slow growth in net interest income (+8%).

July Inflation Cements August BSP Hike

July Inflation Cements August BSP Hike

August 3, 2018

 

There is strong upward bias on the yield curve as July inflation clocked in at 5.7%, beating consensus expectation of 5.5%, near the top-end of the Bangko Sentral’s (BSP) forecast range of 5.1%-5.8%, higher than June’s 5.2%, and a five-year high. Food and non-alcoholic beverages led the growth at 7.1%. The high figure has all but cemented a 50-bp hike this August 9, when the BSP’s monetary board meets again, a move that is expected to buoy the Philippine peso that dipped by as much as 6% this year and curb inflation from overshooting. The strong hawkish stance by BSP Governor Espenilla helped the peso recover some ground, up 0.43% to Php53.1 against the dollar for the month of July, and spurred slight buying at the tail-end, down by an average of 8bps week-on-week (WoW) as Espenilla’s statement relieved investors that have been calling for more hikes. Philippine long-term growth prospects remain dim, especially with charter change noise, reflecting on a flatter tail. Analysts also noted renewed trade war tensions between the US and China and a dovish Bank of Japan (BoJ) contrary to hawkish expectations could have also contributed to the buying.

Aboitiz Power (AP) 1H18 Review: Solid Expansion Despite Margin Compression

Aboitiz Power (AP) 1H18 Review: Solid Expansion Despite Margin Compression

August 2, 2018

 

Aboitiz Power’s core income for the second quarter of 2018 (2Q18) fell by 3% to Php5.3bn, bringing its core income for the first half to Php10.5bn, flat YoY, slightly behind (44%) our full-year forecast of Php23.8. Margin compression persisted in the second quarter due to lower hydrology in large hydros, larger share of low-margin retail electricity supply (RES) contracts, and lower margins of geothermal plants (specifically Tiwi-Macban) that is pegged on higher coal indices. As a result, beneficial EBITDA rose by 4% YoY, but EBITDA margin compressed by 300bps to 29%. Foreign exchange translation losses from finance lease and loan revaluation almost doubled to Php1.4bn from last year’s Php744mn, dragging net income lower by 6% to Php9.1bn.

Upswing 'Til When?

Upswing 'Til When?

July 27, 2018

 

We expect the PSEi to hover around 7,600-7,900 as the market awaits the release of PH’s Q2 GDP (est: 6.7%) and the Monetary Board meeting, which is widely anticipated to raise policy rates by at least 25 bps, both are scheduled on Aug. 9. So far, H1 earnings results were mixed: MBT (+16% to P11bn, outperform), BDO (+13% to P13.6bn, underperform), and MER (+7% to P10.9bn, outperform).

Accelerating Inflation

Accelerating Inflation

July 27, 2018

 

Expectations of 1) a Bangko Sentral ng Pilipinas (BSP) rate hike in August spurred by rising inflation expectations, and; 2) faster US economic growth in the past quarter drove local benchmark yields higher by an average of 11bps last week. The BSP expects July inflation to rise between 5.1%-5.8%, higher than June’s 5.2% and the Department of Finance’s (DoF) 5.3% forecast. During the prior week, Standard Chartered reported its August inflation to rise by 5.8%. We expect yields to go sideways this week as the market anticipates the ‘strong monetary adjustment’ indicated by BSP governor Espenilla last week, but a strong upward bias remains.

Bouncy

Bouncy

July 26, 2018

 

Market was up 66.98 points closing at 7,514. Market is gathering legs for recovery and paying attention to positive news, ignoring the trade war noise. But still volume is low at Php4.5bn in last ten trading sessions on average which featured two days of net foreign buying. The Speech of the President was far from boring, it sounded very resolute in getting TRAIN package two and the rice tariffication legislated in the second half.

Recovery?

Recovery?

July 24, 2018

 

There were Php196m worth of net foreign buying last Monday, July 23, in the local market, the second of such kind in the last ten trading sessions with small average value turnover of Php4.5bn. Was it the beginning of the return of the foreign funds or just a shift in mood, anticipative of what could be a strong second quarter GDP growth number, 6.8-7.0% are the emerging forecasts. It’s also ahead of the August 9 BSP meeting expected to bring about a 50 bps hike geared against rising inflation.

Steady Support at 7,300

Steady Support at 7,300

July 20, 2018

 

We expect the PSEi to trade sideways as investors wait for catalysts ahead of the first half 2018 earnings results and amidst continued trade war tensions. There’s downward bias as Pres. Donald Trump threatened the expansion in tariffs to more than $500bn worth of goods imported from China. Additionally, G-20 finance ministers and central bank governors in Argentina warned about trade tensions as risk to global growth. Pres. Trump is set to meet European Commission President Jean-Claude Juncker on Wednesday, July 25, to discuss trade relations.

Fifty Basis Point-Hike Likely

Fifty Basis Point-Hike Likely

July 20, 2018

 

Affirmation of the Philippines’ credit rating and outlook from Moody’s, Fitch, and S&P provided a brief respite for bond investors after weeks of local and global economic and geopolitical uncertainty. Both Moody’s and Fitch maintained the country’s BBB/Baa2 rating - a notch above investment grade - while maintaining a stable outlook. Meanwhile, S&P upgraded its outlook from stable to positive for the country, citing the country’s economy’s overall strength. All agencies flagged risks from higher inflation and the possible shift to federalism.

Earnings Season

Earnings Season

July 13, 2018

 

We expect the PSEi to hover around 7,200-7,400 amid lack of leads and ahead of the earnings season which will start next week with the release of Q2 earnings of IMI on July 27 and BDO & MER on July 30.

The Cost of Federalism

The Cost of Federalism

July 13, 2018

 

Global geopolitical and local political noise put investors on the defensive and will keep the yield curve elevated in the near-term. Ongoing discussions about a shift to federalism is getting more traction, but economists and analysts are warning about the ill-effects of the shift to the economy. Fiscal deficit to GDP ratio is estimated to reach 6% or more after another Php44-72bn needed for the shift, according to Socioeconomic Planning Secretary Ernesto Pernia, and might risk hyperinflation or a downgrade of the Philippines’ credit rating if done hastily. Overseas, the trade battle between the U.S. and China worsened after the Trump administration threatened to impose 10% tariffs on $200bn of Chinese products ranging from clothing to furniture. The latest tariff threat came just days after the U.S. levied tariffs on $34bn of Chinese-made machinery and electronics on July 6, on top of scheduled tariffs on $16bn of Chinese electronics and other components. Coupled with overshooting inflation and a behind-the-curve Bangko Sentral (BSP) policy rate, there are too many unknown variables in play that could sideline bond market investors. The highlights of the monetary board meeting last June 21 will be released on Thursday and will shed more light on the BSP’s stance.

Hovering around the bear line

Hovering around the Bear Line

July 6, 2018

 

We expect the PSEi to continue trading around 7,200 as investors remain on the sidelines amidst the lack of catalysts and ahead of the first half earnings which starts by end of the month. Key economic data to monitor are Overseas Filipino Workers remittances and Balance of Payments to be released next week.

Defensive Bond Market

Defensive Bond Market

July 6, 2018

 

Investors and traders alike are defensive amid brewing local economic and geopolitical changes: (1) the shift to federalism gains traction as President Duterte endorses the consultative committee’s draft of the constitution; (2) faster-than-expected inflation last June of 5.2%, which analysts expect to peak in the third quarter; and (3) higher government borrowing. The national government is estimated to end 2018 with an outstanding debt of Php7.42tn, higher than Php7tn initially targeted.

Pressure Build-up on Local Yields

Pressure build-up on local yields

June 29, 2018

 

Upward interest rate pressures are building up ahead of the June inflation data release on Thursday, which the Department of Finance (DoF) expects to clock in at 4.9% from 4.6% in May. Consensus is currently at 4.8%. If either of the forecasts are hit, it would be a new high for the year and would go further above the Bangko Sentral’s (BSP) forecast this year of 4.6%. and increases the odds of another rate hike during the next monetary board meeting this August. The DoF also revised its current account deficit estimate in 2019 from 3.0% to 3.2%, which may further put pressure on the peso, currently the worst performing currency in the region, down 6.8% year-to-date (YTD). The estimated overall balance of payments (BoP) position for the year was also revised to a deficit of $1.5bn from $1bn. After two consecutive rate hikes in the past two meetings, expectations of a third hike in the next monetary board meeting continue to mount to curb inflation and ease pressure on the peso.

Range-Bound

Range-Bound

June 29, 2018

 

We expect the PSEi to be range bound at around 7,000-7,300 ahead of the June inflation release on July 5 (Thurs.), with bet at 4.7% year-on-year (y/y), slightly higher than May’s 4.6%. Market is entering the 6th month of correction from the Jan. 29 peak of 9,058, which in the recent past three corrections lasted on the average by 7 months. Other key economic releases this week are the latest FOMC minutes and US jobs data on July 5 (US time).

Bear

Bear

June 22, 2018

 

We expect the PSEi to remain volatile around 7,000 as investors sell on strength every time the market goes beyond this level. There’s more downward bias as trade war concerns escalate. China and European Union officials agreed to oppose US protectionism and unilateralism which could later cause a global recession. Key events to monitor are US GDP on Thursday and Philippine June inflation next week.

