Market Talk (SCC, RFM, AP, MER, TA)

Mining: SCC unfortunate incident. According to Semirara Mining and Power Corp (SCC-BUY), a portion of the northern edge of Panian pit gave way about 3:45am last 17 Jul. Three bodies have been recovered while six are still missing. SCC is giving full support to the families of the victims. It is also coordinating with national and local authorities to keep them updated with the search-and-rescue efforts and other necessary measures, including adequate supply of coal since the Department of Energy has ordered the suspension of operations at the Panian pit pending results of the ongoing investigation. We will have a fuller report soon. 

Consumer: RFM’s 1H15 net profit rose 11% YoY to PHP471m. RFM Corp (RFM – BUY) reported net income grew 12.7% YoY in 2Q15 to PHP292m bringing it to PHP471m in 1H15, up 10.6%. This is equivalent to PHP50% of our full-year net income forecast of PHP951m. 1H15 sales went up 10% to PHP5.5b while EBIT increased 17.5% to PHP665m. Higher sales were led by ice cream and pasta. We will come out with a more detailed report on the results within the week. 

Utilities: Pagbilao on track to finish plant. According to Manila Standard, Pagbilao Energy Corp said in a recent interview it is on track to complete the 420MW Pagbilao 3 coal-fired power project in Quezon province in time for full commercial operations by 2018. The project, which started last year, is expected to take about 42 months to complete. Aboitiz Power Corp (AP-HOLD) CEO Erramon Aboitiz earlier said the project would be built as a merchant plant, or one without contracts as the company was confident in the “regime of open access.” Pagbilao Energy is the joint venture of TPEC Holdings Corp and Therma Power Inc, whollyowned subsidiaries of TeaM Energy Corp and AP, respectively.

Utilities: Meralco set to acquire distibution utilities. According to the Philippine Star, Manila Electric Co (MER-HOLD) said in a recent interview it has recommenced exploring opportunities and talks with its target distribution utilities and electric cooperatives after slowing down last year to focus on the rehabilitation of a debt-ridden electric cooperative in Pampanga. MER is scouting for opportunities on growing its electric distribution area in North Luzon and South Luzon through acquisitions of electric cooperatives and private distribution utilities in areas as far as La Union, Batangas, and Laguna. MER, however, declined to specify which distribution utilities and electric cooperatives it is targeting to purchase.

Utilities: Maibarara Geothermal expansion operational by mid-2017. According to BusinessWorld, an official from the Maibarara Geothermal, Inc (MGI) venture said the 10MW geothermal plant expansion in Batangas is programmed to be commissioned in mid-2017. PetroEnergy Resources Corp’s (PERC-Not Rated) subsidiary, PetroGreen Enery Corp, holds a 65% interest in MGI while Trans-Asia Oil and Energy Development Corp (TA-BUY) holds 25% and PNOC Renewables Corp holds 10%. Last month PERC reported MGI completed tests within the site that confirmed sufficient steam to support the 10MW expansion of the operational geothermal project in the municipality of Sto. Tomas. 

- Maybank ATR

Market Talk (NIKL, EW, AP, MER, TA)

Mining: NIKL posts 1H15 shipment volume increase of 25%. Nickel Asia Corp (NIKL – BUY) posted 1Q15 shipment volume of 9.68m WMT, a 25% increase YoY and 10% higher than guidance. Implied 2Q production of 6.17m WMT is higher by 15% YoY and 76% QoQ. Average price of USD23.10 per WMT is lower 29% QoQ and 44% YoY. The volume increase was carried by middle-grade saprolite and limonite across three of four mines, with Rio Tuba doubling shipment and Cagdianao tripling production volume. 

Mining: NIKL to guarantee up to PHP3b loans of power subsidiary. NIKL’s board of directors approved to guarantee the loan facilities of 55%- owned subsidiary Emerging Power Inc (EPI) for up to PHP3b over a maximum three-year period. EPI is a domestic company engaged in the renewable energy business and owns the Montelago geothermal project in Mindoro Oriental with resource of up to 30MW over a 25-year period. The loan facility will be used by EPI to finance the purchase of up to 99.99% ownership in Jobin-SQM Inc (JSI) and a 60% ownership in Biliran Geothermal Inc (BGI), and for the development of the initial generating facilities for both projects. JSI has 100MW solar and 50MW wind renewable energy service contracts in the Subic Bay Metropolitan Authority while BGI holds a geothermal contract in Biliran province which could potentially generate at least 100MW.

Banks: EW to put up its non-life insurance unit. East West Banking Corp (EW – BUY) is entering into non-life insurance brokerage via establishing a wholly-owned subsidiary East West Insurance Brokerage Inc. This is separate from its life insurance unit, EastWest Ageas Life, which is a joint venture with Ageas Insurance International of Belgium. The insurance businesses will add to EW’s financial products and help boost fee income. 

