A bounce from IS?

It seems 0.53 acted as a strong support and was tested thrice. Last candlestick seen last Friday (12-05-2014) closed above the resistance (0.60) which is a good sign that the bulls are back.

Current resistance is 0.64 then 0.68

Observe the RSI (48), there's a bounce from its trend line.

Market Talk (ALI, SMC, AC, AEV, MCP)

Property: ALI reports brisk sales from Cavite project. In a press briefing yesterday Ayala Land Inc (ALI-BUY) reported its project The Courtyards launched last June has already posted sales of PHP3b out of a potential total PHP4b. This project is a high-end residential development under Ayala Land Premier in Dasmariñas, Cavite. There are 431 lots available in its first phase with a lot areas ranging between 470 to 1,947 sqm selling at a price of PHP25,000 to PHP40,800 per sqm.

Infrastructure: Government sets Calax floor price at PHP20.1b. The Department of Public Works and Highways said the floor price for the deal to build and operate the Cavite-Laguna Expressway (Calax) is at PHP20b which is the premium in San Miguel Corp’s (SMC-Not Rated) disqualified bid in the previous auction. The winning bidders in the previous auction, Team Orion composed of Ayala Corp (AC-BUY) and Aboitiz Equity Ventures Inc (AEV-SELL), have declared they will not participate in the rebidding.

Gaming: City of Dreams Manila to soft open on 14 Dec. We understand that Melco Crown (Philippines) Resorts Corporation. (MCP-Not Rated) plans to conduct a soft opening for its City of Dreams Manila integrated resort on 14 Dec, which will be followed by a grand opening in Feb 2015. COD Manila will be operating with a limited number of gaming tables and slot machines in Dec. Previously, the plan was not to have a soft opening and have a grand opening in 2H14. 

-Maketrade

Market Talk (SMC, AC, AEV, FLI, BLOOM)

Infrastructure: Government plans to rebid Calax in 2015. The special bids and awards committee of the Department of Public Works and Highways said President Aquino has ordered a rebid of the Cavite Laguna Expressway (Calax) project. San Miguel Corp. (SMC-Not Rated) has said that they would participate in a rebid. On the other hand, Team Orion, a joint venture between Ayala Corp. (AC-BUY) and Aboitiz Equity Ventures (AEV-SELL), has said that they will not join a rebid.

Property: FLI secures approval for retail bond offering. Filinvest Land Inc (FLI-BUY) has obtained approval from the Securities and Exchange Commission to offer PHP7b worth of retail bonds with indicative rates of 5.21%-5.56%. The proceeds of the offering will be used to repay debt and partly finance capital expenditure.

Gaming: BLOOM plans to open retail expansion in stages next year. Bloomberry Resorts Inc (BLOOM-BUY) said they plan to unveil the retail expansion of Solaire Resort and Casino in 2015. The retail area will have 100,000sqm and it will be opened in stages. 

- Maybank ATR

Market Talk (CHIB, MBT, UBP, PF, BLOOM, RLC)

Banks: Strong loan expansion drives CHIB’s earnings. Stock dividend-adjusted TP of PHP51 is at 1.5x 2015F P/BV. We trim net earnings estimates to account for lower funding cost and higher effective tax rates. Maintain HOLD with just 6% upside. 

Banks: MBT closes 2nd tranche of LTNCD offering. Metrobank (MBT– HOLD) closed the offering of seven-year long-term negotiable certificates of deposits (LTNCDs) amounting to PHP6.25b, which was reportedly offered at 4.25% p.a. This came after an PHP8b offering last month, for a total of PHP14.25b LTNCD. MBT can issue up to PHP20b in their LTNCD program until 1Q15 as earlier approved by the central bank.

Banks: UBP finalizes Tier 2 notes issuance of PHP7.2b. Union Bank of the Philippines (UBP – HOLD) has raised PHP7.2b worth of Basel IIIcompliant Tier 2 notes, higher than the original plan of PHP5b due to strong demand. The bonds will have a coupon rate of 5.375% p.a. and will mature in 10 years and three months, with redemption option after five years and three months. This aims to increase UBP’s capital base to support its lending and investment businesses. Capital adequacy ratio

is at 13.4% at end-Sep 2014, well above the central bank’s minimum requirement of 10%.

Consumer: PF to acquire La Pacita biscuits. San Miguel Pure Foods Co Inc (PF – BUY) disclosed it has entered into an intellectual property rights transfer agreement with Felicisimo Martinez & Co Inc last 19 Nov to acquire the trademarks, formulations, recipes and other intangible properties relating to the seller’s La Pacita biscuit and flour-based snack business. Completion of the transaction is still subject to the fulfilment of certain terms and conditions. Among the products offered under the La Pacita brand are variations of crackers, toasts and cookies.

Gaming: BLOOM set to open Sky Tower this weekend. Bloomberry Resorts Inc. (BLOOM-HOLD) plans to open its Phase 1A expansion by 22-23 Nov. The expansion called Sky Tower will have 10 gaming salons with 66 VIP gaming tables and 223 slot machines. There will also be an all-suite hotel, an exclusive Chinese restaurant and whisky and cigar bar for VIP gamers, state-of-the-art meeting rooms and a lyrical theater.

Property: RLC set to turnover Tera Tower in 2015. Robinsons Land Corp. (RLC-BUY) is planning to turnover its office development project called Tera Tower by 3Q15. The building will have 34,500sqm of GLA and a rental rate of PHP650/sqm/month. The project has already been completed and is located along Ortigas Avenue at the corner of C-5 intersection in Quezon City.

-Maybank ATR

Martket Talk (GTCAP, DMC, SUN, MPI)

Conglomerate: GTCAP looking into green energy projects. GT Capital Holdings Inc’s (GTCAP – HOLD) power unit Global Business Power Corp (GBP) is looking to diversify into renewable energy to grow its energy portfolio to 1,000MW in the next five years. GBP is interested in undertaking a joint venture either through biomass or potential geothermal projects, and has started some engineering design and preliminary studies. The company has yet to disclosed a specific location for the said projects. Currently, GBP owns nine power generation facilities in the Visayas and Mindoro Island with combined gross dependable capacity of 624MW. This includes a 246-MW clean coal-fired power plant in Toledo and a 164-MW clean coal-fired power plant in Iloilo.

Conglomerate: DMC core net income reaches PHP7.54b in 9M14. DMCI Holdings Inc. (DMC-Not Rated) reported core net income was  PHP7.54b in 9M14, 6% lower YoY. But revenues were 11.4% higher at PHP45.85b,. No other information regarding the operating performance was disclosed. Meanwhile, DMC reported that Isidro Consunji has been appointed as chairman of the board of directors replacing David Consunji who has retired and has been named chairman emeritus.

Property: SUN undertakes stock rights offering. Suntrust Home Developers Inc. (SUN-Not rated) wll have a stock rights offering which aims to raise PHP20b to fund acquisitions and capital expenditures for expansion. SUN is 44% owned by Megaworld Corp (MEG-BUY).