Local yields soar on BSP hike

Local yields soar on BSP hike

June 22, 2018

 

We expect upward pressure on bond yields to persist this week following the Bangko Sentral’s (BSP) rate hike last week, the second this year which brought the policy rate to 3.5%. Consensus before the monetary board meeting was that the BSP will stand pat (but another hike sometime within the year was expected), although there was already a growing sense of urgency after the meeting was rescheduled a day earlier following the Fed’s second hike of the year last May. We expect the move to temper the peso’s continued hemorrhage this year, which touched a 12-year low at Php53.50 last June 18. The peso improved by 0.3% to php53.29 after the hike by week’s close. Standard & Poor (S&P) and Fitch’s BMI Research expect another 25-bp hike to 3.75% within the year to curb inflation and ease pressure on the peso.

FDI’s shine amid policy uncertainty

FDI’s shine amid policy uncertainty

June 20, 2018

 

Philippine Stocks Fall to 14-Month Low Before Central Bank Meet. This was the media headline early last Monday. PSEi shed 115.43 points on close to 7414.11, narrowing early morning losses of up to 195 points on Php7.7bn traded value on Monday. The selldown swirled about the same concern (among others); will the BSP choose to stay on the curve or not (raise the key rate a second time).

Vulnerable Emerging Markets

Vulnerable Emerging Markets

June 18, 2018

 

A Bloomberg report a week ago cited the Philippines as among the vulnerable emerging markets (EMs) to capital outflows due to wider gaps in external accounts. We’ve culled some stats that tend to lump us with problematic EMs such as Turkey, Argentina and South Africa where inflation has surged and budget deficits ballooned on government spending sprees, huge borrowings and tepid GDP growth.

Upward pressure on yields

Upward pressure on yields

June 15, 2018

 

Bond yields are expected to rise if the BSP raises its key policy rate in tomorrow’s meeting. But consensus expectation is that the Monetary Board (MB) will keep policy rates unchanged, digressing from the Fed’s hawkish tone set last week, citing easing inflation data in May. Despite recording a five-year high of 4.6%, inflation in May stabilized from April (0% inflation month-on-month) and clocked in below market expectation of 4.9%.

7,500 Breaks

7,500 Breaks

June 15, 2018

 

 

We expect the PSEi to trade between 7,300 - 7,600 this week as the market digests the impact of escalating trade war between US & China and sustained PHP weakness. Key economic event this week is the Monetary Board (MB) meeting on June 20 where the market expects policy rates to be kept steady at 3.25% due to easing inflationary pressure.

Fed Hike Hits Peso and Equities

Fed hike hits peso and equities

June 8, 2018

 

We expect the market to continue trading within 7,500-7,800 amidst shortened trading week due to observance of holidays. Additionally, investors remain on the sidelines waiting for signals from the upcoming US Federal policy meeting. The European Central Bank and Bank of Japan are also scheduled to meet this week. There’s downward bias as the peso breached P53 for the first time in 12 years. Key events to monitor are US FOMC rate decision on Thursday and BSP Overnight rate on June 21.

Will BSP Follow Second Fed Hike?

Will BSP follow second Fed hike?

June 8, 2018

 

We expect bond yields to remain elevated this week ahead of the expected Fed hike this Thursday (PH time). U.S. inflation also accelerated in May by 2.8% year-on-year (YoY), the fastest pace in more than six years, reinforcing the Fed’s outlook for gradual interest rate hikes while eroding wage growth that remains subdued despite an 18-year low in unemployment. This will be the second of the three hikes projected by the Fed this year. With gross international reserves (GIR) level falling to a 3-year low last May to $78.97bn from $79.61bn in April, the peso-dollar rate fell to a 12-year low of Php52.95 last Monday. A hike by the Bangko Sentral ng Pilipinas (BSP) could prevent the peso from weakening any further, a decision that could be made in the next monetary board meeting this June 21.

Rangebound on Higher Inflation Expectation

Rangebound on higher inflation expectation

June 1, 2018

 

We expect the bond market to sell amid the inflation news that portend of higher interest rates, keeping the yield curve firm to elevated this week. This is amid the release of May inflation number at the low end of the BSP inflation forecast band of 4.6% - 5.4%. May headline inflation spiked to a 5-yr high of 4.6% from 4.5% in April, but lower than the Department of Finance’s 4.9% forecast. While inflation was expected to taper off, market is hardly convinced rates have already peaked for the year. Inflation could continue to rise in the next three months due to base effects, global crude oil volatility and weak peso, although these may be largely priced in following the BSP’s 2018 guidance of a high inflation rate of 4.6% in 2018.

Holding at 7,500

Holding at 7,500

June 1, 2018

 

We expect the market to trade between 7,500-7,700, with a downward bias as the market awaits May inflation data which is expected to hit a fresh new high, coupled with lingering concerns that US tariffs on its key allies could reignite a trade war. Nonetheless, we expect the market’s strong support to hold at 7,500. Key economic indicators to watch out for this week are inflation on May 5 and external trade on May 8.

Strategy report: Calm after the jitters

Strategy report: Calm after the jitters

May 31, 2018

 

Most recent news headlines were so negative, - an Italian Brexit and Trump’s renewed tariffs on $50bn worth of Chinese imports - they weighed heavily on global stocks and did more harm than any MSCI global index rebalancing could.

MSCI rebalancing is near-term risk

MSCI rebalancing is near-term risk

May 25, 2018

 

We expect the market to trade sideways especially during the start of the week as thin trading continues. US and UK markets are closed on Monday while several ASEAN markets - Singapore, Malaysia, Indonesia and Thailand are closed on Tuesday for Vesak holiday. Investors are still waiting for market moving events that will push the market to a certain direction. But there’s downward bias on the back of expected outflows by end-May due to MSCI Rebalancing. Key economic data to monitor are: US GDP on Wednesday and US unemployment rate on Friday.

Philippine Balance of Payments (BOP): Leaking a Lot

Philippine Balance of Payments (BOP): Leaking a Lot

May 25, 2018

 

The BOP gap is huge and ahead of the BSP’s hunch of $1.0bn deficit for the year. The cumulative number as of April is already a bigger negative, $1.5bn. No wonder the currency is Asia’s worst on the USD, down 5.4% and at a 12-year low; yesterday’s close of Php52.55. And the currency worry is keeping a lid on equities’ trading at the 7,500 -7,600 range so far and likely extending the consolidation period.

Robinsons Land Corp. (RLC): Big hits and slight misses

Robinsons Land Corp. (RLC): Big hits and slight misses

May 25, 2018

 

We have a target price of Php26.6/sh which offers a 31% upside from current price (see Table 2). This equates to 20.3x 2018 P/E based on 16% net income growth in 2018 to Php6.8bn driven by sustained leasing growth and residential segment’s recovery. Target price is based on revised net asset value (RNAV) of Php38/sh and applied 30% discount to account for Chengdu property development’s execution risk and EBIT margin compression observed in malls due to renovation.

MEGAWORLD CORP. (MEG): Rental demand to persist, Residential beating guidance

Megaworld Corp. (MEG): Rental demand to persist, Residential beating guidance

May 25, 2018

 

MEG first quarter (1Q18) net income was up 11.2% to Php3.2bn, in line with estimates. It’s seasonally low, but we expect a ramp up in earnings in the second and third quarters to reach the firm’s guidance of replicating last year’s growth of 12.7% to Php14.4bn this year. Key driver will be the rental business continued to post high growth, recording 16.5% jump driven by robust demand from Business Process Outsourcing (BPO) and Philippine Offshore Gaming Operators (POGO). On the property development side, pre-sales jumped 63% to Php42.7bn, tracking well its Php110bn full year target. We keep our buy rating of Php5.82/sh or 24% upside from today’s close.

Telco Sector: Recovery?

Telco Sector: Recovery?

May 25, 2018

 

Globe Telecom’s (GLO) core income rose 24% year-on-year (y/y) to P4.6bn (pre-PFRS) in Q1 2018 (ahead of the full year (FY) 2018 consensus of P15.6bn). Outperformance was on the back of strong service revenues (+8% y/y), coupled with cost management (opex up 3% y/y). EBITDA grew by 18% y/y to P15.8bn while EBITDA margin jumped by 400 bps to 47%. Given rosy Q1 results, Globe upgraded its 2018 guidance for revenues from low-single digit to mid-single digit growth and EBITDA margin from ~40% to ~mid 40%.

Rally on Dovish Fed, Flush Liquidity

Rally on dovish Fed, flush liquidity

May 25, 2018

 

We expect bond yields to trade sideways amid flush liquidity after the Bangko Sentral (BSP) cut the reserve requirement again by 1% to 18%, releasing an estimated Php90bn into the system. FXTN 05-72 also matured last week (Wednesday), adding another Php130bn. The cut was a move widely seen to keep domestic interest rates from unduly rising and making government debt borrowings more expensive. It is also supportive of the country’s growth objective of 7%-8%. Moreover, the Fed’s dovish tone from the latest Fed minutes released last week sent US Treasury (UST) yields lower by an average of 8bps week-on-week (WoW).