Utilities: AP intends to develop 5 big hydropowerplants. According to BusinessWorld, Aboitiz Power Corp's (AP-HOLD) subsidiary, Hedcor Inc, is planning to develop four to five hydropower plants with average capacities of 25MW and above to meet its target of 2b kWh annual generation by 2020. In a disclosure, AP clarified these projects are already in the pre-development phase. AP currently has 22 hydropower plants that are located in Benguet, Davao City, Davao del Sur, Ilocos Sur and Mountain Province. AP also has an ongoing construction of a 68MW hydropower project in Bukidnon which is composed of two units, 43MW Manolo Fortich 1 and 25MW Manolo Fortich 2, that will utilize hydropower resources from the Tagoloan River. 

Utilities: MER hopeful for an electric vehicle manufacturing plant. According to the Philippine Star, Manila Electric Co (MER-HOLD) is hopeful for the establishment of a manufacturing facility for electric vehicles (e-vehicles) in the country as it believes e-vehicles will be an increasing component of the overall transportation industry, initially in the smaller forms of public transport like tricycle and e-jeeps. But since manufacturing is not MER's core business, it will need a partner who knows the the trade. It will also have to initially consider the scale of local demand to determine when it would make concrete investments for a manufacturing facility. At the moment MER is doing its part in supporting the local e-vehicle industry by putting up e-vehicle charging stations in various areas. 

Utilities: TA spends PHP2b to boost energy portfolio. In a disclosure, Trans-Asia oil and Energy Development Corp. (TA-BUY) said it disbursed PHP1b from 14 Nov 2012 to 31 Mar 2015 for the development of its 54MW wind energy project in San Lorenzo, Guimaras in Iloilo and the second 135MW unit of the coal-fired power plant in Calaca, Batangas. The investment came from the PHP1.62b gross proceeds of its stock rights offering in 2012. TA also noted it spent PHP1.04b for its coal power projects and PHP105m for Maibarara Geothermal, Inc, which was funded from PHP1.16b gross proceeds of a stock rights offer in 2011. It also utilized PHP41.6m for the expansion of a 21MW bunker-fired power plant in Calamba, Laguna operated by its wholly owned CIP II Power Corp from 28 Nov 2007 to 31 Mar 2015.  

- Maybank ATR

Market Talk (SMC, BDO, SECB, RCB, EDC, FLI, NIKL)

Banks: Several parties interested in UCPB sale. The Businessworld reported the UCPB sale has garnered interest in several new parties. Conglomerate San Miguel Corp (SMC – Not rated) is said to join the bidding, together with US private equity companies CAP IV Engagement Limited (an affiliate of Carlyle Asia Partners IV), Lone Star Funds, and TPG Capital Management. Likewise, foreign lender Mitsubishi UFJ Financial Group Inc of Japan is also reportedly interested. Previously, BDO Unibank, Inc (BDO – BUY), Security Bank Corp (SECB – BUY), Rizal Commercial Banking Corp (RCB – BUY) and Robinsons Bank had indicated their interest in UCPB. The government agency tasked to sell UCPB said there are 12 letters of intent to bid that were submitted, of which four came from foreign firms. 

Utilities: EDC to spend PHP58b for Leyte expansion. Energy Development Corp (EDC-BUY) said in its disclosure it intends to spend PHP58b in the next 25-30 years for the expansion of its Leyte Geothermal Project (LGP) by adding 7,106ha to the current 7,400ha. EDC seeks to amend its current environmental compliance certificate (ECC) to include additional areas outside the existing geothermal block, specifically for the drilling of required replacement wells over the next 25-30 years. The existing 700MW, as per the current ECC, will be maintained. 

Utilities: Electricity power of choice, soon. According to the Businessworld, as the Department of Energy (DoE) moves to expand coverage of the retail competition and open access (RCOA) regime by the mid-2016, establishments that consume less than 1MW each month will soon be allowed to choose their own electricity suppliers. When initial implementation began two years ago, the RCOA covered only “contestable customers” (CCs) with monthly average consumption of at least 1MW after accreditation with the Energy Regulatory Commission (ERC). In the latest circular the DoE directed all CCs with 750-999kW average monthly use in the past year to secure retail supply contracts with suppliers by 25 June 2016. At the same time, existing customers covered by RCOA have been directed to secure contracts with suppliers instead of staying with their respective distribution utilities indefinitely.

Property: FLI wins bid for lot in Cebu SRP. Filinvest Land Inc (FLI-BUY) won the bidding for lot no 1 which spans 19 hectares in South Road Properties (SRP), Cebu. FLI plans to follow the bidding guidelines which states that 70% of the buildable area will be for commercial and office while the remaining 30% will be for residential projects. The project will complement FLI’s City di Mare project in Cebu. Consumer: URC commissions 46MW biomass plant. BusinessWorld Online reports Universal Robina Corp (URC – BUY) has commissioned its 46MW biomass power facility in Negros Occidental, Visayas. Output of the PHP2.52b facility will be used mainly to power URC’s sugar mills in Negros but part will be dispatched to the national electricity grid. The biomass plant uses bagasse as its primary input, a by-product of URC’s 9k ton-per-day sugar mill in the municipality of Kabankalan. We expect URC’s biomass plant to contribute PHP350m to EBIT annually under the commodity foods group. 