Banks: NPL ratio went up 10bps to 2.21% in August. Universal and commercial banks’ gross non-performing loans (NPL) slightly went up10 bps to 2.21% in August from 2.11% last month. This is still better than the 2.67% level a year ago. NPL increased 6.3% MoM to PHP101.2b while loan portfolio only inched up 1.7% to PHP4.6t. The central bank reported that NPL levels are still low across economic sectors including financial intermediation, real estate, renting and business activities, manufacturing, wholesale and retail trade and utilities. Banks continue to beef up reserves which rose 1.4% MoM to PHP135.6b. NPL coverage ratio, however, went down to 133.95% from 140.49% last July. 

Infrastructure: Price challenge for SCTEX. The Bases Conversion Development Authority received an order from the office of President Aquino to conduct a price challenge for the Subic-Clark-Tarlac Expressway (SCTEX) concession. The original project proponent and other parties will be given an opportunity to contend for the highest upfront cash which will be paid to the government in exchange for the right to takeover the operation and management of SCTEX. The minimum bid for the upfront cash is set at PHP3.5b which was the amount offered by Manila North Tollways Corp (MNTC), a subsidiary of Metro Pacific Investments Corp. (MPI-BUY).

-Maybank ATR

Market Talk (GMA7, EEI, PIP, MARC, FGEN)

Media: GMA7 posts 20% increase in 3Q14 profits. GMA Network Inc (GMA7/ GMAP – HOLD) posted a 4% YoY increase in revenues to PHP3.1b and 20% net income growth to PHP422m in 3Q14. This brought 9M14 revenues to PHP8.9b, still down 9% YoY in the absence of election-related ads of PHP724m from 9M13 but tracking our PHP12b full-year top line forecast at 74%. 9M14 net income of PHP1b is already 94% of our 2014F earnings forecast. The improvement in 3Q14 came as regular airtime revenues went up 4% to PHP2.8b after declining 6% in 1H14. GMA International likewise posted a 4% increase in revenues to PHP264m mainly on higher subscriber count and favorable forex rate. Total operating expenses were 3% higher at PHP2.6b, driven by the 14% increase in general and administrative expenses that were partly offset by the 5% decline in production costs. Higher gaex was a result of the revised collective bargaining agreement signed in June. We will be coming up with a more detailed but for now maintain our forecasts and target price.

Construction: EEI earnings fell 20% in 9M14. EEI Corp (EEI – BUY) posted a weaker-than-expected 9M14 earnings of PHP496m, down 20% and accounts for only half our FY forecast. Gross revenues continued to be strong as construction contracts increased 44% to PHP10.2b. Service revenues also jumped 25% to PHP703m, coming from the sale of electricity by its subsidiary EEI Power Corp. However, this has lower margins as compared to last year’s manpower services contracts. With a record 40 domestic projects, EEI’s expenses also accelerated by 48%, mainly from frontloaded equipment and mobilization expenditures which are normally high at the start of new projects. In 3Q14, net income fell 21% to PHP153m. We shall provide more details later.

Consumer: PIP earnings rebound in 3Q14. Pepsi-Cola Product Philippines Inc (PIP – BUY) posted a much better 3Q14 performance compared with 1H14. 3Q14 net income went up 13% YoY to PHP139m, rebounding after plunging 50% in 1Q14 and 11% in 2Q14. This brought 9M14 net profit to PHP619m, 21% lower from a year ago. It is lagging full-year expectations with 9M14 accounting for 61% of our PHP1.02b full-year net income forecast. Last year, 9M accounted for 86% of 2013 earnings. The better 3Q14 results were driven by 18.9% increase to PHP2.13b in net sales as volume jumped 17%. This is stronger than the 9.4% net sales increase in 1H14. Carbonated soft drink (CSD) sales grew 17% while non-carbonated beverage (NCB) sales were even tronger, up 23% after posting 3% increase in 1H14. 3Q14 GPM of 24.5% is about 50bps lower YoY, but not as bad compared with the GPM drop of 270bps in 1H14. EBITDA margin improved around 10bps YoY to 11.3%. Margin improvement can be attributed to a price hike in 2Q (full impact in 3Q) as well as improvements in product mix and better volume. We will be reviewing our forecasts and target price and come out with a more detailed report in the next few days.

Mining: MARC 9M14 results in line and cash dividend declared. Marcventures Holdings Inc’s (MARC-BUY) 9M14 earnings of PHP677m is 84% of our full-year forecast of PHP810m. The company did not discuss operations. The MGB suspended operations early this year due to siltation concerns and mining without the correct permit. MARC addressed the concerns and was allowed to fully operate 15 Oct. The work stoppage is the reason for our 2014 earnings downgrade in Oct. A cash dividend PHP0.15/sh was declared with record date of 19 Dec and payment date of 6 Jan. 6. Yield is about 3%.

Utilities: FGEN posted better-than-expected 9M14 earnings. First Gen Corp (FGEN-BUY) reported 3Q14 recurring net income before preferred dividends of USD44.6m (+7% YoY). 9M14 recurring net income before preferred dividends was USD134.9m (+0.1%), equivalent to 103% of our full-year forecast of USD131m. 3Q14 revenue grew 13% to USD490.7m, partly on the back of growth from FGEN’s 50%-owned subsidiary, Energy Development Corp. (EDC-BUY)

Congolerates: Positive surprise in FPH 9M14 earnings. First Philippine Holdings (FPH-BUY) posted 3Q14 net income before dividends of PHP2.20b (+40% YoY). 9M14 net income before preferred dividends was PHP4.74b (+36% YoY), equivalent to 104% of our full year forecast. The company did not yet provide a breakdown of net income by operating units.

- Maybank ATR

Market Talk (CHIB, SMPH, ALI)

Banks: Earnings downgrade on CHIB due to weak trading. We downgraded CHIB’s earnings estimates since 1H14 income was behind our expectations. Our revised net earnings estimate in FY14 is lower 6% to PHP5.2b and 4% to PHP5.7b in FY15. Incorporating our revisions and increasing our risk-free rate 50bps to 4.25% results in a revised TP of PHP55 from PHP60, equivalent to 1.5x 2015F PBV and 15.3x PER. Maintain HOLD with just 6% upside.

Property: SMPH raises PHP20b from bond offering. SM Prime Holdings Inc (SMPH-BUY) has raised PHP20b from its recent retail bond offering. The issue consisted of bonds due 2020 with an interest of 5.1%, another series due 2021 at 5.2% and another series due 2024 at 5.74%. 

Property: ALI plans to develop industrial estates. Ayala Land Inc. (ALI-BUY) plans to launch a new industrial estate with 50 hectares before the year ends. This forms part of its mixed-use project Alviera in Porac, Pampanga. By 2015, ALI will launch another industrial estate in the Cavite-Laguna-Batangas-Rizal (Calabarzon) area. The firm is currently finalizing a deal to acquire 200 hectares of land to accommodate this planned project. 