Cement Sector: Volume Recovery

Cement Sector: Volume Recovery

May 25, 2018

 

Cement companies’ earnings in Q1 2018 slightly improved from previous quarters’ huge declines, albeit still negative (except for Eagle) on a year-on-year (y/y) basis. This is on the back of robust cement volume growth – double-digit increase for Cemex (+16% y/y) and Eagle (~+14%) and 7% for Holcim -- as construction activities picked up owing to accelerating government infrastructure spending which in Q1 grew by 34% y/y. Barring execution risk, the government infrastructure spending is set to grow at the same pace in the next three quarters. Cemex estimated industry cement demand rose 10% y/y in Q1, which is in line with the 9.3% y/y growth in construction activities for the period based on GDP figures.

PSEi 1Q18 Earnings: Mixed; Few outperformed

PSEi 1Q18 Earnings: Mixed; Few outperformed

May 23, 2018

 

Majority of PSEi earnings results were in line (15) and above (3) forecast (total of 18) while 12 were behind. Aggregate earnings growth yoy based on the PSE approach for earnings calculation is 9%, (core income only), tracking FMIC’s 10% earnings outlook for this year, but behind Bloomberg’s 14% which includes one-offs (loss and income).

Century Pacific Food, Inc. (CNPF): Higher Costs Persist

Century Pacific Food, Inc. (CNPF): Higher costs persist

May 22, 2018

 

Century Pacific Food (CNPF) met consensus expectations as net profit in the first quarter of the year grew 4% to Php732m versus last year’s Php701m on the back of healthy top line growth. Consolidated revenues grew 22% to Php9.1bn as sales grew across all segments. Slightly offsetting robust top line was faster increase in costs of goods, up by 25.7%. As a result, gross profits were up by only 12.6% to Php2.3bn. Likewise, higher operating expenses (opex) (+32%) incurred by the company for marketing initiatives caused bottom line to grow at a slower pace of 4%.

D&L Industries, Inc. (DNL) - Resilient

D&L Industries, Inc. (DNL) - Resilient

May 18, 2018

 

For full year 2018, management expects net income to grow between 10%-13% to Php3-3.2bn on the back of further improvements in margins. Margins are seen to pick up especially for the commodity business given easing commodity prices, an upside to DNL. Price of palm oil, which makes up 28% of raw materials (or 24% of total cost and expenses), has decreased by 9% year-on-year (yoy) and is expected to continue trending downwards in the next quarter. From $617/mt at spot price, Bloomberg median forecast in Q2 and Q3 are at $604/mt and $617/mt. There’s an expected slight uptick to $629 in Q4 but will continue its downward path in Q1 2019 at $612/mt. Meanwhile, coconut oil price which similarly makes up 24% of total costs of DNL saw a 25% decline in prices yoy (1Q18). World Bank estimates coconut oil prices to drop 20% this year.

Consolidation

Consolidation

May 18, 2018

 

We expect the PSEi to consolidate around 7,500-7,800 due to lack of catalysts. Foreign outflows may persist in the near-term as passive funds flow to China with the inclusion of China A shares in the MSCI Emerging Markets (EM) index beginning June 1. First quarter earnings results of 9% growth was behind full year consensus of 13% due to rising input cost and inflation and weaker PHP. Results were mixed -- 3 outperformed, 15 in-line and 12 underperformed.

Sizing Up Second BSP Hike

Sizing up second BSP hike

May 18, 2018

 

We expect bond yields to remain elevated as US Treasuries (UST) continue to climb amid $99bn in new supply this week and as investors await the Fed minutes to be released on Wednesday (Thursday, PH time). USTs climbed to seven-year highs last week following the release of solid economic data; the 10-yr UST rose to 3.13% before settling at 3.06% by the end of the week, while the 2-yr rose to a high as 2.60% before falling back to 2.56% by week-end. Demand for the fresh UST supply will depend on whether or not investors will be attracted to higher yields or be nervous of a Fed that appears to be on track for at least two more rate hikes this year. Hence, the importance of the Fed minutes.

Semirara (SCC) - Outage Discount (1Q18 Review)

Semirara (SCC) - Outage Discount (1Q18 Review)

May 17, 2018

 

We cut our target price for Semirara (SCC) by 24% to Php35/sh and downgrade SCC to a HOLD to account for: 1) poor plant reliability especially the unplanned shutdown of South Luzon’s (SLPGC) unit 3 (150MW) by 90 days this year; 2) lower margins after recontracting of Sem-Calaca’s (SCPC, 2x300MW) units 1 and 2; 3) staggered rehabilitation schedule of units 1 & 2 in 2019/20; 4) flatter coal production and consequently, coal sales; 5) higher WACC (from 7.5% to 8.0%) due to a higher risk-free rate (from 4.9% to 5.75%); and 6) removal of St. Raphael (SRPGC, 2x350MW, 50% owned) from the target price due to its still pending PSA with the ERC with no visible timeline of its resolution. These were offset by higher average selling prices of coal due to higher Newcastle benchmark prices in the near-to-medium term.

Economic Update: PH Growth Accelerates to 6.8% in Q1

Economic Update: PH Growth Accelerates to 6.8% in Q1

May 11, 2018

 

Philippine growth in the first quarter of 2018 came in line with consensus at 6.8% year-on-year (y/y), faster than previous quarter’s 6.5%, albeit slightly slower than government’s full year target of 7-8%. Growth was lifted by manufacturing and construction on the supply-side and government spending and investments on the demand-side. Without the inflation damper, NEDA Sec. Pernia said growth in the first quarter could have approached the mid-range of 7-8%.

Banco De Oro (BDO): Strong Lending Business

Banco De Oro (BDO): Strong lending business

May 11, 2018

 

Banco de Oro (BDO) reported Php5.9bn in net income for first quarter 2018, relatively flat, up by 0.5% year-on-year (y-o-y) from the previous year’s Php5.8bn. Without the drag of 1) one-off mark to market losses from the investment portfolio of BDO Life 2) PFRS9 implementation 3) ongoing restructuring of One Network Bank and 4) higher doc stamps, recurring income would have risen by 16%. Note that for the past 2 years, first quarter earnings were historically weak and ranged around 21% of full-year guidance but picked up in the next quarters.

Relief Rally on BSP Hike

Relief rally on BSP hike

May 11, 2018

 

A relief rally, especially on the long-end, followed the Bangko Sentral ng Pilipinas’ (BSP) first 25-bp rate hike in three years and the first since the shift to an interest rate corridor system last 2016. We expect a slight flattening of the yield curve as momentum spills over this week especially in the long-end while yields on the short-end rise in response to the hike. The hike was long overdue and the delay weighed heavily on investor confidence. A BSP widely perceived to be behind the curve has left the peso weak and the equities market plummeting to this year’s lowest. Also on the same day, 1Q18 GDP growth was reported at 6.8%, within expectations, driven by growth in industry (+7.9%) and services (+7%) in the supply side and domestic demand growth (+8.3%) in the demand side. Private consumption slowed (+5.6% from 6.2% in 4Q17 and 5.9% in 1Q17), as expected from the onset of TRAIN.

Weekly Equities Summary & Outlook - May 7 - May 11, 2018

Weekly Equities Summary & Outlook - May 7 - May 11, 2018

May 11, 2018

 

We expect the market to trade sideways to upward as investors’ concerns ease after the central bank’s move to raise rates. Last Friday, we also saw net foreign buying of Php571mn, the highest since January 17, 2018 which could signal foreign funds are coming back. Yesterday, foreigners were still net buyers with a total purchase worth Php293.4m. This is the first time since end-January that foreign buying continued for two consecutive days. Note, however, that value traded remained below the Php8.1bn daily average at Php5.7bn last Friday and Php7.9bn yesterday. Key economic releases to monitor would be balance of payments on the 18th, budget balance on the 23rd and US GDP on the 30th. Key concerns remain inflation and weakening currency.

Ayala Land, Inc. (ALI): Residential off to a hot start

Ayala Land, Inc. (ALI): Residential off to a hot start

May 10, 2018

 

ALI’s first quarter 2018 (1Q18) core net income was Php6.5bn, up 17% (in line). Growth was driven by topline which saw 16.9% growth to Php37bn. Residential segment was off to a solid start, posting 31% growth year-on-year (y-o-y) to Php26.1bn. Commercial leasing saw 11% expansion and Php8.2bn contribution.

Universal Robina Corp. (URC): Challenged

Universal Robina Corp. (URC): Challenged

May 10, 2018

 

URC’s reported net income was down 12.3% to Php3.0bn from Php3.4bn but core earnings (without foreign exchange gains amounting to Php759mn) was down 25% to Php2.9bn. Core net income, as a result, ended at Php2.2bn from Php3.0bn, down 26.7%, below consensus estimates.

Industry Report: Philippine Power Sector - Struggling

Industry Report: Philippine Power Sector - Struggling

May 9, 2018

 

Who would provide the power requirements of the Philippine economy that may grow 7%-8% when the current capacity exhausts in the face of investors’ poor appetite for greenfield energy expansion? This seems to be the burning question now as the Philippine energy industry looks like it is more on a consolidation than expansion mode as reflected in the sell out of AES Masinloc, GN Power and Alsons Power to deep-pocketed buyers - conglomerates San Miguel and Aboitiz Power. Apparently, the latter two have chosen to buy cheaper brownfield (existing plants) than construct costlier greenfield projects from ground up.