Mining: SEC approves NIKL’s 100% stock dividend. Nickel Asia Corp (NIKL – BUY) disclosed the Securities and Exchange Commission (SEC) approved yesterday the company’s increase in authorized capital leading to the approval of an earlier declaration of 100% stock dividend. This translates to 3.8b new common shares to be issued at par of PHP0.50. Consequently, our EPS forecasts will be halved to PHP1.16/PHP1.96/PHP2.75 in 2015F/16F/17F while our target price will likewise by halved to PHP16.92 from PHP33.85. Record date is set on 16 July with payment on 11 August.  

- Maybank ATR

Market Talk (SMPH, ALI, DMC, AEV, GLO, CNPF, APX,

Property: SMPH and ALI JV wins Cebu SRP Lot. SM Prime Holdings (SMPH-BUY) and Ayala Land, Inc. (ALI-BUY) has joined forces and won the bid for the 26-hectare Lot No. 8-B-1 at SRP (South Road Properties) in Cebu at the amount of PHP10.0b. Based on our initial estimates the cost per sqm is PHP38.5K, which we believe is in the highend of the current market price range of PHP30K-PHP40K per sqm in the said location. We believe this is positive moving forward as it illustrates that the two can coexist and collaborate. We think it has also to do with future possible projects like Lake Shore in Laguna and the Reclamation in Pasay and Paranque, which can be developed by both property companies. We maintain our BUY rating for both SMPH and ALI. 

Conglomerates: DMC issues official statement for Torre De Manila. DMCI Holdings Inc (DMC-Not Rated) issued a statement regarding the public uproar over its Torre De Manila project. DMC said that they complied with all the necessary permits for the project and that the permit issued to them was for a 49-storey condominium instead of 7-storeys according to rumors. They also believe that their project did not violate any heritage laws and that it does not obstruct the view of the Rizal monument as the project is 800 meters behind it. 

Conglomerates: AEV raises PHP615m from treasury sale. Aboitiz Equity Ventures Inc. (AEV-HOLD) has raised PHP614.8m from the sale of 10.6m shares at PHP58 apiece last June 30. The treasury shares are part of the AEV’s 50m treasury shares to be sold either in tranches or in a single block at prevailing market prices which its board approved in August 2014. According to its disclosure at the Philippine Stock Exchange (PSE) portal, the balance of treasury shares authorized to be sold currently stand at 17.61m shares. 

Telecoms: GLO receives green light from SEC. Globe Telecom Inc. (GLO-HOLD) disclosed yesterday in the Philippine Stock Exchange (PSE) the approval from Securities and Exchange Commission (SEC) of the incorporation of its wholly-owned holding company, Globe Capital Venture Holdings Inc., through which new and strategic businesses will be made and consolidated. The creation of this holding company aims to provide more focus on developing and growing said businesses. 

Utilities: Major gas well found. Philippine National Oil Company– Exploration Corp. (PNOC-EC) has discovered the country’s next major commercial natural gas supply at its Mangosteen project in Santiago City, Isabela. PNOC-EC records showed that the Mangosteen field, located 8km south of Santiago, Isabela, had a recoverable resource potential of 71b cubic feet of natural gas reserves that could contribute 60MW to the Luzon power grid for more than 15 years.

Utilities: DOE chief orders re-evaluation of Bat-Man. Department of Energy (DOE) secretary Carlos Petilla has ordered the re-evaulation of the 121km transmission pipeline which runs from Batangas-Manila (Bat-Man) due to the project lacking a middle offtaker. Philippine National Oil Company (PNOC), who proposed the Bat-Man, will seek a private partner to build the project through a bidding process. Foreign investors who were reported to have taken interest in the project were PTT Plc. of Thailand, Japan's Marubeni Corporation and Russian state-owned Gazprom. 

Utilities: Malaya Thermal contract up for bids. The Power Sector Assets and Liabilities Management Corp. (PSALM) will auction off the one-year operation and maintenance service contract (OMSC) for the 650MW Malaya thermal power plant this month. PSALM has allotted a PHP457.28m budget for the contract. Interested parties are required to pay a non-refundable fee of PHP50,000 for the bidding documents which were made available at PSALM’s office in Makati City. 

Oil: Euro 4 fuel, New emission standard begins. Administrative Order (AO) 2015-14, which requires the use of cleaner Euro 4 fuel and imposes stricter emission standards for all vehicles, was issued by the Department of Environment and Natural Resources (DENR) last March and took effect yesterday, July 1, 2015. As stipulated in the AO, all new vehicles to be used and introduced in the market by 2016 should comply with Euro 4 emission standards. The AO also requires that oil companies ensure the availability of Euro 4 fuels by July 1, 2015. 

Consumer: CNPF earmarks PHP820m capex for 2015. Century Pacific Food Inc (CNPF – Not rated) confirms a Philippine Star report stating the company has earmarked a total of PHP820m in capex this year, significantly higher than its PHP540m capital spending last year. About PHP450m is allocated for the construction of cold storage facilities in General Santos City, Mindanao while the balance of PHP370m shall be used for regular maintenance. CNPF aims to grow its revenues and profits between 10-15% annually over the next two to three years. 