Media: Supreme Court nullifies Comelec limits on election ad airtime. The Philippine Daily Inquirer reports the Supreme Court has declared unconstitutional part of a Commission on Elections (Comelec) resolution which sets tighter airtime limits on political advertisements. The decision made permanent a temporary restraining order issued by the court a month before the May 2013 midterms elections. The high court nullified Comelec’s earlier resolution which allows all national political candidates an “aggregate total” of 120 minutes of television ads and 180 minutes of radio ads while local candidates are given 60 minutes of TV airtime and 90 minutes of radio airtime covering all stations. Instead, the airtime limit on candidates shall be measured on a “per station” basis as affirmed by the Supreme Court decision. Among the reasons cited by the high court for striking down Comelec’s resolution were the arbitrary manner by which Comelec changed the previous regulation from “per station” to “aggregate total” and the violation of freedom of expression and the people’s right to suffrage as well as the absence of prior hearing before adoption.. 

PX (PHP11.44): BUY even with valuation changes

...from ATR Kim Eng Securities

What’s New

Changes in mineralogy, among others, led to milling costs going up even as recovery rates declined in Padcal mine, thus revenues and costs were negatively affected. 1H14 net income to common shareholders of PHP627m fell 42% YoY, much weaker than we expected. 

The pre-feasibility study results of Silangan mine indicate a viable project with payback in less than five years since cash operating costs are low at USD2.00/lb for copper and USD800/oz for gold. In the first five years of a 30-year mine life, costs are even lower at USD1.50/lb and USD500/oz, respectively, since grades are higher. However, throughput for the mine was placed at 15k tons per day, lower than the 30k we assumed in our model 

What’s Our View 

Management has undertaken cost-cutting measures and productivity enhancements in Padcal mine. But until we see concrete results we are downgrading earnings in 2014F to PHP2.3b (-29%) and valuation to PHP3.67/sh (-18%). 

The bank feasibility study for Silangan mine which will be the basis of mining operations still has to be submitted. For now, we are adopting PX’s assumption at the same time we lower our discount on Silangan to 35% from 50% as the mine’s viability has been affirmed. Consequently, our DCF-based valuation of Silangan is PHP12.31/sh (-3%). Based on SOTP, we value PX at PHP15.98/sh. 

Forecast and valuation changes in Padcal 

Philex Mining Corp’s (PX) 1H14 net income fell 42% YoY to PHP627m due to higher operating costs brought about by a drop in grades and the presence of more slime. Padcal mine used to yield ores which were predominantly bornite (high-grade copper). That changed this year to being predominantly chalcopyrite which contains lower-grade copper. The change in mineralogy affects the amount of grinding to produce the same volume of copper concentrate as before while the presence of slime suppresses recoveries. In effect, milling costs go up even as recovery rates decline, thus revenues and costs are negatively affected. 

This is clearly seen in 2Q14 when revenues dropped 13% YoY while operating expenses increased 7% resulting in a 43% plunge in net income to common shareholders of PHP374m. In 1H14 there was an even bigger increase in operating expenses due to remedial measures undertaken in 1Q14 to fix water intrusion and increase safety factors in operations. However, the impact was softened by the 38% increase in 1H14 revenues as it will be recalled Padcal mine resumed operations in April 2013. Still, net income to common slid 42% to PHP627m. 

Management is trying to mitigate the impact of these issues with cost-cutting measures and productivity enhancements. However, it may take time for concrete results so we downgrade our 2014F net income 29% to PHP2.3b and 2015F 13% to PHP2.7b. Taking these into account and increasing our risk-free rate 50bps reduces our DCF-based valuation of Padcal mine 18% to PHP3.67/sh. 

Silangan mine moves a step forward 

PX disclosed recently the pre-feasibility study results of Silangan mine which indicated a viable project with payback in less than five years since cash operating costs are low at USD2.00/lb for copper and USD800/oz for gold. In the first five years of a 30-year mine life, costs are even lower at USD1.50/lb and USD500/oz, respectively, since grades are higher. However, throughput for the mine was placed at 15k tons per day, lower than the 30k we assumed in our model which we believe is feasible. Apparently the lower figure is being used because this is the level PX has been operating Padcal mine. It was applied to Silangan mine even though Silangan contains richer deposits than Padcal. 

PX still has to submit the bank feasibility study which will be the basis of mining operations to be undertaken. It is still possible PX’s plan can change to assume higher throughput. However, until this happens we are adopting PX’s assumption at the same time we lower our discount on Silangan to 35% from 50% as the mine’s viability has been affirmed. Consequently, our DCF-based valuation of Silangan is PHP12.31/sh from PHP12.69/sh previously. 

PX valuation revised down, but still BUY 

Using sum-of-parts method, we value PX at PHP15.98/sh, the combined value of the Padcal and Silangan mines. With this as target price, potential upside is 40%, thus our recommendation remains BUY. 

Market Talk (JFC, DNL, LRI, MARC, DMC)

Economy: Government finalizes liability management program. The national government has sold and exchanged PHP140.3b worth of new 10-year bonds at coupon rate of 4.125%, with maturity date of 20 August 2024. The issue size is more than double the PHP60b initial bid. The Bureau of Treasury accepted PHP121.72b of eligible debt papers. The government expects interest expense savings of around PHP1.31b for the first year. Finance secretary Cesar Purisima reportedly said this exercise will allow holders of illiquid bonds to exchange with the new benchmark bonds which will trade more efficiently in debt markets. 

Consumer: JFC reopens temporarily closed stores, sales remain robust. Jollibee Foods Corp (JFC – BUY) disclosed all of the 72 stores temporarily closed early this month due to lack of products resulting from distribution problems caused by its information systems upgrade reopened last Sunday. Sales jumped 28% for the Philippine operations compared with the same Sunday last year. The pent-up demand for JFC products highlights the strength of its brands and the strong following of its customers. Notwithstanding limited menus in Metro Manila stores and in nearby provinces due to the distribution problem, same-store-sales growth (SSSG) remained strong at 6% from August 1-17. In 2Q14 up to July, SSSG was at 10%. Operations are expected to normalize (with full menu offerings in all stores) by next week. We maintain our forecasts and reiterate our BUY rating on JFC. 

Conglomerates: DNL enters into manufacturing agreement with Ventura Foods. D&L Industries Inc (DNL – HOLD) disclosed its whollyowned subsidiary Oleo-Fats Inc (OFI) has entered into a supply agreement with US-based food manufacturer Ventura Foods to develop and produce specialty oils and food ingredients. The specialty products are intended for the foodservice, retail and ingredient manufacturing industries in the Asia-Pacific region through export and domestic Philippine sales. Development and production will be done in DNL’s Mercury plant in Quezon City. Ventura Foods manufactures branded and custom-made dressings, mayonnaise, sauces, oils and margarines, among others, with annual sales exceeding USD2.5b.

Cement: LRI to pay off PHP1.35b convertible loan note from major shareholder. Lafarge Republic Inc (LRI – BUY) disclosed it shall make the payment of PHP1.35b to Lafarge Holdings Philippines Inc (LHPI) on 29 August in settlement and discharge of the company’s convertible loan note payable to LHPI. LRI earlier received notice from LHPI, which currently has a 23.5% stake in the company, to pay to LHPI on 29 August the face value of the PHP1.353b convertible loan note and the corresponding 8% interest. The PHP1.35b loan note is convertible to 1.35b LRI common shares.