1Q18 Earnings Flavor: Wanting

1Q18 Earnings Flavor: Wanting

May 8, 2018

 

The earnings outperformance (the best so far) came from the unexpected sector, TELCO, and from the company that sounded the least optimistic about this year’s outlook, GLO. See metrics below. The rest of the disclosures so far, total of 22 including GLO, were a mixed bag of mostly below estimate and a few in line. So far, there’s a dearth of outperformance. ALI is yet to announce this week.

SM Prime Holdings, Inc. (SMPH): Sustaining momentum

SM Prime Holdings, Inc. (SMPH): Sustaining momentum

May 8, 2018

 

Revenues were up 14% to Php23.4bn driven by 25% growth in residential revenue which accounted for 32% of total. Malls, offices, and hotels and convention centers, were steady with a combined growth of 9.3%. Operating income was 16% driven by improved margins from maturing malls and higher property prices of the company’s residential units.

Aboitiz Power (AP) - Growing RES (1Q18 Review)

Aboitiz Power (AP) - Growing RES (1Q18 Review)

May 4, 2018

 

Aboitiz Power’s (AP) core net income rose by 4% to Php5.2bn, behind our revised FY2018 estimate (22%) of Php23.8bn (from Php24.7) and consensus (22%) estimate of Php23.5bn. Contributions from new asset Pagbilao (PEC, 400MW, 50% owned) and better availability and contracting levels of GNPower Mariveles (GMCP) were offset by weak ancillary services by large hydros SNAP Magat and Benguet from low hydrology and outage with Therma South. EBITDA grew by 7% to Php11.5bn driven mainly by the generation segment, but EBITDA margin contracted by 300bps to 31% due to the aforementioned low hydrology, more low-margin retail electricity supply (RES) contracts, and Davao coal’s outage. Net income fell by 9% to Php4.0bn due to FX losses from loan revaluation (mostly Therma Luzon’s).

Metro Pacific Investments (MPI PM): Value Proposition

Metro Pacific Investments (MPI PM): Value Proposition

May 4, 2018

 

Metro Pacific Investments (MPI) posted core income of Php3.6bn in the first quarter of this year (1Q18), up by 16% year-on-year (YoY), driven by broad-based growth. The result was in line with both our own and consensus expectations at 25% of full-year estimates. Increased ownership in Beacon (from 75% to 100%) last June 2017 boosted power contribution by 16% to Php2.4bn. Growth in domestic traffic by 10% in tollroads drove earnings contribution higher by 16% to Php1.1bn. Maynilad’s contribution grew by 12% to Php802mn, while contributions by the hospital and rail business rose by 4% and 32%, respectively, to Php190mn and Php91mn. Head office expenses fell by 23% but was offset by an increase of 23% in interest expense from new debt drawdowns (Php10.5bn in 2017) and accretion from additional Beacon stake.

Relief Rally Hinges on Q1 GDP and Policy Hike

Relief Rally Hinges on Q1 GDP and Policy Hike

May 4, 2018

 

We expect the PSEi to move sideways early this week as investors await the results of Q1 2018 GDP and the Monetary Board (MB) policy meeting which will be both released on May 10. In-line or better results from consensus -- Q1 GDP accelerating to 6.7% from 6.5% in Q4 and a 25 bp rate hike from the BSP -- are expected to deliver a relief rally in the local market, which has underperformed global equities due to weak sentiment. So far, Q1 earnings results have failed to lift the market as outcomes were mixed, four were in-line, one outperformed and four underperformed. This week, ALI, ICT, TEL and LTG will release their Q1 earnings results.

BSP Hike Imminent

BSP hike imminent

May 4, 2018

 

We expect local bond yields to remain elevated ahead of the Bangko Sentral’s monetary board meeting this Thursday, which the market bet will finally hike rates. The BSP’s inaction has weighed heavily on sentiment and the currency. April inflation, reported last week, rose by 4.5% year-on-year from March’s 4.3%, within analyst expectations but above the BSP’s target band of 2%-4% even with the rebased index.

Meralco (MER) 1Q18 Review - Electricity Volume Surprises

Meralco (MER) 1Q18 Review - Electricity volume surprises

May 2, 2018

 

Merlaco’s (MER) core income in the first quarter of 2018 (1Q18) reached Php4.9bn, 7% higher year-on-year (YoY) driven by stronger-than-expected sales volume growth of 8.9% YoY to 10,145GWh. The results were in line (24%) with both our full-year estimate and consensus. Higher sales volume were slightly offset by lower average distribution rate, down 1% to Php1.39/kWh due to sales mix, leading to a 7% rise in electricity revenues to Php69.0bn. EBITDA rose by 10% to Php8.7bn, in line with volume growth, while EBITDA margin improved by 400bps to 12.3%. Generation charge rose by 11% to Php4.68/kWh.

Eyeing a BSP Hike

Eyeing a BSP hike

April 27, 2018

 

We expect local bond yields to remain elevated as the market is somewhat unanimous in its reading of the Bangko Sentral ng Pilipinas’ (BSP) recent signal of its readiness to hike rates in its next policy meeting. Banks are predicting that the BSP will hike at least once and as soon as its meeting on May 10 to curb a rapidly rising local inflation. April inflation will be released on Friday and is expected to hit 4.5% from 4.3% in March.

Relief Rally Ahead of BSP Move Despite Inflation

Relief rally ahead of BSP move despite inflation

April 27, 2018

 

We expect the market to trade sideways as investors await the results of April inflation reading on Thursday, May 4. There could be profit taking after the recent rallies and ahead of the expected rising inflation print for last April. According to the Bangko Sentral ng Pilipinas (BSP), consumer price index likely hit 3.9% to 4.7% due to rising petroleum prices (oil prices moved above $74 a barrel, highest since 2014), higher rice prices and more expensive electricity rates.

Will the BSP Pull the Trigger in May?

Philippine Strategy Update: Will the BSP pull the trigger in May?

April 26, 2018

 

Our main scenario is that the BSP is likely to pull the trigger against rising inflation in its next policy meeting come May 10. See basis for the outlook below. Consensus bet but unconfirmed by BSP is a likely 25 bps rate hike, signalling a very gradualist approach.

Banking: Higher Float and Profitability Are Key to Heavier MSCI Weights

Banking: Higher float and profitability are key to heavier MSCI weights

April 23, 2018

 

BDO announced management guidance of 11% profit growth to Php31bn after achieving Php28.1bn net profits in 2017 and Php25bn in 2016, a consistent progression that’s unmatched in the industry. It reported flat earnings of Php5.9bn in the first quarter of this year vs. Php5.8bn last year on account of mtm losses related to PFRS9 compliance. The flatness is less of an issue than a reflection of its business cycle. Last year, it was also flat for the same period but management correctly predicted profits will ramp up in the next three quarters to achieve the profit guidance of Php28bn. It might follow the same cycle this year.

PSEi Trips on Weak Sentiment

PSEi trips on weak sentiment

April 20, 2018

 

We expect the PSEi to hover between 7,400-7,700 amidst weak sentiment over the country’s accelerating inflation, overheating risks, and rising US bond yields ahead of Q1 earnings results. Last Friday, BDO announced its Q1 2018’s core earnings (+16% y-o-y, underperformed), while CHP and MER will disclose their Q1 results on April 27 and April 30, respectively.

10-yr US Treasury Testing 3.0%

10-yr US Treasury testing 3.0%

April 20, 2018

 

The local benchmark yield curve grew steeper last week from the prior week due to resurgent US Treasury (UST) yields amid a rally in oil and other commodity prices, fresh UST supply worth $96bn this week, and renewed higher inflation expectation in the US. All these ahead of the release of US 1Q18 GDP number on Friday (Saturday, PH time). Easing geopolitical worries and a steady increase in commodity prices, especially oil prices that reached its highest level (Brent oil topped $75/barrel last week) since 2014, boosted inflation expectations around the world. Locally, inflation expectations are already high, part of the unintended consequences of TRAIN, which raises questions about the steady BSP hand. The peso is already down by 4.76% year-to-date (YTD) to Php52.30 and the worst performing currency in the region, second year in a row that it was lower by 4%. Furthermore, the Development Budget Coordination Committee (DBCC) revised its peso-dollar forecast for this year from Php49-52 to Php50-53, which has inflationary implication and may force the hand of the BSP, widely perceived to be behind the curve.

Global Commodities Rally Adds Fire to Overheating Risks: PSEi a Big SELL Yesterday

Global commodities rally adds fire to overheating risks: PSEi a big SELL yesterday

April 20, 2018

 

One aggravating factor that somewhat gives credibility to the Philippine economy’s so called “overheating “ risks is the ongoing global commodities market rally, borne of the US trade sanctions versus Russia and those upcoming against Iran in the first week of May. Add the OPEC meeting this week on crude oil supply cut.