Mining: APX doubles 2015 capex to PHP1.9b. Various news dailies report Apex Mining Co Inc (APX – Not rated) has doubled its capex to PHP1.9b this year from PHP914m in 2014. This is in line with the company’s goal of ramping up its gold production and other mine development projects in the coming years. A top official was quoted as saying bulk of this year’s capital spending is allotted for the acquisition of property and equipment for the exploration activities in APX’s Maco gold mine in Compostela Valley. The amount does not yet include expenses related to the recently acquired Itogon mine which requires about PHP150m to restart operations. 

Economy: Infra spending up 40% in April. Data from the Department of Budget and Management show infrastructure spending in April rose 40.3% YoY to PHP23.3b. This was mainly due to higher fund disbursements from the Department of Public Works and Highways amounting to PHP5.2b. For 4M14, infrastructure spending is still lower by 1.9% YoY to PHP91.9b. This is 21.3% of the PHP431.57b programmed for infrastructure expenditures for 2015. With the increase in April, the government believes the acceleration in spending will continue on to the next months. Likewise, the government held discussions to tackle the issues that hampered spending previously. The government plans to adopt measures to help achieve further improve spending and achieve the targets for the year. 

- Maybank ATR

Market Talk (PBB, FGEN, MER, MWC, PGOLD, CNPF)

Banks: UCPB sale may be put on hold. The Supreme Court issued a temporary restraining order (TRO) on the implementation of Executive Orders 179 and 180, both of which deal with the sale of the coconut levy assets. Among these assets is the 73.9% stake of the government in United Coconut Planters Bank (UCPB), targeted to be sold on 18 Sep. According to a BusinessWorld report, the Privatization and Management Office has yet to verify if the TRO covers the UCPB privatization, and whether the bidding schedule has to be adjusted. A total of 12 banks reportedly submitted their letters of intent for the government stake, for which it is asking for a minimum price of PHP1/sh. It is also requiring PHP15b in recapitalization through subscription of up to 37.2b primary common shares at minimum subscription price of PHP1/sh.

Banks: Loan growth eased to 14.5% in May. Lending by universal and commercial banks net of reverse repurchase placements expanded 14.5% YoY in May, slower than 15.4% growth last month. Credit extended to sectors for production decelerated to 14.1% YoY from 15.1% rise in April. The slowdown was evident in most of the major sectors: electricity, gas and water (12.9% from 16.3%), manufacturing (12.9% from 15.2%), trade (12.9% from 14.4%), and financial intermediation. Real estate and business services which comprise 17.8% of the total loan portfolio picked up pace to 12.9%, a bit faster than 12.5% growth a month ago. Meanwhile, loans for household consumption climbed 20.5%, slightly better than 20.1% expansion last month. Auto loans continued to surge at 28.3% (from 28.1%) while credit card receivables rose 5.6% from 4.9% rise a month ago. Other household loans which include personal and salary loans continued to beat the other segments with growth of 62.1% (from 61.5%) as it comes from a low base.

Banks: PBB acquires Insular Savers Bank. Philippine Business Bank (PBB – HOLD) yesterday disclosed it acquired 100% of Insular Savers Bank (ISB), a rural bank, for PHP518m. ISB was formed following Insular Rural Bank’s acquisition of Filipino Savers Bank. ISB has a primary focus on consumer and commercial loans with a network of eight branches in areas such as Taguig, Rizal, Pampanga, Bulacan, and Laguna. Approvals from relevant regulators have yet to be secured. PBB says the acquisition is in line with its expansion plans and will help them reach out to SME clientele. PBB plans to add 30 branches this year to its current network of 122 branches. We believe PBB can pay cash as it had PHP896m in cash and other cash items as of 1Q15.

 Utilities: FGEN talks with potential partners. First Gen Corp. (FGEN-BUY) is already in talks with potential partners from Japan, Europe and the Philippines to help finance and operate the following projects: three plants worth USD1.5b which will run on Malampaya gas and a liquefied gas terminal worth USD1.2b. The 414MW San Gabriel plant, the first of three gasfired generators that FGEN wants to add, is already funded and will be operational next year. This will be followed by two plants with total capacity of 800MW, expected to be completed in 2018 and 2021, respectively. For the gas terminal, it is targeted to be up and running by 2021, before the Malampaya gas field runs dry in 2024.

Utilities: Lower power demand by August. According to Energy Secretary Carlos Petilla, threats of power interruptions will not stop for Luzon in July because of high demand and the fact that several power plants are still scheduled for maintenance shutdowns. He noted the July demand is estimated to hover at 8,400-8,500MW. He also added that by August there would still be maintenance shutdowns of power plants, but the difference lies in the fact that system demand will already be lower, estimated to be at 8,000-8,200MW.