Mining: MGB lifts suspension on MARC’s Cantilan mine. Marcventures Holdings Inc (MHI – Not rated) disclosed its wholly-owned subsidiary Marcventures Mining and Development Corp (MMDC) received yesterday a copy of the letter order from the Mines and Geosciences Bureau (MGB) lifting the suspension of mining operations for the Cantilan portion of the contract area. This is in view of MMDC’s completion and implementation of environmental mitigating measures required by MGB. Accordingly, MMDC will resume with its mining operations and commercial production.

Conglomerate: DMC’s 1H14 core income of PHP5.13b almost unchanged. DMCI Holdings Inc (DMC-Not Rated) reported parent core net income at PHP5.13b, slightly lower compared to PHP5.14b core income in 1H13. There was higher net income from coal mining (PHP1.5b, +542% YoY), nickel mining (PHP365m from net loss in 1H13) and real estate (PHP1.65b, +29%). But these were offset by lower contributions from construction (PHP602m, -11%), power (PHP108m, -94%) and water (PHP977m, -9% lower). The mining businesses benefitted from higher coal sales, nickel volume sales and higher nickel priceswhile the real estate segment benefitted from higher revenue recognition. On the other hand, the construction business was dragged down by project delays of big infrastructure projects and the power segment had lower power generation volumes. Lastly, the water business was lower YoY due to the decreased interest of DMC in Maynilad Water.

- ATR Sec

First Look Corporate: EDC

EDC has posted a 68.4% jump in 1H14 net income through a 13.35% advance in revenues driven by operations from the BacMan Geothermal Plants and Mindanao Operations and a reversal in Forex losses. Net income margin jumped from 28.60% in 1H13 to 42.60% in 1H14.

- DA Market Sec

First Look Corporate: NIKL

We recommend a BUY on NIKL and upgrade Target to P43.10/share as we upgrade FY2014/FY2015 Earnings forecasts. 1H2014 Net Income+419% to P3.3b as shipment outperforms expectations and the company improves operational efficiency ahead of a seasonally stronger 2H2014. Outlook for nickel prices remain positive as Indonesia ore ban stays in place after surge in investment in processing plants. (See page 2 for more details on Indonesia ore ban). NIKL reveals push towards Renewable Energy Projects.

- DA Market Sec

Consumer Sector: Jollibee Foods Corp (JFC)

JFC (PHP181.30): Jolly sales and profits in 1H14

BUY (unchanged)

- ATR Securities

What’s New

Jollibee Foods Corp’s (JFC) net income grew 17.2% YoY to PHP2.47b in 1H14, accounting for 43.8% of our PHP5.63b full-year forecast. This compares with the 9M13 contribution of 45% to 2013 earnings. Revenues grew 14.8% to PHP43.7b (46.7% of 2014F) while operating income went up 10.5% to PHP3b (42%). JFC sustained robust same-store-sales growth (SSSG) of 8% in 2Q14 while store network increased 6% YoY, ending 1H14 with 2,833 stores (2,244 domestic + 589 international). This led to 14.1% growth in combined company owned and franchised stores in 2Q14 and up 14.3% in 1H14. Notwithstanding higher raw material prices, JFC's gross margin improved to 19% in 2Q14 from 18.6% in 

2Q13 and sequentially from 18.2% in 1Q14. This was achieved through gradual selling price hikes and better operational leverage. However, general and administrative grew 25% in 2Q14 due to information systems upgrade and higher employee-related expenses. As a result, 2Q14 operating income growth softened to 5% YoY from 18% in 1Q14. Nonetheless, 2Q14 net income still grew 14.8% to PHP1.39b, helped by lower income taxes mainly due to the application of net operating loss carryover from overseas operations.

What’s Our View

We believe JFC is generally on track to meet our full year forecasts with robust SSSG sustainable. However, there could be a slowdown in August due to disruptions in operations related to the information systems upgrade and the improvised measures to mitigate its impact will entail additional costs. But we view this as a one-off event. Operations should normalize next week with temporarily closed stores expected to be open this week while the full range of products to be made available starting next week. We reiterate BUY based on our Street-high target price of PHP210.

Disruptions due to information systems upgrade a one-off

JFC’s ongoing operations are experiencing temporary disruptions as the company migrated to a new enterprise platform, its biggest information systems upgrade costing at least PHP500m this year. It went live last 1 August. JFC has temporarily closed 72 stores, serving limited menus in stores in Metro Manila and nearby cities as its logistics and distribution systems were affected. JFC estimates that it lost 6% of its normal nationwide sales in the first week of August due to this problem but SSSG was still +4% in the same period. JFC estimates it can still grow sales in 2H14 at the same rate as in 1H14 notwithstanding the August disruption. Normal operations are expected by next week. 

Market Talk (PBB, GTCAP, PIP)

Banks: PBB’s weak trading weighs down earnings. Philippine Business Bank’s (PBB) 1H14 net earnings plunged 67% YoY to PHP258m. Implied 2Q14 net earnings fell 28% YoY but improved 29% QoQ to PHP145m. Trading gains of PHP32m in 2Q14 not enough to offset losses incurred in 1Q14. Trading losses were PHP10m in 1H14. Loans went up up 34% with 3bps improvement in NIM to 4.5%. PBB continues to be an attractive acquisition which we believe supports its share price. But downside risk to earnings remains high in a rising interest-rate environment which renders PBB fairly valued at the current price. Our post-25% stock dividend TP is adjusted to PHP21.60, at 1.1x 2015F PBV and 10.9% ROE, and offers minimal 1% upside. Downgrade to HOLD.

Conglomerates: GTCAP’s 1H14 earnings down 34.5% YoY. GT Capital Holdings (GTCAP – HOLD) posted 1H14 consolidated net income of PHP4b, down 34.5% YoY. This represents 39% of our FY14 forecast and 41% of consensus. Consolidated revenues grew 35% to PHP66.2b, driven by higher vehicle and real estate sales. Metrobank(MBT – HOLD) registered consolidated net earnings of PHP9.1b in 1H14, down 50% YoY. Toyota Motor Philippines grew net income 30% to PHP2.98b with 29% revenue growth to PHP48.9b. Car dealership Toyota Manila Bay Corp and Toyota Cubao, Inc combined net income rose 37% to PHP81m. Federal Land’s earnings surged 58% to PHP716.2m as total revenues jumped 21% to PHP3.7b with improved booked revenues and rental income. Global Business Power reported net profits of PHP920m, still lower than the PHP1.1b in 1H13 due to unscheduled downtime from technical issues in Sangi power plant in Toledo, Cebu as well as transmission constraints due to super typhoon Yolanda. AXA Philippines’ net income fell 34% to PHP561m on lower demand. Charter Ping An Insurance registered earnings of PHP101.7m, down 9% as a result of higher-than-normal claims and losses from a typhoon in Mindanao early this year. We shall provide more details later.