Metrobank (MBT) - FY2017 Review and Outlook

Metrobank (MBT) - FY2017 Review and Outlook

April 18, 2018

 

Metrobank’s (MBT) full-year 2017 core net income was up 10% year-on-year (y-o-y) to Php19.9bn, in line with consensus estimates. Reported net income was flat at Php18.2bn dragged by the Php1.75bn provisioning for the fraud incident in July 2017.

MEGAWORLD CORP. (MEG): Bullish in the face of regulatory headwinds

Megaworld Corp. (MEG): Bullish in the face of regulatory headwinds

April 18, 2018

 

We recommend a buy for MEG with target price of Php5.82/sh or 12.6x P/E (See Table 1 and Table 2), offering 25% upside from last close. We estimate net income to grow 13.8% to Php14.5bn this year due to (1) aggressive gross leasable area (GLA) expansion of its rental business and (2) strong residential launches and sales takeup.

Jollibee Food Corporation (JFC): Coping with ENDO

Jollibee Foods Corporation (JFC): Coping with ENDO

April 16, 2018

 

Jollibee (JFC) is this early pilot testing a new business set up that’s more IT than human-driven to mitigate the 5% profit cut it estimates would be the adverse impact of the DOLE ENDO order, the regularization of 7,180 agency personnel subcontracted by JFC. One of such is a self-service kiosk where customers simply key in their order and gets the order himself. Other measures include greater reliance on commissary than on store cooking, higher royalties from the current 10%-12% for various brands (Jollibee, Chowking, Red Ribbon and Mang Inasal), more franchise stores that are less burdensome on the balance sheet. All these create not only cost savings and some revenue enhancement but also triggers for some shifts in JFC’s business model.

2018's New Low

2018's New Low

April 13, 2018

 

We expect the market to continue trading lower amidst overheating concerns by the World Bank (WB). But University of Asia and the Pacific Economist Dr. Victor Abola noted that the country’s current account deficit to GDP ratio is far from crisis threshold of 5% equal to $15.67bn.

PH Overheating Concerns

PH overheating concerns

April 13, 2018

 

We expect the market to further bid up yields on the back of the World Bank’s overheating warning on the Philippine economy, tagging it as one of the fastest growing economies in the region. But it said risks abound such as accelerating inflation, climbing fiscal deficit, tight labor market, and high credit growth. However, the World Bank maintained its GDP growth of 6.7% for the Philippines in 2018 and 2019, but this is lower than government’s forecast of 7%-8%.

Century Pacific Food, Inc. (CNPF): Riding the Commodities Cycle

Century Pacific Food, Inc. (CNPF): Riding the commodities cycle

April 11, 2018

 

Century Pacific Food Inc. (CNPF) is on recovery mode this year. But this year’s earnings picture won’t be quite impressive as growth is guided at just 5% (consensus at 7%). The stock is a cheap brand leader at 21x PE versus other strong brands like JFC’s 39x, URC’s 27.35x and DNL’s 24x and that’s a reflection of the bad news pretty much priced in: the profit drop of 4% last year to Php2.55bn. It was caused by margin erosion (due to higher tuna prices) at various levels - gross profit, EBITDA and net profit - ranging from 5 percentage points (pps) to 2 pps.

Awaiting Catalyst

Awaiting catalyst

April 6, 2018

 

We expect the PSEi to consolidate between 7,900-8,000 due to lack of catalyst. Despite strong macroeconomic fundamentals, the spectre of accelerating inflation, widening trade deficit, and weak PHP will continue to weigh on the market.

Rising Yield Curve

Rising yield curve

April 6, 2018

 

We expect the PSEi to consolidate between 7,900-8,000 due to lack of catalyst. Despite strong macroeconomic fundamentals, the spectre of accelerating inflation, widening trade deficit, and weak PHP will continue to weigh on the market.

Cement Industry: Tough Year

Cement Industry: Tough year

April 3, 2018

 

In spite of the backdrop of the government’s strong infrastructure spending and 6.7% GDP growth, 2017 proved to be another tough year for the cement sector dragged by sustained influx of cheaper cement imports and surging energy cost due to rising global oil prices. Major cement companies saw their FY 2017 net earnings dropped by double-digit led by CHP (-71% y-o-y), HLCM (-61%) and AEV’s Republic (contribution to AEV down 58%), while low-cost producer Eagle slowed to just low single-digit earnings growth (+4% from +12% in the previous year).

Taking Cue from CPI

Taking Cue from CPI

March 30, 2018

 

We expect the market to trade sideways to lower should the March inflation reading on Thursday proved upward to the consensus estimate of 4.7%, higher than 4.5% in February and the central bank’s estimate of 3.8% to 4.6%.

Inflation, TRAIN-2 Put Upward Pressure on Yields

Inflation, TRAIN-2 Put Upward Pressure on Yields

March 30, 2018

 

We expect upward pressure on bond yields to persist, especially given (1) Bangko Sentral’s (BSP) recent release of its March inflation expectation of 3.8%-4.6% (based on 2012 index), markedly higher than February’s 3.9%; and (2) news that the Lower House’s version of the second tax reform package is revenue-eroding, at least for the next two years as the House Bill proposes that reduction of fiscal incentives begin only 2 years after the bill is implemented. This may lead to more borrowing than initially expected to fund the government’s infrastructure program. Bond issuances are already starting to ramp up, with borrowing in the second quarter expected to grow by 35% quarter-on-quarter (QoQ) to Php325bn ($6.2bn), pressuring up interest rates. The debt auctions will also be more frequent, from fortnightly to weekly.

Cebu Air (CEB) - Cheap Market Leader

Cebu Air (CEB) - Cheap Market Leader

March 28, 2018

 

While the Philippines remains to be one of the fastest growing economies in Asia, growth in domestic traffic slightly lagged GDP growth, at just 6% last year, due to slot restraints especially in NAIA. Domestic traffic in Manila grew by only 2% last year, and while there are now pending government projects to improve and expand NAIA, low-cost carriers (LCC) are now also also looking at secondary airports such as Cebu and Clark. Cebu recorded 8% domestic passenger growth in 2017 and 34% over the past three years, driven primarily by the launch of point-to-point routes from Philippine Airlines (PAL) and AirAsia (PAA). However, Manila still has three times more domestic traffic than Cebu. On the other hand, Clark benefited from the congestion at Manila, with domestic traffic increasing sevenfold in 2017 to 431,000 passengers, but on a very low base.

Robinsons Retail Holdings Inc (RRHI): Into big league retailing

Robinsons Retail Holdings Inc (RRHI): Into big league retailing

March 28, 2018

 

Businessman Gokongwei has teamed up with Dairy Farm through Robinsons Retail Holdings Inc.’s (RRHI) acquisition of Dairy Farm’s loss-making Rustans Supercenter Inc. (RSI) which owns a chain of supermarkets in the Philippines under the ff brands: Rustan’s Supermarket, Marketplace by Rustan’s, Shopwise, Shopwise Express, and Wellcome. Dairy Farm International Holdings Ltd, which has not been making money on its investments in RSI that posted negative earnings(at the EBIT level), will end up owning 18.25% of RRHI in exchange for Gokongwei’s 6.10% and RRHI’s newly issued shares of 12.15% of RRHI’s expanded capital in a no-cash out share swap deal. Gokongwei group retains its controlling stake of 51% in RRHI (no disclosure of Gokongwei’s and the public’s dilution at this point since the number of new RRHI shares remains unknown).

Petron Corp (PCOR PM): Toppish Earnings

Petron Corp (PCOR PM): Toppish earnings

March 27, 2018

 

Last year, PCOR invested in a 140MW power plant that would serve the needs of its Bataan refinery, leading to savings of around Php3bn annually. PCOR also recently refinanced $500mn worth of undated subordinated capital securities (USCS) last January by issuing perpetual securities, with a rate of 4.6%, 290bps lower than the USCS’s 7.5%, saving $21mn (~Php1bn) annually. Without any major capital expenditure this year other than service station expansion, management indicated that cashflow generated near-term will be used to delever. PCOR’s outstanding dollar-denominated debt as of end-2017 was $546bn, which management says is fully-hedged.

Markets still expect BSP hike

Markets still expect BSP hike

March 23, 2018

 

We expect bond trading to be sidelined amid the shortened work-week. The Bangko Sentral ng Pilipinas (BSP) decided to stand pat last week, as expected, but programmed borrowing in the second quarter is expected to grow by 35% quarter-on-quarter (QoQ) to Php325bn ($6.2bn), pressuring up interest rates. The debt auctions will also be more frequent, from fortnightly to weekly. The BSP also revised its inflation outlook this year from 3.8% to 3.9% but sees it slowing to 3.0% in 2019 from 3.1%, using the 2012-based index. Both forecasts are still within the target range of 2%-4%. That being the view, the BSP opted to keep its benchmark steady. Still, the market is skittish, fearing a rate hike catch-up by the BSP going forward.

Trade War Fears Intensify

Trade war fears intensify

March 23, 2018

 

We expect PSEi to trade between 7,800-8,000 as worries that the US-China tariff threats could lead to a full-blown trade war weigh on the market in the near-term.