Utilities: Meralco awards San Buenaventura EPC. Meralco (MER-HOLD) confirmed the awarding of the engineering procurement and construction (EPC) contract of the 460MW San Buenaventura coal-fired power facility project to the consortium of Japanese firm Mitsubishi Heavy Industries and Korean firm Daelim Industrial Co Ltd. MER chairman Manuel V. Pangilinan noted the awarding of the EPC is the biggest step which will finally propel the project that is targeted to go on stream by 2018. The corporate vehicle for the San Buenaventura project is majority owned by Meralco subsidiary Meralco PowerGen while the balance is held by Thai firm EGCO.

Utilities: PEMC pushed to stand by its decision. Energy Secretary Carlos Petilla urged the Philippine Electricity Market Corp. (PEMC) to stand by its decision to impose penalties against power firms that violated the must-offer rule of the Wholesale Electricity Sport Market (WESM). PEMC earlier imposed penalties against Therma Mobile Inc. (TMO), a unit of Aboitiz Power (AP-HOLD), Power Sector Assets and Liabilities Management Corp (PSALM) and Panasia Energy Inc (Panasia), after they were found to have breached the WESM rule in Nov-Dec 2013. Aside from PSALM, TMO and Panasia, the following are the other power producers that violated the WESM rule but for whom penalties were not meted out: AP Renewables Inc, CIP II Power Corp, Trans-Asia Power Generation Corp, Udenna Management and Resources Corp, Strategic Power Development Corp and SEM-Calaca Power Corp.

Utilities: MWC amends agreement with Province of Laguna. Manila Water Philippine Ventures Inc. (MWPV), a unit of Manila Water Co Inc, (MWC-HOLD) and the provincial government of Laguna signed an amendment to their joint venture agreement that expands Laguna AAAWater Corp’s (Laguna Water) concession area to cover all cities and municipalities in the province of Laguna. It further includes the provision of wastewater services and the establishment of an integrated sewage and septage system in the province. Laguna Water, their joint venture company, likewise signed an amendment to its concession agreement with the local government to reflect those changes.

Consumer: PGOLD eyeing another supermarket chain acquisition. In a clarification to a Manila Bulletin news article, Puregold Price Club Inc (PGOLD – BUY) disclosed it is finalizing another supermarket chain acquisition worth PHP800m-1.4b. The target company has eight stores with annual revenues of about PHP4b and has presence in areas where PGOLD is not heavily represented. In early Feb PGOLD acquired nine-store grocery chain NE Supermarkets in Central Luzon for an undisclosed amount. Our forecasts do not yet factor in the looming acquisition but we estimate it could raise PGOLD’s annual revenues by 4%.

Consumer: CNPF declares PHP0.20/sh cash dividend. Century Pacific Food Inc (CNPF – Not rated) disclosed its board of directors approved yesterday the declaration of PHP0.20/sh cash dividend, consisting of PHP0.10/sh regular and PHP0.10/sh special cash dividend. The dividends are to be paid to stockholders of record as of 30 Jul and payable on 25 Aug. This translates to a 1.1% yield and payout ratio of 26% based on last year’s earnings.

- Maybank ATR

Market Talk (AP, SMC, APX)

Economy: Policy rate stays at 4%. The monetary board of the central banks yesterday maintained the key policy rate at 4% for overnight borrowing (reverse repurchase) and 6% for overnight lending (repurchase). SDA rate was also unchanged at 2.5%. Reserve requirement ratios were held steady as well at 20%. The decision was based on indications of continued subdued inflation. The central bank also noted that domestic demand remains stable, supported by private household and capital spending as well as strong business confidence. They also see ample liquidity and planned higher public spending will support economic growth in the coming months. 

Utilities: PHP12.5b Manolo Fortich commences construction. Aboitiz Power Corp.'s (AP-HOLD) unit, Hedcor Bukidnon Inc., just kicked off the construction of the 68.8MW Manolo Fortich hydro facility project worth PHP12.5b in Bukidnon. As laid down by the company, the project was designed to be two cascading plants: the first phase will be of 43.4MW capacity; while the second phase will have 25.4MW capacity. The two phases of the Manolo Fortich hydropower facility are targeted to be on stream by 2017 to 2018. 

Utilities: SCPC seeks ERC approval for PSA. San Miguel Corp's (SMCNot Rated) energy arm, SMC Consolidated Power Corp. (SCPC), and Tarlac Electric II Cooperative (Tarelco II) have asked the Energy Regulatory Commission to approve their 10-year power supply agreement in which SCPC will supply Tarelco II with 15,000 kW of capacity from the 2×150MW coal-fired power plant in Limay, Bataan. The power plant is still under construction and the target commercial operations date is in August 2016. The SCPC’s baseload rate that will be charged to Tarelco amounts to PHP4.6/kWh. 

Mining: APX acquires Itogon mine. Apex Mining Co Inc (APX – Not rated) disclosed it has signed an agreement to acquire 24.5b shares of Itogon Suyoc Resources Inc (ISRI) representing 98% ownership interest in the company. The acquisition will expand APX’s mining business as it takes over ISRI’s mining claims and mill and production facilities in Sangilo, Itogon, Benguet. APX will infuse at least PHP238m in new equity in ISRI to pay down debts and reopen its mining operation in Itogon. 