Consumer: PIP posts 27% YoY drop in 1H14 net income. Pepsi Cola Product Philippines Inc (PIP – BUY) reported a 27% YoY drop in net income to PHP480m in 1H14. At 47%, it is lagging our full-year forecast of PHP1.02b considering last year, 1H accounted for 73%. Sales grew 10% to PHP14.7b but operating income fell 28% to PHP677m as costs grew faster. Margins are lower mainly due to higher distribution expenses, depreciation and amortization as the company continues to be aggressive in expanding. We note however improvements in 2Q. Sales growth accelerated to 11% in 2Q from 8% in 1Q, driven mainly by volume growth. EBITDA was flattish while net income fell 11% YoY in 2Q14 compared with the 15% and 50% respectively in 1Q14. We will later come out with a more detailed report on the 1H14 results.

- ATR Securities

First Look Corporate: SINO

...from DA Market Securities

We are issuing a BUY for SINO with a target price of P1.95/sh with the target price based on our estimated value of BEL’s injection of gaming assets into SINO, and positive investment points moving forward as a result of SINO’s new structure.

Brief Background

SINO started our as an oil and gas exploration & development company until the Sy’s acquired the company, and in 1997, it shifted its primary purpose from oil and gas exploration & development to investment holding. From then until 2013, BEL, the SM’s property and gaming company, owned 54% of SINO which held dormant assets and has long been planning to turn in profitability. 

Quasi-Reorganization

This 2Q14, SINO’s shot at profitability was effected. It was done through series of business moves which included a reorganization of assets with BEL, SINO, and a change in par value of SINO to reduce retained deficits and, BEL’s 27.5 billion share subscription subcription of 27.5 into SINO.

Reorganization of Assets

1. SINO secured 50,000 PLAI common shares worth P10.84 billion from BEL and 34.5% ownership if LOTO worth P1.525 billion. 

PLAI or Premium Leisure and Amusement Inc is a consortium that holds the gaming license for the City of Dreams Manila whose owner receives 50% of gaming revenue EBITDA split with MCP who will build and operate the gaming business.

LOTO is a publicly traded company that is engaged in the development and management of online computer systems, terminals and systems for the Philippine gaming industry and leases to Philippine Charity Sweepstake Office (PCSO) integrated gaming systems needed for its online lottery operations in the VisMin regions.

2. In turn, BEL acquired the following assets from SINO for an aggregate cost of P806.88 million

    a. Membership shares in Tagaytay Midlands Golf Club

    b. A lot located within the Aseana Business Park at the Manila Bay Reclaimed Area

    c. Several parcels of land in The Parks at Saratoga Hills within the Tagaytay Midlands complex.

    d. An undeveloped land property in Tanauan Batangas

The result of the moves turns BEL into a property & gaming holdings company that holds the non-core businesses of SM. 

Under the reorganization of assets, while BEL has injected its gaming assets to it still retains ownership of the property that the City of Dreams Manila stands on and will collect rental income from the leased spaces of 

the integrated resort including the casino. 

With SINO still consolidated in BEL’s topline, the asset injection will not change the financials outlay of BEL.

Unlocking Gaming Value

With the corporate reorganization, SINO unlocks gaming asset value previously lodged into BEL as it now turns into a pure gaming holdings company with little capital expenditures. 

SINO will now generate income through LOTO dividends and PLAI through its 50-50 EBITDA sharing with MCP. SINO now becomes the primary outlet of gaming revenues.

The reorganization also allows SINO to clean up its balance sheet build its Earnings-per-share (EPS) to enable SINO to declare dividends based on the income that will accrue mainly from PLAI.

SINO Increases Authorized Capital, BEL Subscribes 

Following a capital restructuring which cleaned up SINO’s capital deficit of P3.0 billion and a reduction of par value from P1.00/sh to P0,25/sh, SINO will increase its outstanding shares from 6.9 billion to 31 billion which reflects an increase of SINO’s authorized capital by 27.5 billion shares. This increases BEL’s ownership of SINO from 54% during the date 

Of the 27.5 billion shares, BEL has subscribed 24.7 billion shares at P0.369/sh with the price based on the 30-day volume weighted average price of SINO shares prior to the date of subscription plus a premium of 5%. The subscription to the shares will be paid for in cash. 

The P9.11 billion made from the transaction will be used to pay BEL for the gaming assets on top of the P806.88 million received from the sale of properties to BEL.

BEL to sell SINO shares

With BEL now owning 90% of SINO, it is now looking to sell shares to improve its liquidity and make it attractive to investors. BEL’s subscription reduced the public float to 10% and is relatively small to be an investors choice as a small float makes the stock subject to high volatility. 

Under the plan, BEL looks to sell 20% if SINO’s outstanding shares and reduced their ownership to 67-70% stating that moving forward, there will be no need to issue new shares to raise funds as SINO will not have much capital requirements being an equity and gaming license holdings company.

Details of the sale are still in the works for BEL.

SINO Financials Profile 

Moving forward, SINO will make generate income mainly through PLAI and also through dividends declared by LOTO.

Through PLAI, SINO looks to make 50% of its EBITDA generated from gaming revenues of City of Dreams Manila to be split with MCP. 

Gaming revenues are expected to emulate those of RWM and BLOOM which also have similar EBITDA splits with respective operating partners. What makes SINO unique is that its bottomline is reflective of full gaming profits as it makes money through the gaming license and not through operation which MCP’s side of things.

SINO is also now able to declare dividends from accruing income from PLAI and LOTO and management has stated its intention to do so upon SINO’s turn into profitability. However, no exact details have been mentioned yet.

The company has also changed its primary purpose to “the engagement in and/or investement on gaming related businesses.” Under the new primary purpose and with a strong revenue stream underway, it’s not far to posit that the company may also venture into other gaming investments towards the future.

An Investment Outlook

We think that SINO is a good investment to gain exposure into the Philippine gaming industry, as its earnings profile will be highly reflective of gaming revenues. Our target price of P1.95/sh only accounts for the increased value of SINO through the asset injection and is not yet reflective of future profits to be made once it commences operations this 4Q14. We find that the corporate actions taken by SINO to clean up its balance sheet and enable dividends to be highly positive as an investment. Moreover, while some may take BEL’s prospect sale of 20% of SINO’s outstanding shares to the public as a negative, overall, it’s positive for the stock to be an investment as the move eases volatility caused by a rapid appreciation or depreciation of the stock price on business developments because of a small public float and helps protect investors against market manipulation.

Hence, We are issuing a BUY for SINO with a target price of P1.95/sh with the target price based on our estimated value of BEL’s injection of gaming assets into SINO, and positive investment points moving forward as a result of SINO’s new structure.

MARC may reverse its course tomorrow

MARC closed it's price today with 6.53% gain today but may change it's course tomorrow.

Observe the chart below, the price may go down due to several factors (price gap, bearish candlestick and RSI is too overbought). If you have this stock in your portfolio, it is good to take profits. For those who want to buy this stock tomorrow, good luck.

Market Talk (SECB, FLI, MPI, MER)

Banks: Strong growth across all sectors for SECB. Maintain BUY with TP of PHP141, equivalent to 1.7x 2015F PBV and 13.4x PER. Net profit surged more than 4x to PHP2.2b in 2Q14 on strong core lending and treasury income. Loan growth of 30% boosts net interest income 50% while trading income increased fourfold to PHP1.3b. (Details on page x).