D&L Industries: Turning Positive but Still a Wait and See

D&L Industries: Turning positive but still a wait and see

March 20, 2018

 

D & L Industries reported a 10.6% increase in net income to Php2.9bn, in line. (Note that DNL lowered its full-year guidance to single-digit after earnings ended flat in the first half last year but upgraded to 10% after a strong third quarter). Fourth quarter net income managed to end at 12% growth year-on-year (yoy) to Php786mn as revenues increased by 25% driven by a 10.5% increase in high-margin products sales volumes and pick up in commodity margins from 3.9% in Q3 to 4.8% in Q4.

MVP on TEL: May Liwanag ang Buhay

MVP on TEL: May Liwanag and Buhay

March 20, 2018

 

“Parang Meralco yan, may liwanag ang buhay.” This is how PLDT chair MVP described TEL’s earnings outlook this year during their 4Q/FY 2017 analysts’ briefing at the Makati Shangri-La Hotel, guiding 2018 recurring core profits to a higher Php24bn from last year’s Php22.3bn, which grew 11% versus yearago and in line with its own guidance of Php22bn and consensus estimates. Much of the earnings rise will be from topline growth of 4% from a drop of 3% in 2017, inspired by what looked like a bottoming out of last year’s quarterly wireless revenue drops to its lowest of Php400m in 4Q17 from Php3bn in 1Q17 and market gain share of 200,000 new subscribers overall.

 Cautious ahead of policy meetings  

Cautious ahead of policy meetings

March 12, 2018

 

We expect the market to trade lower as investors remain on a sell down position ahead of the Bangko Sentral ng Pilipinas (BSP) and US Federal reserve policy meetings. The Federal Open Market Committee (FOMC) will discuss its monetary policy today and tomorrow while the BSP Monetary Board will hold its meeting on Thursday, March 22. Consensus expects the BSP to keep the current policy rates unchanged while the Fed is expected to increase rates by 25 basis points.

Firm US CPI Abate Fears of Aggressive Fed Hike

Firm US CPI abate fears of aggressive Fed hike

March 16, 2018

 

The bond market will keep its eyes on the Bangko Sentral’s monetary board meeting this Thursday (March 22) and the Fed’s meeting this Wednesday-Thursday. While while several officials from the BSP have insisted that inflation is still manageable and the policy rate is still appropriate, there are some analysts who expect a preemptive hike from the bank. Thus, we expect bond trading to be sidelined, although there is downward pressure stemming from the recent weaker-than-expected retail sales and modest February inflation of 2.2%.

20180312 bdo

BDO: Strong results concealed by high provisioning

March 12, 2018

 

Banco de Oro (BDO) is getting an extra kick out of premium income from its newly consolidated BDO Life insurance, almost Php2bn higher to Php10bn last year and about 8% of its Php129bn gross operating income. This year the outlook for the insurance business, majority of which is still traditional products, is a robust growth of 20%. It has become a big source of non-interest income.

Trade war fears tapers

Trade war fears tapers

March 9, 2018

 

We expect bond trading to be sidelined this week ahead of the Bangko Sentral’s (BSP) monetary board meeting next week (March 22). Expectations of a BSP hike this March continue to mount amid upward pressure on yields upon the release of rising inflation. BSP Governor Espenilla noted that the spike in inflation is transitory and that inflation remains manageable. However, a preemptive hike is not completely off the table.

Trade War Worries Persist

Trade war worries persist

March 9, 2018

 

We expect the market to trade between 8,300-8,600. Healthy fourth quarter/full year (FY) 2017 earnings to support the domestic market. Out of 18 companies that have released their FY 2017 earnings -- seven were in-line, two outperformed, while nine underperformed. Key data to watch out for this week are US CPI and retails sales for Feb. on March 13 and 14 (US time), respectively, and OFW remittances for Jan. on March 15.

PH inflation

PH inflation speeds up to 4.5% in February

March 9, 2018

 

Philippine inflation surged in February to 4.5% y-o-y, its fastest level since August 2014. It beat consensus of 4.2% but within BSP’s guidance of 4-4.8%. Core inflation, which excludes volatile food and oil items, also rose to 4.4% y-o-y from 3.9% in January.

Metro Pacific Investments (MPI PM): Buying Opportunity

Metro Pacific Investments: Buying opportunity

March 7, 2018

 

Metro Pacific Investments (MPI) posted core income of Php14.1bn in 2017, up by 17% year-on-year (YoY), ahead of management’s guidance of Php13.8bn and consensus expectation of Php13.4bn. Increased ownership in Meralco (MER, TP: Php337/sh), Global Business Power Corp. (GBPC), and Beacon drove the power segment’s income contribution by 30% to Php9.4bn. Strong organic growth came from the tollroads business, which saw its income contribution grow by 11% (after fair value adjustments) to Php3.9bn driven by better-than-expected traffic growth on all roads and a favorable vehicle type mix. Hospital segment contribution also grew by a robust 16% to Php685mn, while the water and rail businesses’ contributions were rather flat, up by 5% and 4%, respectively, to Php3.7bn and Php283mn. In 4Q17 alone, MPI’s core income rose by 12% YoY to Php3.3bn.

Lower on inflation

Weekly Equities Summary & Outlook: February 26-March 2, 2018

March 2, 2018

 

We expect the market to continue consolidating as investors remain on the sidelines, given higher inflation reading for February at 4.5%. The good news enabling market to hold was last week’s MPI announcement of a 17% increase in core net income to Php14.1bn (outperform) while SM reported a 9% increase in recurring net income to Php32.9bn, the latter in line with consensus estimates.

20180302 WFI

Weekly Fixed Income Summary & Outlook: February 26-March 2, 2018

March 2, 2018

 

Upward pressure on yields on the release of rising inflation. February inflation clocked in at 4.5%, a 3-yr high and higher than the Department of Finance’s (DoF) 4.1% estimate, January’s 4.0%, but in line with both the Bangko Sentral’s (BSP) estiamte of 4.0%-4.8% and consensus expectation of at least 4.5%, driven by the food and non-alcoholic beverages index at 4.8% and the double-digit growth in alcoholic beverages and tobacco index at 16.9%. Local inflation has now breached the BSP’s target band of 2%-4% in 2 consecutive months. BSP Governor Espenilla noted that the spike in inflation is just transitory and that inflation remains manageable. However, Deputy Governor Guinigundo also noted that this does not mean that a hike is not completely off the table either.

20180228 MER

Meralco FY2017 Review: San Buenaventura takes off in 2019

February 28, 2018

 

Meralco (MER) is commissioning its Php60bn coal-fired 51%-owned 455MW San Buenaventura power plant in the second half of next year. It is a partnership with Electricity Generation Co. Ltd (EGCO) of Thailand and a fifth of Meralco’s 1,630MW foray into power generation in the next five years. We estimate Php1.7bn earnings from an existing off-take. But the lack of clarity about distribution tariff reset in the fifth regulatory period (July 1, 2019-June 30, 2024) skews earnings to flat as lower discount rate - a rate rebasing metric - likely softens tariffs to around Php1.11 - Php1.15/kwh. MER has a pending capital expenditure application of Php18.8bn for RY2018 (July 2018-June 2019).

Semirara (SCC) FY2017 Review: Headwinds

Semirara (SCC) FY2017 Review: Headwinds

February 27, 2018

 

Semirara’s (SCC) core net income for 2017 came in at Php14.5bn, up 21% year-on-year (YoY), missing consensus expectation of Php15.7bn and our own estimate of Php15.2bn, but still a robust growth driven by better coal sales volume and average selling prices and better availability and capacity factor by both power segments. Reported net income after one-off transactions came in at Php14.1bn, up 18% YoY. Implied earnings during the fourth quarter rose by 3% YoY but fell by 31% quarter-on-quarter (QoQ), partly due to starkly higher government royalties paid during the fourth quarter (Php1.5bn) from just Php65mn in the same quarter in 2016. Royalties paid for the entire year jumped by 63% YoY despite revenues growing by just 23% due to better gross profit margins in 2017 (at 49% vs 46% in 2016) stemming from mine development costs incurred in 2016 that are deductible from the government share calculation.

20180226 smph

SMPH: Boost from strong resi sales

February 26, 2018

 

Net income grew 16% to Php27.6bn, in line with consensus estimates. Revenue grew 14% to Php 90.9bn, boosted by strong residential segment which grew 18% and contributed Php30bn to total revenue. Other business segments saw 32% revenue growth to Php7.9bn, driven by Hotels & Convention center which posted 49% growth year-on-year (yoy). Mall revenues were stable and delivered 9% growth to Php53.2bn.

20180223 WFI

Weekly Fixed Income Summary & Outlook: February 19-23, 2018

February 23, 2018

 

Upward pressure on interest rates still present, but the liquidity released by the recent reserve requirement cut estimated to be worth Php90bn has tempered the rate rise in the belly to the 10-yr; last week the liquid 10-yr (10-61) fell by 79bps week-on-week to 5.86%. Still, the yield curve is projected to grow even steeper ahead of the BSP 25-bp hike likely next month.