- Maybank ATR

Top Stories (MPI, FGEN, EDC, SCC, AP, MER)

MPI submits highest bid for CALAX project. The government announced that MPI submitted the highest bid for the Cavite-Laguna Expressway (CALAX) Project. MPI submitted a bid Php27.3Bil, which is the premium that MPI will pay the government for the project on top of the construction cost of the project, topping San Miguel Corp’s Php22.2Bil bid. Construction for the Php35.4Bil, 45.5km road project is expected to begin in July 2016 and be completed in July 2020, while the operating and maintenance period will be from July 2020 to July 2050. 20% of the Php27.3Bil premium will be paid upon the signing of the contract, while the remainder of the balance will be paid over 10 years. The DPWH said it expects the award of the contract on June 4. The CALAX would be the biggest single biggest toll road investment in MPI’s portfolio and we believe that it should further boost MPI’s long term earnings growth outlook. In terms of funding for the project, MPI said that the initial premium payment of Php5.46Bil will be funded internally, but will raise debt in the succeeding years for the future premium payments and the construction cost of the project. We will be waiting for more details on this project from management to see the rationale for MPI’s bid (how to justify the increase from its last year’s bid of Php11.3Bil to PHp27.3Bil) and the level of return MPI expects for this project. 

Maintain BUY rating. We have a BUY rating on MPI. We like MPI due to its focus on businesses that have massive growth potential due to underinvestment and population growth. Valuations are also attractive; given a potential upside of 36.3% based on our FV estimate of Php6.42/sh.

FGEN earnings beat estimates due to EDC and hydro plant. FGEN’s 1Q15 net income rose 17.7% to US$50.5Mil. On a recurring basis, earnings rose 9.3% to US$49.5Mil, representing 31.3% and 25.5% of COL and consensus forecast. Earnings beat forecast mainly due to the better than expected performance of EDC and the Pantabangan-Masiway hydro plant. Earnings of the gas plants were also better than expected. The Sta. Rita and San Lorenzo gas plants reported total earnings of US$33.3Mil, up 5.3% y/y, representing 27.8% of our full year forecast. 

EDC results ahead of COL forecast on higher than expected revenues. EDC’s 1Q15 core net income rose 11.0% to Php2.46Bil, ahead of COL forecast (27.1%), but below consensus forecast (21.6%). Revenues rose 19.1% to Php8.5 Bil and were slightly stronger than expected at 26% of our full year forecast. EDC benefited from the stronger than expected revenues of the PantabanganMasiway Hydro plant, partially offset by weaker than expected revenues from Palinpinon-Tongonan and Bacman. Operating expenses rose 20.5% y/y to Php4.34Bil, representing 24.3% of our full year forecast. 

SCC benefits from coal mining segment’s better than expected performance. SCC’s 1Q15 earnings increased 24.2% to Php2.51Bil, equivalent to 24.2% of COL and 27.1% of consensus full year forecast. Earnings met COL’s forecast mainly due to the coal segment’s stronger than expected performance. Revenues from power generation increased 88.2% to Php19.31Bil, representing only 19.3% of our full year forecast, as the 300MW Calaca Expansion Project will begin operations in 2H15 which is later than expected. 

Core EBITDA of AP’s power generation and distribution businesses disappoint. AP’s 1Q15 core earnings declined 1.2% to Php4.3Bil, in line with COL’s forecast (25.9% of our full year forecast), but representing only 23.3% of consensus forecast. However, AP’s operating performance as measured by its EBITDA was weaker than expected. EBITDA of AP’s power generation business declined 3.9% to Php7.2Bil, representing only 22.5% of our full year forecast, brought about by the disappointing performance of its large hydro and geothermal plants. EBITDA of its power distribution business also disappointed, rising by 14% to Php1.26Bil, representing 21.4% of our full year forecast. 

MER results below estimates on lower than expected sales volume. Meralco’s 1Q15 core net profit rose 8% to Php4.4 Bil, representing only 21.8% and 24.3% of COL and consensus forecast, respectively. Earnings missed estimates due to lower than expected sales volume growth and tariff. 1Q15 sales volume grew 2.3%, slower than our 3.5% growth forecast. Meanwhile, average tariff declined 5% to Php1.55/kwh, 1.9% lower than our full year average forecast.

- COLfinancial

Market Talk (AEV, FPH, DMC, LRI, PNB)

Conglomerates: AEV Potential source of more growth. Earnings and TP revised, HOLD rating maintained. AEV to potentially acquire LRI in partnership with CRH plc. Strong balance sheet can finance LRI acquisition.

Conglomerates: FPH earmarks PHP1.4b for industrial land expansion. First Philippine Holdings Corp (FPH-BUY) will spend PHP1.4b to further expand its 450-hectare facilities in First Philippine Industrial Park Inc located in Santo Tomas, Batangas. FPH plans on acquiring lands adjacent to its industrial park because of the influx of new investments from potential locators. It already bought a 46-hectare property owned by Brillante Realty Corp at the Philtown Industrial Park in Tanauan, Batangas. 

