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Slowing Down

Slowing Down

May 16, 2019

 

Philippines economy expanded by 5.6% year-on-year (y/y) in Q1-2019, missing both government and analysts’ estimates of above-6% growth. Last quarter’s GDP print cut short the 15 consecutive quarters of above-6% growth and bucked election year Q1 expansion of above-6.5% since 2004. Growth was dampened by slower government spending and decline in public construction as the national government operated on a reenacted budget, coupled with deteriorating net exports and weak industry.

Upgraded

Upgraded

April 26, 2019

 

Standard & Poor’s (S&P) raised the Philippines sovereign credit rating from BBB to BBB+ with stable outlook. Thus, PSEi may rally and easily break above 8,000 on account of the credit rating. The market will also take its cue from the April inflation print and earnings results this week from Metro Pacific Investment Corp., Integrated Micro-Electronics, Inc., Aboitiz Power Corp. and Aboitiz Equity Ventures, Inc. (May 2).

Yields Rise Ahead of Panda Bonds

Yields Rise Ahead of Panda Bonds

April 19, 2019

 

The market is anticipating the issuance of $200-$500mn panda bonds towards the end of this month, which explains the slight uptick in yields last week. Recall that $230mn worth of panda bonds were also issued in March last year. The government is looking at tenors of three to five years as yields followed inflation downtrend in the past few weeks. The Bangko Sentral (BSP) is widely expected to ease monetary policy during its next meeting in May if inflation continues its downtrend.

Catalysts Wanted

Catalysts Wanted

April 17, 2019

The PSE Index is expected to trade at the tighter 7,800 – 7,900 range, with downward bias, in the absence of catalysts to support the index in the near term, locally. We expect some selling pressure as the market turn cautious on the 1Q19 GDP results scheduled in May. Despite the lower inflation in the first quarter which was a positive development, the offset was government spending which was flat year-on-year due to the re-enacted budget.

Oil Continues Its Rise

Oil Continues Its Rise

April 12, 2019

 

Rising global oil prices due to output cuts led by the OPEC drove global bond and local bond yields higher last week. OPEC’s enacted output cut of 1.2mn barrels per day last January for six months which may need to be extended until the end of the year, US sanctions on Iran and Venezuela, and renewed fighting in Libya have driven oil prices by 40% (Brent: $71.1/bbl) since its low late last year. Local gasoline stations are already warning of another price hike on April 16 of around Php1/liter for gasoline and Php0.75/liter for diesel or around a 2% increase for both. This will be the second consecutive week of increase and will bring the net increase this year to Php7.95/liter for gasoline and Php5.40/liter for diesel or around 20% year-to-date (YTD).

Megawide

Megawide (MWIDE) FY18 Review: Awaiting Catalyst

April 10, 2019

 

We have a buy on dips recommendation for MWIDE with a revised target price of Php20.8sh (+17% higher)as we raise the construction segment’s target P/E from 10x to 12x and raise the terminal growth rate from 2% to 3% to reflect the potential Mactan Cebu International Airport (MCIA) expansion. MWIDE’s stock price peaked to Php22.55/sh, up +22% year-to-date (YTD), on news that government is pushing for the airport’s expansion. It has fallen by as much as 7% after the release of its earnings but is still up by 13.8% YTD.

Looking on the bright side

Looking on the Bright Side

April 5, 2019

 

We’re expecting the market to rebound this week and trade at the higher 7,900-8,100 range, encouraged by falling inflation affirmed by the lower-than-expected inflation print of 3.3% in March. The BSP stands ready to ease monetary policy amid a backdrop of challenging global economic outlook. Concerns of rising oil prices brought by conflict in Libya is offset by continued decline in rice prices as rice tariffication law IRR was already signed.

Yield Curve Inversion

Yield Curve Inversion

April 5, 2019

 

The local yield curve remained slightly inverted at the 1-yr against the 10-yr as the government borrowed at even higher rates than secondary market rates. The rate downtrend to 5.6% proved short-lived and unsustainable as the rally was sold down on the view it won’t take long for government’s strong cash needs to resurface despite an earlier announcement that second quarter borrowing will be lower than the first quarter of this year by Php45bn to Php315B. This is also lower than Q2-2018’s P325B borrowing program.