20180223 WES

Weekly Equities Summary & Outlook: February 19-23, 2018

February 23, 2018

 

We expect PSEi to trade between 8,400-8,600 as the market awaits Fed chair Powell’s testimony before Congress on Feb. 27 (US time). Locally, investors continue to digest latest earnings results -- MER, +3% to P20.2bn (outperformed), and BDO, +14% to P28.4bn (in-line with consensus). Earnings are supportive of potential market recovery. Of the 14 companies that have released their 4Q17/FY2017 earnings, six were in line and two outperformed consensus. MPI will release its earnings on March 1.

20180216 WES

Weekly Equities Summary & Outlook: February 12-16, 2018

February 16, 2018

 

We expect the market to trade within 8,500-8,700 amidst the lack of catalysts. Investors remain on the sidelines ahead of more full-year 2017 earnings and US gross domestic product (GDP) next week. Last week, Jollibee Food Corp. and Ayala Land released their FY2017 net income, up by +15% and +17%, respectively, both in line with estimates.

20180216 WFI

Weekly Fixed Income Summary & Outlook: February 12-16, 2018

February 16, 2018

 

Interest rate pressures rising but the reserve requirement is acting like a sort of damper. Banks have not actually hiked their mortgage rate, although auto rates have inched up a bit. The Bureau of Treasury has been doing partial awards, also to temper the rate rise.

20180215 ALI

ALI: Accelerating resi, stable leasing

February 15, 2018

 

ALI’s core net income was 24.5bn, up 17%, in line with consensus estimate, on track with their Php40bn 2020 net income target. Strong pre-sales and record launches brought revenue growth to Php84.5bn, up 23%. Pre-sales were up 13% to Php122bn while project launches were up 44% which hit Php88.8bn. Fourth quarter saw pre-sales growth of 17% as the company launched Php35bn worth of project on the said period.

20180209 WFI

Weekly Fixed Income Summary and Outlook: February 5-9, 2018

February 9, 2018

 

Bond yields to remain elevated. The short-end rose, reflected in higher T-bill rates in the latest auction. Government had to reject to temper it.

20180209 WES

Weekly Equities Summary & Outlook: February 5-9, 2018

February 9, 2018

 

We expect the market to stay volatile with PSEi likely to trade within the range of 8,300-8,700 amid lingering concerns about the outlook for interest rates, after BSP raised its inflation outlook for 2018 to 4.3% from 3.4% and Pres. Trump’s spending bill to raise US federal deficit to more than $1trn in the coming years from 2017’s $666bn (3.5% of GDP).

20180208 Globe

Globe Telecom disappoints

February 8, 2018

 

Globe sustained its revenue growth in 2017 at 6% y-o-y to P127bn, driven by double-digit data revenue growth (+16% vs 27% in 2016) and slower decline in mobile SMS/voice revenues (-3% vs -10% in 2016). It sustained strength in mobile data (+23% from +25% in 2016), amid softness in home broadband (+7% vs 28% in 2016) and corporate data (+4% vs 28% in 2016).

20180202 WFI

Weekly Fixed Income Summary & Outlook: January 29 - February 2, 2018

February 2, 2018

 

There’s continuing upward pressure on local bond yields this week due to higher-than-expected inflation of 4.0% in January, a big surprise given consensus expectation of 3.3% and the BSP likely doing a preemptive rate hike come Thursday.

20180202 WES

Weekly Equities Summary & Outlook: January 29 - February 2, 2018

February 2, 2018

 

We expect the market to continue its correction after a sell-off in Dow Jones amidst rising bond yields. Investors remain cautious ahead of the inflation reading, the Bangko Sentral ng Pilipinas’ (BSP) overnight borrowing rate and full-year 2017 earnings. Metrobank (MBT) released its FY 2017 core net income, up 10% to Php19.9bn.

20180202 PH Banking Sector

PH Banking Sector: Raining Rights

February 2, 2018

 

Who’s next in the roster of SRO? Based on 3Q2017 common equity tier 1 (CET1) ratios, East West (EW) is most likely to join the bigger banks in stock rights offering (SRO) given its 3Q2017 CET1 of 10.60% (consolidated, 10.38% solo). This is just above the 10.2% 2018 requirement for domestic systematically important banks (D-SIB) and 11% in 2019.

20180131 Bear Bond

Bear Bond Worries

January 31, 2018

 

Ten-year US Treasuries (UST) touching 2.73% of late was enough to bring down Asian equities, including the Philippines’ main market index, down by -146.47 (-1.64%) to 8,764.01 by yesterday’s (January 31) close. The Fed’s meeting this week, though expected to hold rate steady, and Trump’s earlier talk in Davos about his preference for a strong dollar all worked to weaken the rally of gold, strengthen the US dollar (currently languishing at a two-year low) and prompt “bear bond market” worries.

20180126 WFI

Weekly Fixed Income Summary & Outlook: January 22-26, 2018

January 26, 2018

 

Local bond yields rising. This due to higher US Treasuries touching a two year high of 2.72%. Locally, the short-end (T-bills) moved up. See below. The five year retraced 4.75% from a low of 4.6%.

20180126 WES

Weekly Equities Summary & Outlook: January 22-26, 2018

January 26, 2018

 

We see 9,000 as the emerging support for PSEi if 4Q17 earnings don’t disappoint. Sor far, UBP has released its FY 2017 income up 30.4% y-o-y to P8.2bn, in line with consensus.

20180125 PH Banking Sector

PH Banking Sector: 'Tis the Season for Rights

January 25, 2018

 

Two big local banks competing for capital. Metrobank (MBT) and Bank of the Philippine Islands (BPI) are raising a total of Php110bn in capital. Php60bn for MBT and Php50bn for BPI.

20180124 Shell

SHLPH: Bet in oil and gas

January 24, 2018

 

Reiterating our BUY recommendation on Shell which we did last January 12. It is up 5.4% in a little more than a week to close of Php66.50 yesterday (January 23). This is the stock that foreign investors have been buying since the year’s start; the top recommendation by JP Morgan in the oil and gas space. JP Morgan forecasts Brent oil to average higher to $66/bbl this year on robust global demand.

20180119 WFI

Weekly Fixed Income Summary & Outlook: January 15-19, 2018

January 19, 2018

 

Local bond yields will be rangebound this week. The Philippines’ 4Q17 GDP numbers came in at 6.6%, a tad lower than the 6.7% median expectation but still one of the fastest in the region.This brought 2017’s average growth to 6.7%, the third fastest growing pace in Asia behind China’s 6.9% and Vietnam’s 6.8%.

20180119 WES

Weekly Equities Summary & Outlook: January 15-19, 2018

January 19, 2018

 

PSEi likely to trade within the 8,800-8,950. Watch out for the full-year 2017 gross domestic product (GDP) today.

20180112 WFI

Weekly Fixed Income Summary & Outlook: January 8-12, 2017

January 12, 2018

 

We expect local bond yield curve to remain steep this week as demand is still seen more on the short-end of the curve due to investor caution and as the Bureau of the Treasury (BTr) floats $2bn dollar-denominated government bonds in the following days. The dollar bond issuance is in line with the government’s plan to raise the foreign borrowing portion this year to an 80-20 local-foreign split, half of which will be for liability management while the other half will be new money which will be used mostly for the administration’s infrastructure projects. Recall that the same amount was raised last year, but the amount of fresh money was just half at $500mn while the rest was used for liability management. Finance Secretary Dominguez noted that this year is an opportune time to borrow foreign debt before the Fed hikes its rates again. Recall that the Fed is expected to hike rates thrice this year. We expect cautiousness to continue with charter change debate ongoing.

20180112 WES

Weekly Equities Summary & Outlook: January 8-12, 2018

January 12, 2018

 

The market might continue to trade between 8,800-8,900 on the back of solid economic backdrop and bullish corporate earnings outlook. 4Q17 earnings season will begin in February while PH’s 4Q17 GDP will be reported on Jan. 25 with the government projecting better than 3Q17’s 6.9% growth vis a vis consensus of 6.7%. Key risk factor is China’s 4Q17 GDP figure (to be released on Jan. 18) where the market expects to slow to 6.5% y-o-y from previous quarter’s 6.8% as cyclical slowdown unfolds. The market might also digest the slowdown in OFW remittances in Nov. to 2% y-o-y from previous month’s 8.4%, albeit YTD figure of 4% is aligned with BSP’s target for 2017.

Weekly Fixed Income

Weekly Fixed Income Summary & Outlook: January 1-5, 2018

January 5, 2018

 

We expect local bond yield curve to retain its steepness this week as investors await the initial impact of the tax reform program (TRAIN). Moreover, Governor Espenilla said that the Bangko Sentral (BSP) is ready to adjust monetary policy to maintain its inflation target of 2%-4% as price pressures increase from rising oil prices and the tax reform program that took effect this month. Officials estimate the new tax law will raise inflation by 0.4-0.7% during the first year, with the impact tapering off over time. Demand is still more prevalent in the front-end, but the belly and the tail may track downwards as investors reposition their portfolios. Cautious sentiment will continue to loom over the bond market as investors await the succeeding package 1B due to Congressional deliberations in the first quarter which will include higher road user taxes, easing the bank secrecy law, and tax amnesty program.