Conglomerates: DMC aims to raise PHP1b from bonds. DMCI Holdings Inc (DMC-Not rated) is planning to raise PHP1b through fixed-rate retail bonds. This will be used to finance projects for its subsidiary DMCI Project Developers Inc. 

Cement: LRI declares PHP0.50/sh cash dividend. Lafarge Republic Inc (LRI – HOLD) disclosed its board of directors approved yesterday the declaration of PHP0.50/sh cash dividend to common stockholders consisting of PHP0.20/sh regular and PHP0.30/sh special cash dividend. Record date is set on 9 June payable on 23 June. This is unchanged from last year’s total dividend of PHP0.50/sh and is in line with our PHP0.52/sh estimate, Dividend yield based on yesterday’s closing price is 4.9%. 

Banks: PNB’s credit rating raised to investment grade. Moody’s Investors Service has raised the credit rating of Philippine National Bank (PNB – HOLD) two notches to investment grade (Baa3). Moody’s says PNB’s high capitalization and loan loss coverage provides adequate loss absorption capacity which may help the bank withstand systemic stresses in the next 12-18 months. In particular, Moody’s noted the improvement in PNB’s asset quality due to low NPL ratio and declining non-performing assets from the sale of some of its foreclosed properties. Capital buffers have also improved following the bank’s PHP11.6b stock rights offering last year.

Economy. Government underspent in 1Q15. The national government incurred a budget deficit of PHP33.5b in 1Q15, 66% below its target of PHP98.1b and down 60% YoY. Revenues increased 18% to PHP470.5b but expenditures grew only 4% to PHP504.05b. While revenues were off 3% from the government’s target, expenditures were 13% short and also grew slower than the 12% achieved in 1Q14. According to the Department of Budget and Management there was still some fall-out from last year’s restrained spending as a result of the Supreme Court’s ruling that some government disbursement schemes are unconstitutional. The Department of Finance hopes to accelerate the pace of spending in the latter part of the year. Slow government spending likely will keep 1Q15 GDP growth at the lower end of the 6.1-7.3% third-party forecast range. 1Q15 national income accounts will be released on Thursday; we are looking at 6.4% growth, accelerating in later quarters to reach 7% for the year.  

- Maybank ATR

Market Talk (AT, EMP, AGI, PGOLD, TA, AP, TEL, BPI)

Mining: AT’s tough 1H15 priced in; U/G to HOLD. 1Q15 net loss of PHP637m continued from 4Q14 as metal prices declined and mill concerns remained. Rising copper prices & completion of mill works in June will moderate 2Q15F loss; expect 2H bottom line in the black. Decline in share price has brought it close to our TP, upgrade to HOLD.

Consumer: EMP 1Q15 profits down 18%. Emperador Inc (EMP – BUY) disclosed yesterday its 1Q15 earnings amounted to PHP1.4b, implying an 18% drop YoY. This is disappointing as 1Q accounted for only 20.2% of our full-year forecast of PHP6.9b, slightly lower than consensus. In 2013- 2014, 1Q accounted for 24.7-27.9% of full-year earnings. Net sales grew 16% to PHP8.9b, behind management’s target of 35% growth for full-year 2015. We note EMP is coming from a high 1Q14 base as sales got a big boost from trade loading ahead of a price increase then. In 1Q14, sales grew 22%, EBIT went up 36% while net income grew 19%. But we also note 1Q15 would include contributions from newly acquired Whyte and Mackay. We will come out with a detailed note as soon as EMP releases their financial statements.

Conglomerates: AGI reports PHP3.4b net profit in 1Q15. Alliance Global Group Inc’s (AGI-Not Rated) reported PHP3.4b net profit to equity holders in 1Q15 was down 12% YoY due to lower net income contributions from Megaworld Corp (MEG-BUY), Emperador Inc. (EMP-BUY) and Golden Arches Development Corp (GADC). MEG reported net profit of PHP2.34b, 12% lower due to one-time gains of PHP600m booked in 1Q14. Meanwhile, EMP’s net income of PHP1.4b was 14% down as the company is coming off a high base in 1Q14 boosted by trade loading. GADC reported a 5% decline in net profits to PHP161m as higher revenues were offset by a faster increase in cost of inventory due to higher raw material prices and shift in product mix. On the other hand, Travellers International Hotel Group (RWM-BUY) reported 2% growth in net profits to PHP1.7b in 1Q15 due to lower operating costs and expenses.

Consumer: PGOLD-ALI JV to open up to 10 supermarkets in three years. The Philippine Daily Inquirer quotes a top official from Puregold Price Club Inc (PGOLD – BUY) as saying its 50-50 joint venture with Ayala Land Inc (ALI – BUY) intends to open 10 mall-based supermarkets within three years. The first one is expected to be launched in the next few months while a second store will be opened also within the year. The JV, which intends to put up supermarkets in ALI’s upcoming projects, has not yet finalized its brand name although it has been loosely dubbed by the media as Ayagold. Our forecasts do not yet include the JV’s impact to earnings and valuation.