SECB's ROE Revival

SECB’s ROE Revival

April 3, 2019

 

The end of Quantitative Easing (QE) was hard on Security Bank. Senior management in the last earnings briefing hinted that higher interest rates was partly behind the drop in ROE. ROE dipped to single-digit (first time in ten years) when earnings contracted by 16% to Php8.6bn in 2018, more than analysts expected at 13% dip.

Global Downtown Jitters Part 2

Global Downtown Jitters Part 2

March 29, 2019

 

We might see slow accumulation toward weekend and a sell on news stance by fund managers after the inflation number comes out this coming Friday. The trading range for the PSEi is a narrow 7,800-8,000, trapped within this range due to many concerns ranging from the BSP’s policy stance to global economic slowdown. The dovish BSP will support the view there will be monetary easing this quarter, a likely triple RRR cut in May.

Global Downturn Jitters

Global Downtown Jitters

March 22, 2019

 

The PSEi may hover between 7,700-8,000 as global recession fears amid weak economic data from Germany, US’ yield inversion and Brexit uncertainty as UK approaches the scheduled deadline to leave the EU may weigh down sentiment. On the domestic front, the signing of the P3.7trn national budget for 2019 after the Senate transmitted the bill to the office of the President yesterday may temporarily lift the market.

Weekly FI Summary

Recession Fears

March 22, 2019

 

A more dovish Fed and weak economic outlook led to a yield curve inversion -- a recession signal -- in the US (UST 1-mo: 2.49%, 3-mo: 2.46%, 6-mo: 2.48%, 1-yr: 2.45%, 3-/5-yr: 2.24%, 10-yr: 2.44%) which in turn spooked local investors. The Fed cut its forecast to no rate hikes for this year from two just three months ago, while the market priced in one 25-bp cut this year. Aside from holding rates steady, the Fed also downgraded its GDP growth forecast this year to 2.1% from 2.3% and inflation forecast to 1.8% from 1.9%.

PNB

Philippine National Bank New CEO & Low Hanging Fruits

March 22, 2019

 

In LT Group’s briefing which houses PNB as part of the conglomerate, PNB management announced their bold targets for the bank of double-digit earnings growth from flattish Php5.9bn last year, 12% ROE in 3 years and a plan to resurrect PNB’s glory days in big league banking, let PNB be back among the top three big banks in the country, with total assets of more than Php2 trillion. PNB has total resources of Php983bn.

Semirara

Semirara Mining & Power Corporation: Semirara Bets on a Power Shortage

March 15, 2019

 

Semirara Mining & Power Corporation (SCC) power asset managers don’t want to contract its power generation capacity, at least not long and much of the 300MW South Luzon Power Gen whose contracts with Meralco have expired. Instead, it is playing the spot market whose price it bets will shoot up amid a looming power shortage rooted in the hanging seven power supply agreements with the revamped ERC. Also Malampaya will be on shutdown by October.

Consolidation

Consolidation

March 15, 2019

 

The PSEi is trapped between the range 7,700-7,900 as investors ponder many uncertainties arising from: (1) the delay in the approval of the national budget that could lead to growth slowdown in 2019; (2) a record high current account deficit in 2018 at $7.9bn or 2.4% of GDP from just $2.1bn or 0.7% a year ago; (3) unimpressive corporate earnings in 2018; and (4) FOMC and MB decisions this week that are widely expected to keep policy rates unchanged. Meanwhile, corporate earnings results were mixed. Out of the 28 companies that have released their full year earnings, nine outperformed the consensus, nine were in-line and 10 were behind.

Budget Uncertainties

Budget Uncertainties

March 15, 2019

 

Bond yields took a breather from its month-long rally last week as the market faced uncertainty with the unsigned national budget. Although recently, the House agreed to recall its version of the General Appropriations Bill (GAB) in favor of the Senate’s version. The Php3.7tn budget was in danger of getting unsigned until the later half of the year and was estimated to shave off 1.6%-2.3% in the nation’s 2019 GDP. The earliest the bill can get signed is April.