Property: FLI’s 1H14 income up 15%. Filinvest Land Inc (FLI-BUY) reported 1H14 net income at PHP2b, 15% higher YoY making up 44% of our full-year estimate. Profits in 2Q14 was at PHP930m, up 16%. Real estate sales surged 30% to PHP6.13b in 1H14, accounting for 56% of our full-year forecast with 2Q14 up 36% to PHP3.07b. Growth in 1H14 real estate sales was driven by project completion and higher sales take-up. Sales take-up grew 9% to PHP7.4b in 1H14. Meanwhile, rental income increased 7% to PHP1.05b, accounting for 46% of our full-year forecast. This was due to higher rental rates and full-year contribution from Plaza E and Filinvest One. Real estate costs surged 33% to PHP3.6b in 1H14 as the company booked sales from lower-margin products. Gross margins from horizontal projects fell 500 bps to 43% in 1H14 while gross margins in medium-rise buildings and horizontal-rise buildings declined slightly to 42% from 43%. General and administrative expenses increased 17% due to higher salaries and professional fees. The high growth in revenues was softened by these costs which resulted in modest growth in net income. Overall performance was slightly below our expectations.

Banks: NPL ratio still minimal at 2.17% in May. Solid asset quality remains as universal and commercial banks recorded NPL ratio of 2.17% in May, little changed from 2.16% in April but better than 2.75% registered in May 2013. In absolute amount, NPLs fell 5.2% YoY but slightly grew 1.7% QoQ to PHP96.07b. Total loan portfolio jumped 20.2% YoY and 1.2% QoQ. Loan loss reserves of PHP132.85b maintained ample NPL cover at 138.29%. Real and other properties acquired fell 6% YoY and virtually unchanged QoQ to PHP96.5b, while non-performing assets (NPA) inched up 0.9% QoQ but declined 5.5% YoY to PHP192.6b. NPA to gross assets ratio slightly increased to 2.09% from 2.08% last month. NPA cover ratio is now at 83.73%.

MPI’s 1H14 net income rose 15%. Metro Pacific Investments Corp (MPI-BUY) reported a 15% YoY increase in net income to PHP4.2b driven by modest performance of operating subsidiaries. Water distribution unit Maynilad grew billed volumes 5%, the same as in 1Q14. Manila Electric Co (MER-HOLD) showed a 3% growth in energy sales and 21% increase in non-electric revenues that was complemented with lower interest expenses at the Beacon level. The toll road subsidiary reported a 7% increase in average daily traffic and 6% increase in average kilometers traveled in North Luzon Expressway; 8% increase in average daily traffic in Manila Cavite Expressway; and contribution from Don Muang Tollways. Lastly, hospitals benefitted from organic growth in the current hospital portfolio and inclusion of earnings from Central Luzon Doctor’s Hospital and Delos Santos Medical Center. Core income also got a boost from lower interest expense as a result of debt refinancing in 2013. There was a slower growth in reported Income of 15% due to business development costs and foreign exchange losses. Net income is 43% of our FY14 estimate, slightly below our expectations.

-ATR Kim Eng

Market Talk (SECB, MEG, SMPH, MPI, GTCAP, SMC)

Banks: Accrual income boosts MBT’s 2Q14 profits. Maintain HOLD with just 9% upside to our new TP of PHP95. Marginal revision in FY14-15 earnings to factor in strong core lending business, lower-than-expected trading profits, and non-recurring gains. Surprise came from a 64% rise in interest income on trading and investment securities. (Details on page x).

Banks: High CAR and CET1 under Basel III rules. The central bank released, for the first time, universal and commercial banks’ capital ratios under the new Basel III framework. Common equity Tier 1 (CET1) ratio reached 13.44% on solo basis and 14.41% on consolidated basis in March 2014, well above the 8.5% minimum requirement. This supported Tier 1 ratios at 13.67% and 14.59% on solo and consolidated bases. Likewise, capital adequacy ratio (CAR) was more than adequate at 15.45% on solo basis and16.35% on consolidated basis, higher than the 10% requirement set by the BSP. Adjustments to the treatment of banks’ capital under Basel III rules compared with Basel II are: (1) capital instruments that do not have loss absorbency features will not be counted; (2) investments in non-allied undertakings defined as benefit pension fund assets, goodwill and other intangible assets will be deducted from qualifying capital; and (3) revaluation losses for the holdings of available-for-sale securities will also be deducted from capital. The latest figures are near our estimates of CET1 and CAR averages of 13.6% and 17.7% in FY14, respectively. We believe CAR will get a boost from new Tier 2 debts being issued by several banks this year.

Banks: SECB earnings more than doubled in 1H14. Security Bank (SECB – BUY) posted higher-than-expected 1H14 earnings of PHP3.6b, an increase of 115% YoY on strong growth in both core lending and trading gains. Net interest income jumped 46% as loans expanded 30% on reported NIM of 3.5%. Non-interest income nearly doubled to PHP2.6b on a 14% rise in fee-based earnings and trading gains of PHP1.66b, up nearly 6x from PHP279m in 1H13. 1H14 net income accounted for 69% of our FY14 forecast and 62% of consensus. Implied 2Q14 earnings is about PHP2.2b, an increase of more than 4x YoY. We shall provide more details later.

Property: MEG reports 14% growth in core income. Megaworld Corp’s (MEG) net 1H14 income excluding one-time gain was up 14% to PHP4.8b from PHP4.2b. This is 47% of our FY14F PHP10.3b.Net profit in 2Q14 rose 16.7% to PHP2.8b from PHP2.4b. One time gain of PHP11.6b was mainly on 1.1b shares of Travellers International Hotel Group (RWM-BUY) sold at PHP9.27/sh to parent Alliance Global Group Inc (AGI-Under review). MEG’s cost was roughly PHP1/sh.1H14 net profit including one-time was PHP16.4b. Reservation sales was PHP47.0b, 67% of their guidance of PHP70.0b, 58% of our FY14 estimate of PHP81b and up 9% YoY. MEG’s rental income was up 22% to PHP3.4b. Maintain BUY and TP 5.40.

Property: SMPH prices bond offering. SM Prime Holdings Inc. (SMPH-BUY) has finalized interest rates on its fixed-rate bonds. 5.5-year bonds will carry a rate of 5.1% per annum, seven-year bonds will have a 5.2% rate and 10-year bonds will have 5.74%.

Conglomerate: MPI’s Vietnam venture encounters hurdles. Metro Pacific Investments Corp.’s (MPI- BUY) planned investment in a toll road operator in Vietnam has been experiencing difficulty due to an ownership dispute. MPI and First Pacific Co Ltd prequalified to bid for this PPP project being undertaken by the Vietnamese government, World Bank and Bitexco Group. The project is currently being delayed due to multiple claims to ownership.

Consumer durables: Vehicle sales climb 32% in July. Latest data show vehicle sales in July leaped 32% YoY to 20,730 units on new product launches and marketing. Commercial vehicle sales went up 16.6% to 12,391 units while passenger cars jumped 64.6% to 8,339 units. In 7M14, vehicle sales grew 26% YoY to 129,687 units, with commercial vehicles rising 15.6% to 80,739 units while passenger cars expanded 47.9% to 48,948 units. Toyota Motor Philippines, a subsidiary of GT Capital Holdings (GTCAP – HOLD), continues to dominate the market at 45.21% market share with sales of 58,635 units in 7M14. CAMPI’s FY14 industry sales target is at 230,000 units.