20180105 wes

Weekly Equities Summary & Outlook: January 1-5, 2018

January 5, 2018

 

We expect the market to correct towards the weekend as profit taking becomes increasingly tempting given PSEi’s three consecutive record highs. Despite the shortened trading week, the market hit a new intra-day record high of 8,858.07 by mid-Friday, but closed lower at 8,770 as investors started taking profits. Since January 3, the market had been trading at overbought levels of 70 to 72 signalling that the market is ripe for a correction. The absence of new catalysts will also keep investors on the sides. In the near-term, key economic data which could provide upside are the November data on the country’s trade balance and Overseas Filipino Workers’ remittances to be announced today and on the fifteenth. In the United States (US), initial jobless claims and consumer price index for December are expected on Wednesday and Thursday (US time).

Plateau or Correction

Plateau or Correction?

December 29, 2017

 

There might be some profit-taking this week on market strength following the PSEi rally to its historic high of 8,558.4 on Dec. 29. The market is closed today and will resume its operation tomorrow (Jan. 3). Latest Caixin China PMI shows manufacturing activity for the world’s 2nd largest economy was at a 4-month high in December to 51.5 from 50.8 in Nov. and outpacing consensus of 50.6 (a PMI of above 50 means expansion) which could reinforce positive market sentiment. On the local front, key economic indicator to be released this week is the December inflation (Jan. 5).

Local Yield Curve Ends 2017 Steeper

Local Yield Curve ends 2017 steeper

December 29, 2017

 

The local bond yields settled lower this week, somewhat tempering the growing steepness of the yield curve. The latter may track downwards next week on optimism about the economy and as investors reposition their portfolios. The market livens up from the holiday break with trading volume picking up gradually to Php13bn on daily average basis from Php9bn by year-end.

Thin Trading

Thin Trading

December 22, 2017

 

The local bond yields are expected to remain sideways this week due to lack of volume headed to the year-end. Risks remain, however, as markets digest the higher inflation expectation next year brought by the Tax Reform Bill and the continued fiscal expansion by the administration which is reflected by the higher issuance programmed. Market action will be largely end-user driven due to upcoming maturities and need to replace them. Supply overhang is expected to carry this week brought by the Php255.4bn RTB issuance at the start of the month coupled by inactivity in the market due to the holidays.

Sideways

Sideways

December 22, 2017

 

We expect the market to trade sideways this week between 8,300-8,400 as the holiday lull sets in and trading volume is likely to be light in view of the three-day trading week. The local bourse is closed today and will resume its operation tomorrow, Dec 27. Key economic data to be released this week are money supply and bank lending for November (Dec 29).

Yields Rise on Higher Taxes

Yields Rise on Higher Taxes

December 15, 2017

 

We expect the local bond yields to stabilize after the liquidity sopping up impact of the RTB issuance that sent rates higher.Thin market volumes will keep rates elevated. Going forward,the yield curve will factor in the inflationary impact of the first package of the tax reform bill (TRAIN) just signed into law by President Duterte today,(December 19), together with the 2018 budget. The final version is estimated to generate Php90bn in gross revenues, lower than the intial estimate of Php130bn and a steep decrease from the original version of Php160bn.

Profit-taking

Profit-taking

December 15, 2017

 

We expect the market to consolidate within the 8,250 to 8,350 range as investors sell on news about Pres. Duterte signing of the tax reform package and National Budget for 2018. Key economic data to monitor is the release of the United States (US) 3Q gross domestic product (GDP) on Thursday, estimated to be at 3.3%. Meanwhile, Pres. Duterte signs two laws today: Tax Reform for Acceleration and Inclusion (TRAIN) with Php90bn in tax revenues per the latest Dept of Finance (DOF), lower than the Php160bn target of the DOF, and the General Appropriations Act or National Budget of Php3.7trn, up 12% versus 2016. Bank lending statistics are also due to be out on December 29, 2017.

 Aboitiz Power (AP): Buy on New Capacity

Aboitiz Power (AP): Buy on New Capacity

December 13, 2017

 

Aboitiz Power (AP) held a special briefing last December 5 regarding its 8MW Aseagas biomass plant which was seen to work like the so-called “Ferrari of all biomass-fired power plants” in the Philippines but it later turned out to be what AP’s top management bravely called a “costly mistake.” That’s after a year and a half of trying to make a newly converted liquid methane gas producing operating model into an electricity producer work at acceptable efficiency levels. In the end, electricity generation by the biomass plant proved elusive at the 8MW full capacity as the utilization actualized at only 2.2MW with the plant having to be rebooted several times over at huge expense to AP. AP decided to permanently shut down the plant and write-off investments that may be as high as Php3.8bn.

Rising Yield Curve

Rising Yield Curve

December 8, 2017

 

We expect the local bond trading to be elevated this week as the recent Retail Treasury Bond float has sopped up liquidity. Investors also anticipate passage of the first tax reform package. Some parts already approved by both the Senate and Congress were: 1) the Php250k personal tax exemption ceiling; 2)Php8mn threshold for the top taxable bracket; 3) VAT exemptions of leasing/condominium dues of up to Php15k; and 4) reduction of estate taxes from 20% to 6%. The most recent revenue estimate for the bill was Php160bn, much better and almost three times the Senate’s previous estimate of Php60bn. Approval of the bicameral version of TRAIN is by the end of the week and implementation is by the start of 2018. The peso weakness and higher fuel taxes from the tax reform fuel inflation expectations. A rate hike by the Bangko Sentral is in the horizon as early as the first quarter of 2018 and it could be as much as a 50-bp hike for the entire 2018. In the absence of a hike, the peso has dropped to an 11-year low this year and is the worst performing currency in Asia (lower in value by 1.80%, year-to-date) and might weaken further with the dollar rallying on the passage of the US’ own tax reform in the Senate. The spread between the 10-yr US Treasury (UST) and the 10-yr local benchmark widened further to 333bps from 320bps in the prior week as the rise in the yield of the 10-yr US Treasury (UST), up by 3bps to 2.37%, was outpaced by the 10-yr local benchmark, which rose by 16bps to 5.70% (bid; latest done rate 10-61: 5.01%). Strong US economic data (discussed in lower page) and improved prospects for tax cuts pushed Treasury yields higher. Yellen’s positive comments on her final speech at Capitol Hill further put upward pressure on yields. Yields of ROPs tracked USTs, with both 2bps higher on average week-on-week (WoW).

PSEi: Resilient Ahead of the Fed Meeting

PSEi: Resilient Ahead of the Fed Meeting

December 8, 2017

 

Despite the looming Fed rate hike on Thursday, the PSE index has remained resilient coming off from a level of 8,084 on Dec. 4 to close today at 8,334. We expect the PSEi to trade between 8,300-8,400 this week as the market digests the passage of the tax reform package which the bicameral conference committee (bicam) finalized yesterday and which is expected to be ratified by Congress today and signed into law by President Duterte on Dec. 19. Package 1 of the tax reform is set to be implemented starting January 1, 2018. On the external front, the market awaits the outcome of key central banks’ policy meetings this week: US FOMC meeting on Dec. 14 (PH time) which the market widely anticipates to hike policy rates by another 25 bps. ECB and Bank of England will also announce their respective monetary policies on Dec. 14 (PH time) which the market expects to hold rates steady.

CNPF & DNL: Improving Outlook?

CNPF & DNL: Improving Outlook?

December 7, 2017

 

Amid rising input costs and peso depreciation, consumer stocks Century Pacific (CNPF) and D&L Industries, Inc. (DNL) proved vulnerable. Both trimmed their 2017 net profits from double-digit to single-digit growth. During the third quarter earnings call, CNPF downgraded its net profit further to flat after a single-digit guidance announced in the first semester, (1H2017). Surprisingly, after touching a low of Php14.00 a day before the third quarter earnings on November 3, CNPF shares recovered to Php15.20 (Nov. 7, 2017) after the third quarter call on better-than-expected results and improved tuna price outlook (skipjack tuna). Meanwhile, D&L Industries (DNL) recovered to Php11.20 after trading around Php10 for four months after a 10% income growth guidance. Margins have bottomed out. Both stocks, however, underperformed the Philippine Stock Exchange Index. CNPF declined by 0.69% year-to-date (ytd) to Php16.00, while DNL gained by just 2.70%, year-to-date (ytd).

Philippine Telecom Sector: Duopoly’s End?

Philippine Telecom Sector: Duopoly’s End?

November 27, 2017

 

PLDT and Globe’s share prices has faltered since the government announced on Nov. 20 that President Duterte had offered China to operate the country’s 3rd telecom carrier during his bilateral meeting with Chinese premier Li Keqiang last ASEAN Summit. This came following the announcement on Nov. 15 that the Department of Information and Technology (DICT) has teamed up with a subsidiary of Facebook to build an ultra-high speed broadband backbone on Luzon which will provide a bandwith (two terabytes per second) that is said to rival the combined capacity of PLDT and Globe. The project, called the Luzon Bypass Infrastructure, will become online by 2019. Consequently, PLDT and Globe’s share prices dropped by 5.4% and 6% (as of Nov. 27), respectively, on negative sentiment closing at P1,570/share for PLDT and P1,800/share for Globe. Year-to-date (YTD) gains, likewise, were 15% for PLDT and 19% for Globe.