Aboitiz Power

Aboitiz Power (AP) FY18 Review: Volume Player

March 15, 2019

 

We maintain our buy for Aboitiz Power (AP) with a sum-of-the-parts DCF-based target price of Php40/sh, an upside of 14% from its last closing price. While other power generators are shelving projects in a buyers’ market, AP is making up for declining margins by beefing up their capacity and sales volume through greenfield projects and acquisitions. Its $579mn acquisiton of AA Thermal, AC Energy’s wholly-owned subsidiary housing its GN Power assets, was recently approved by the Philippine Competition Commission (PCC).

Aboitiz Equity Ventures

Aboitiz Equity Ventures (AEV) Philippine Power Generation: A Volume Game

March 15, 2019

 

Aboitiz Equity Ventures (AEV) whose core net income dropped last year by 3% to Php23bn is looking at slightly better income this year, flat at best and with consensus just 6% growth, with the expected recovery of AP mainly but with some offset from other business segments: Food business, Pilmico, will see improvement in cost of raw materials, key of which is wheat. Union Bank will see a return to loan book of a sizable teachers’ loans as approved by the Department of Education Quantity undisclosed.

Global Growth Jitters

Global Growth Jitters

March 8, 2019

 

The PSEi may trade sideways this week amid mounting worries over global growth slowdown and dearth of domestic catalysts.  So far, corporate earnings have failed to excite the market as results were mixed.  Out of the 26 companies that have released their earnings, nine outperformed consensus, eight were in line and 10 were behind. 

Easing Cycle in the Horizon

Easing Cycle in the Horizon

March 8, 2019

 

Former Budget secretary-turned Bangko Sentral (BSP) governor Benjamin Diokno signaled that monetary policy should be in sync with the Duterte administration’s expansionary fiscal policy -- aside from economic data considerations -- and that there is room for easing given that: 1) local inflation is trending down and heading back towards the government’s target band of 2%-4%; 2) Fed’s dovish signals; and 3) weaker global growth outlook.

Cement Sector

Cement Sector: Turning the Corner

March 8, 2019

 

 

Eagle and Cemex are at an inflection point and may have seen the worst in 2018. Both have announced sales volume growth last year, a sign demand is picking up after a huge market share loss in 2017 due to cheaper imports that gained market share of 15% since 2015 or 4.5mn of last year’s total supply of 30mn tons.

BDO

BDO: Strong Franchise and the Priciest

March 8, 2019

 

 

BDO had a very strong finish in 2018. It only made Php21.6bn in net profits as of 9mos 2018 and in the fourth quarter the full year number was a higher Php32.7bn, up 17% and beating the Php31bn profit guidance set early in the year. It’s an additional net income of Php11.2bn in 4Q18 alone, coming from a weak start this year of 1Q, 2Q and 3Q net profits of Php5.9bn, Php7.3bn and Php8.4bn, respectively; far from the guidance of Php31bn.

 

MPI

Metro Pacific Investments (MPI PM) FY18: Narrowing Discount

March 6, 2019

 

We maintain our buy rating for Metro Pacific (MPI) with a target price of Php7.23/sh, as we think that the market’s regulatory risk-aversion with MPI will subside after a couple of approved rate hike increases in its water and toll roads businesses. MPI is still currently trading at a ~50% discount to NAV, while our target price already imputes a 25% discount.

ALI

Ayala Land, Inc. (ALI): Double income by next year from 2016

March 5, 2019

 

“Amazing” was how Ayala Land Inc. (ALI) President and CEO Bernard Vincent “Bobby” Dy described ALI’s 2018 earnings, up 16% on reported basis to Php29.2bn and even higher at 20% on recurring basis. Budgeted residential project launches were Php110bn early in the year but ended higher (based on actual) on strong demand with total full year launches of Php139.4bn. Margin headwinds didn’t show, instead EBIT margin expanded to 33% from 32%. Residential sales reservations were up 16%, average of Php12b monthly.

DNL

D&L Industries, Inc. (DNL): Election-related bounce

March 5, 2019

 

DNL is guiding for net earnings of 10%-15% this year to Php3.5bn to Php3.7bn after making Php3.2bn last year, up 10% and in line with consensus estimates. Results were pushed higher by record 4Q18 gross profit margin (GPM) of 22%. Full year GPM stood at 19.1%, better than 17% in 2017. Net profit margin improved to 12% from 11.5% in 2017.