Conglomerate: SMC reported 1H14 net profit turns around to PHP12b from PHP2.4b losses last year. San Miguel Corp (SMC – Not rated) reported PHP12b net income to parent equity holders in 1H14, a turnaround from PHP2.4b loss last year. This includes forex gains of PHP2.7b this year and PHPforex losse of PHP11.96b a year ago. Net income to common shareholders amounted to PHP8.9b from loss of PHP5.5b in 1H13. The strong recovery was driven by the 13% increase to PHP404.7b in consolidated sales while operating income went up 14% to PHP32.9b. EBITDA also improved 11% to PHP45.3b in 1H14. SMC ended 1H14 with PHP1.17t in assets, PHP200b cash and PHP443b interest-bearing debts with interest-bearing debt to equity ratio of 1.15x.

-ATR Sec

How to use PSECalculator.

Work in progress...

Market Talk (SMPH, MPI, DMCI, AC, ALI, SMC, RLC, FLI, MWIDE)

Property:SMPH reports strong 2Q14 results. SM Prime Holdings Inc (SMPH-BUY) reported that 1H14 net income was up 12%YoY to PHP9.8b. This was 51% of our full-year estimate of PHP19.3b. Net income was driven by 7% growth in total revenue to PHP33.4b (50% of our 2014 estimates of PHP66.5b), boosted by rental income and real estate sales which accounted for 89% of the total revenue.The increase in rental income was due to the opening of two malls last year and the contribution of the SM Megamall expansion which was opened in January with total additional rental GLA of 500k sqm. Same-store-sales growth was sustained at 7%, same as in 1Q14. For the residential segment, 2Q14 saw a turnaround in revenues as it grew 9% YoY and 37% QoQ to PHP6.9b. Still, 1H14 real estate sales were down 4% YoY to PHP11.9b due to lower launches. We maintain our BUY rating and TP of PHP21.67. Although the residential segment has been a drag, the apparent recovery in 2Q14 reinforces our belief inventory levels are being sustainably trimmed. We believe there could be a re-rating in the stock as net income is ahead of consensus.

Conglomerate: MPI, DM Consunji and WalterMart team up for ITS project bidding. Metro Pacific Investments Corp. (MPI-BUY) has teamed up with DM Consunji Inc, a subsidiary of DMCI Holdings Inc (DMC-Not Rated) and Walter Mart Property Management Inc to bid for the PHP2.5b Integrated Transport System Southwest Terminal Project. Other listed companies interested in bidding include Ayala Corp (AC-BUY) and Ayala Land (ALI-BUY), San Miguel Corp (SMC-Not Rated), Robinsons Land Corp (RLC-BUY), Filinvest Land Inc (FLI-BUY) and Megawide Construction Corp. (MWIDE-Not rated). This terminal project, which will be located at the Coastal Road terminal, will connect passengers to several urban transport systems.

-ATR 

Market Talk (CIC, MBT, PGOLD, COSCO, PBC)

Consumer: CIC 1H14 net income up 45%. Concepcion Industrial Corp (CIC – BUY) announced during its annual stockholders’ meeting yesterday its 1H14 net sales grew 28% while net income after minority interest went up 45% YoY. This implies 1Q14 net sales of PHP4.8b and net income after minority interest of PHP346m, equivalent to 51% and 54% respectively of our corresponding full year forecasts. 2Q14 top line 

growth slowed to 20% after coming off a 39% in 1Q14. The lower 2Q14 growth is expected as 1Q14 net sales got a boost from trade loading prior to the price increase in 2Q. The 2Q14 numbers should include 

earnings contribution from 51%-owned Otis Elevators and Escalators Phils which was consolidated starting end-March 2014. Stockholders likewise approved the 30% stock dividend to shareholders of record as 

of 22 August with payment date of 8 September. Pending additional details regarding CIC’s 1H14 results, we maintain our BUY rating. 

Banks: MBT plans to raise PHP20b in LTNCDs. Metrobank (MBT –HOLD) today disclosed plans of issuing up to PHP20b in long-term negotiable certificates of deposit (LTNCD). Other details have yet to be 

set when relevant regulatory approvals have been obtained. 

Banks: Lucio Co buys 37.67% of PBCom for PHP5.98b. Businessman Lucio Co, owner of retailer Puregold Price Club Inc (PGOLD – BUY) and holding firm Cosco Capital Inc (COSCO – Not rated) yesterday bought 181m common shares of mid-sized commercial bank Philippine Bank of Communications (PBC – Not rated) for PHP5.98b or PHP33/sh, a 48% discount from PBC’s last closing price of PHP64. This represents 37.67% of PBC post capital stock issuance which will raise outstanding shares 60% to 481m shares. As of 1Q14, PBC ranked 18th out of 36 Philippine commercial banks by asset size with PHP59b in assets, PHP27b loans, and PHP48b deposits. It recorded PHP37m and PHP1.6b net earnings in 1Q14 and FY13, respectively. PBC operates with 71 branches and 160 ATMs located nationwide. This transaction should boost PBC’s capital adequacy ratio of 10.8% in 1Q14, just hovering near the 10% minimum prescribed by the central bank. 

LTG to close gap?

LTG closed last Tuesday with 3.79% gain. On the daily chart below, it was able to breakout from the 15.14 resistance which is the 23.6% Fibonacci line. The last candlestick seen below is a solid green candle which indicates that there's a strong buy from the opening of the market until it closed. This also gives a higher probability that there may be a continuation of the price to go up on the next trading day. Also the price have closed above the 38.2% Fibonacci resistance line which now the newly found support.

Observe also on the 2 white circles on the chart below. Those are gaps created through strong selling pressure on the previous trading days. I hope these gaps will be closed on the following days so that everybody will be happy. :)

Take note that the RSI or Relative Strength Index is currently valued at 69 and near overbought level. Most traders take profits or sell some of their positions once it reaches overbought. Also the price is approaching the next resistance at 16.44 or the 50% Fibonacci level.

Caveat!

Stock in Focus: HOUSE

8990 Holdings Inc. (HOUSE) plans to take advantage of the housing backlog in the country, by planning to build a total of 64,000+ units by the year 2022.

HOUSE offers a low-cost housing, with units ranging from as low as PHP 450,000 to PHP 1.25 million, targeting the OFW market, as well as the BPO employees with an average salary of about PHP 25,000 per month (considered as the lower middle class of the market). For as low as PHP 25,000 downpayment (2% of the package), people can already acquire a 13 sq.m house, with an interest rate of only 8.5% (first 4 years) and 11.5% (on the 5th year).

HOUSE has a low default rate of only 4-5%, but we remain cautious given the size of receivables of the company. The profile of the buyers likewise poses a concern, with a possibility of rising default levels from the buyers of HOUSE properties. HOUSE mainly caters to low-income segment, with an average salary of PHP 25,000 per month.