Utilities: TA's Renewable received green light from ERC. Trans-Asia Oil and Energy Development Corp's (TA-BUY) wind-energy development unit, Trans-Asia Renewable Energy Corp. (TAREC), got the Final Certificate of Approval to Connect (FCAC) for its 54MW wind farm. This allows the project to connect to National Grid Corp of the Philippines (NGCP). The wind farm is expected to produce 120.79 GWH of electricity per year to support the yearly electricity demand of almost 48,000 households and contribute reduction of 65,000 tons of carbon dioxide a year.

Utilities: AP seeking banking loans of up to PHP44b for two new projects. Aboitiz Power (AP-HOLD) announced that Therma Visayas Inc. will borrow up to PHP34b for its 510MW base load plant in Cebu while Hedcor Sabanagan Inc will borrow up to PHP10b for its 68MW Manolo Fortich run-of-river hydropower plants in Bukidnon. The construction is now ongoing and the plant in Cebu is expected to operate in 2018 while the hydro plant is targeted for end-2017. AP has allocated PHP52b in capex this year to reach its goal of increasing total capacity by over 2,000MW in the next five years.

Telecoms: TEL's Smart unveils new plans for mobile-data use. Philippine Long Distance Co (TEL-HOLD) subsidiary Smart Communications released four new postpaid offers namely: the Roaming Plan for frequent travellers; the Consumable Plan with flexible elements and highest volume allocation for LTE; the Tri-Net Plan for those who need unlimited calls and SMS to Smart, Sun and Talk 'N Text subscribers; and the Multi-Plan that comes with multiple lines under a single account.

Banks: BPI declares PHP0.90 semi-annual cash dividend. Bank of the Philippine Islands (BPI – HOLD) declared PHP0.90/sh cash dividend in 1H15. Record and payment dates have yet to be finalized. We expect another PHP0.90/sh cash dividend in 2H15, bringing total cash dividends for the year to PHP1.80/sh. Based on yesterday’s closing price, this translates to 1.8% dividend yield. Gaming: Tiger Resorts finds new partner for casino project., Universal Entertainment Corp, owned by Kazuo Okada, has sold its 40% stake in Eagle II Holdco Inc to All Seasons Hotels & Resorts Corp, 100% owned by Antonio Cojuangco. All Seasons is the new partner of Tiger Resorts Leisure and Entertainment Inc for its USD2b casino project and is the owner of the land in which the casino will be built. The sale could be the legal remedy to finally completing the project.


- Maybank ATR

Market Talk (EMP, HLCM, FGEN, TA, LPZ)

Consumer: EMP sets 2015 capex at PHP3b. Various news dailies quoted a top official from Emperador Inc (EMP – BUY) saying the company has earmarked a total of PHP3b in capital expenditures this year, higher than our PHP2.3b forecast. Of this amount, PHP1.5b will reportedly be spent to upgrade the production facilities of Whyte and Mackay in Europe while the remainder will be deployed to expand domestic production. The company plans to add four more lines to its existing distillery in Laguna, where newly launched Smirnoff Mule is being produced. EMP likewise plans to build a new PHP300m glass plant to be completed by 2017 for the production of nonreturnable bottles dedicated to Smirnoff Mule. Meanwhile the company has already submitted a bid to acquire France-based cognac maker Louis Royer SAS from Japan’s Suntory Holdings. The deal reportedly will not exceed the USD700m price tag for the acquisition of Whyte and Mackay last year.

Cement: HLCM declares PHP0.82/sh cash dividend. Holcim Philippines Inc (HLCM – BUY) disclosed its board of directors approved yesterday the declaration of PHP0.82/sh cash dividend to stockholders on record 15 June with payment date on 9 July. This is equivalent to a dividend yield of 5.7% based on yesterday’s closing price.

Utilities: FGEN 1Q15 profit up 17%. First Gen Corp (FGEN-HOLD) grew net income before preferred dividends 17% YoY to USD50.5m. Growth was due to increased revenue from subsidiary Energy Development Corp (EDC-BUY). Recurring net income increased to USD49.5m (9.3% YoY) mainly due to the higher recurring net income contribution of the geothermal and natural gas businesses.

Utilities: TA 1Q15 net income declined 40%. Trans-Asia Oil and Energy Development Corp (TA-BUY) posted PHP65.455m in 1Q15, down 40% YoY. Although consolidated generation revenues increased 121% to PHP432.95m, net trading revenues declined 64% to PHP94.03m due to higher cost of power per kWh. Also, financing charges increased YoY.

Conglomerates: LPZ 1Q15 earnings up 25%. Lopez Holdings (LPZ-BUY) posted PHP1.1b (+25% YoY) in 1Q15 net income before preferred dividends. It was driven mainly by growth in income contribution from First Philippine Holdings Corp (FPH-BUY). Revenues went up 10% YoY to PHP25.94b due to increases from business units associated with FPH.


- Maybank ATR