Meralco

Meralco (MER) FY18 Review: Toppish

March 4, 2019

 

We expect flattish earnings growth this year; just up by 4% to Php23.4bn (revised upward by 13% from Php20.6bn) as San Buenaventura (SBPL) will come online in 3Q19. We expect profit of about Php500mn in a quarter’s worth of commercial operations from the plant (MER share: Php250mn) and Php600mn from organic growth, but we note that a lower rebased rate (if it pushes through in 4Q19) is a risk to profit growth. Our earnings estimate translates to a 2019E P/E of 18x, right at MER’s 5-yr historical average.

Inflation downtrend raise odds of rate cut

Inflation Downtrend Raise Odds of Rate Cut

March 1, 2019

 

 

Local inflation last February was a nice surprise, hitting 3.8% which was lower than consensus expectation (4.0%) and January’s 4.4%, mainly driven by food and non-alcoholic beverages, alcoholic beverages and tobacco, and transport. This dislodged the peso from strength from almost a year-low of Php51.710 to back to above Php52 on hopes of lower interest rates. This also boosted the odds for a reserve requirement cut. Meanwhile, the Bangko Sentral (BSP) expects inflation to trend lower for the rest of Duterte’s term, which could apply downward pressure on the yield curve.

Rebalancing Fallout

Rebalancing Fallout

March 1, 2019

 

The PSEi is on an upward mode this week as investors digest the slower-than-expected February inflation print (3.8% vs consensus of 4.1%) and renewed optimism over US-China trade deal. So far, earnings results have failed to lift the market. Out of 20 companies that have released their full year earnings, six were ahead of consensus, seven were in-line and seven were behind. This week, earnings releases to watch out for are MPI and DNL (March 6); EAGLE (March 7); TEL, DMC and ICT (March 8); and AEV and AP (March 9).

Strategy Report

Tight Liquidity?

February 22, 2019

 

The peso yield curve is resurgent and sensitive to news of fresh debt supply, especially from government. The much anticipated Retail Treasury Bonds (RTB) was one of such, Php30bn on Feb. 26 (auction date) and much less than the equivalent of last February 19’s debt maturities of Php80bn. That has caused upticks both in the short and long-end of the curve; the 91-day, up 18 bps; 182-day, up 4 bps and 364-day, up 2bps while the 10-year government bond rate rose back to 6.3% after a blip downmove to 5.95%.

Rangebound

Rangebound

February 22, 2019

 

The PSEi may hover between 7,900-8,000 on lack of clarity on the progress of US-China trade talks despite Pres. Trump waiving the deadline for the tariff hikes on Chinese goods originally scheduled on March 1. On the local front, full year 2018 earnings results were mixed -- two were ahead of consensus (GLO, BDO), three were in-line (JFC, ALI and SMPH) and two were behind (CHP, IMI). This week, MER (February 26) and SM (February 28) will also release their full year results.

Yields up on RTB Sale

Yields up on RTB Sale

February 21, 2019

 

The market braced for the Php30bn 5-yr retail treasury bond (RTB) auction which was priced yesterday (February 26) and will settle on March 12. The Bureau of the Treasury (BTr) instead raised Php113.8 bn, a bit over four times its intended offering amid strong demand with tenders totaling Php121.8bn. We expect significant upward bias on the yield curve as the paper is expected to sell within the range of 6.125%-6.25%, at least 150bps higher than the last auction in November 2017. The 5-yr benchmark closed at 6.127% last week.

IMI

Integrated Micro-Electronics (IMI): Margin Recovery

February 15, 2019

 

Despite healthy topline growth of 24% to $1.3bn, Integrated Micro-Electronics’ (IMI PM) recurring income in 2018 fell by 25% to $28.4mn, behind consensus estimate of 14% growth to $39mn, due to: 1) higher costs of materials due to global component shortage; 2) higher expenses to expedite deliveries driven by the aforementioned shortage; 3) reconfiguration costs and operational difficulties in IMI’s Mexico facility. As a result, gross profit margin compressed by 180bps to 10.1%, down from 9M18’s 10.3% as margins in the fourth quarter plunged down to 8.4%. Headline income was buoyed by one-off gains from the Shenzhen plant relocation and STI acquisition, up by 33.8% YoY to $45.5mn. Minus revenues from new acquisitions STI and VIA, the core business still grew by 16%.