In terms of the land bank of the Company, it is significantly low (250-hectares of landbank), compared to its peers. In the first quarter of 2014, HOUSE reported robust growth, growing its Net Income by 30% to PHP 933.6 million, on track to have a banner year of about PHP 3 billion this year, equivalent to a 55% growth from the previous year.

PinoyInvestor’s Recommendation

We revise our Fair Value and Target Price estimate to PHP 9.30 per share, with the assumption that HOUSE achieves its target by 2016, giving a 12% upside from the current share price. We, however, remain cautious on the company due to the possibility of rising default rates as mentioned above.

- PinoyInvestor

Market Talk (GTCAP, HLCM, LRI, ICT)

Banks: BSP to set uniform loan pricing benchmark this year. The central bank of the Philippines (BSP) is reportedly going to set a uniform market-based benchmark to price loans and will issue a circular within the year. The new benchmark is said to be similar to the UK’s LIBOR which is the average interest rate for banks’ overnight transactions. The proposal is currently under review as the BSP waits for comments from banks. At present, lenders use different benchmarks such as the 91-day Tbill which at the last auction was at at 1.2%, or the SDA rate, pegged at 2.25%. 

Consumer durables: Vehicle sales jump 25% in 1H14. Data from the Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) and the Truck Manufacturers Association showed that in 1H14, vehicle sales jumped 24.9% YoY to 108,957 units. Passenger car sales surged 44.9% to 40,609 units while commercial vehicle sales went up 15.5% to 68,348 units. For June alone, vehicle sales grew 27.8% to 19,622 units. Passenger car sales soared 100% to 8,278 units while commercial vehicles sales rose 12.2% to 11,344 units. Toyota Motor Philippines, a subsidiary of GT Capital Holdings (GTCAP – HOLD), remains the market leader with 44.5% market share with sales of 48,512 units in 1H14. Strong demand for passenger cars was evident amid aggressive product launches and marketing for vehicle brands. For FY2014, CAMPI is looking at industry sales of 230,000 units.

Cement: HLCM, LRI mulling over combination of businesses. Holcim Philippines Inc (HLCM – BUY) and Lafarge Republic Inc (LRI – BUY) disclosed their respective board of directors authorized the exploration, study and consideration of the combination of their businesses to avail of the resulting synergies and opportunities and subsequently determine optimal structures to implement such combination. It is contemplated that LRI’s Bulacan and Norzagaray cement plants together with their respective related assets, and LRI’s interest in its subsidiary Lafarge Iligan Inc be excluded from the combination and considered for divestment to interested third-party buyers. This is in relation to the earlier announcement by the firms’’ respective parent companies Holcim Ltd and Lafarge SA in April that they are considering merging their respective operations. 

Ports: ICT cancels contract for KCT in India. International Container Terminal Services Inc (ICT – HOLD) cancelled its container port agreement with L&T Shipbuilding Ltd. for the management and operation of the Kattupalli Container Terminal (KCT) in Tamil Nadu, India. ICT says the cancellation of this contract has no effect or influence on any of ICT’s other operations and it will continue to actively search for opportunities in India. ICT will be reimbursed for the license fee it paid to operate the terminal. 

-ATR Kimg Eng

Market Talk (SECB, CHIB, NIKL)

Banks: SECB raises PHP10b in Tier 2 issuance. Security Bank Corp (SECB – BUY) raised PHP10b in Basel III-compliant Tier 2 notes. The coupon rate was set at 5.375% with a tenor of ten years and call option on the fifth year. Issue date is on 11 July. We expect capital adequacy ratio to rise to 18% in FY14. 

Banks: CHIB gets BSP approval for dividends. China Banking Corp (CHIB – HOLD) has received central bank (BSP) approval to issue PHP1/sh cash dividend or PHP1.6b, a 31% payout ratio based on PHP5.1b FY13 earnings and 8% stock dividend. At the current price, this translates to 1.8% dividend yield. Record and payment dates have yet to be set. 

Mining: DENR authorizes disposition of NIKL subsidiary’s limonite ore stockpile. Nickel Asia Corp (NIKL – HOLD) disclosed it received a letter from the Department of Environment and Natural Resources (DENR) last 1 July stating NIKL’s wholly-owned subsidiary Hinatuan Mining Corp (HMC) is authorized to dispose of nickel ore stockpiles in Manicani Island in Guiuan, Eastern Samar. The stockpiles, composed mainly of limonite ore, resulted from HMC’s operations in late 1990s which was subsequently suspended due to social issues and has remained on a care and maintenance status. Studies will be conducted by the company to establish volume and nickel grades of the stockpiles preparatory to determining shipment schedules.

-ATR KIM ENG

Market Talk (MPI, SCC)

Conglomerates: MPI subsidiary acquires majority of Easytrip. Metro Pacific Tollways Development Corp. (MPTDC), a subsidiary of Metro Pacific Investments (MPI–BUY) said it acquired equity interest equivalent to 50% and one share of the outstanding capital stock of EasyTrip Services Corp (ESC) amounting to PHP103m. The acquisition was through subscription to new shares of ESC and purchase of shares from Egis Easytrip Services SA (EGIS). ESC operates the toll collection system of North Luzon Expressway. The acquisition will allow MPTDC and EGIS to manage and expand the business of ESC.

Mining/ Utilities: SCC loses local tax case. Semirara Mining Corp (SCC – Under review) disclosed an adverse ruling from the Regional Trial Court (RTC) of Makati branch 137 stating their appeal has been denied and it is liable for business tax for the portion of its coal sales consummated at Calaca, Batangas in the amount of PHP67m. However, the RTC judge is directing the municipal assessor to make a re-assessment to conform with the proper sales allocation in accordance with the rules and regulation of the Local Government Code. The assessment should only be based on the portion of the coal sales which were consummated in Calaca, Batangas. SCC will file a motion for reconsideration before the RTC. This is likely to delay a final decision on the case.

MCP ready to seal the gap?

MCP closed its price yesterday with 3.02% gain. As you can see on the daily chart below, it found a new support at 11.51 which is the 127% of the Fibo line. The next resistance will be at 12.02 which is the 100% of the Fibo line.

Take note in the chart below that there's a gap (box) that needs to be filled. Will it happen this week or next week? 

RSI or Relative Strength Index is valued at 34.57 which is still good and far form overbought. 

Caveat.

EMP to break the 12 resistance?

EMP - bounce from the 23.6% Fibonacci support. Inverted hammer was formed after that and was confirmed on the next day via solid green candlestick.

Volume is gradually increasing.

Current resistance is 12 and the newly found support is 11.76.

RSI or Relative Strength Index is  53.

Caveat!

Market Talk (AP, AEV, RCB, MBT, PBB)

Economy: Central bank keeps policy rate, hikes SDA rate. Yesterday the monetary board of the central bank decided to keep the policy rate at 3.5% as we hoped they would do. According to the formal statement, the monetary board believes future inflation is likely to stay within the target of 3-5% in 2014 and 2-4% for 2015. However, the interest rate on special deposit accounts was raised 25bps to 2.25%. The modest adjustment in interest rate is to counter risks to price and financial stability arising from ample liquidity. Note that April M3 growth of 32.1% YoY was still robust, but slower than March’s 34.7% rise, Indeed, M3 growth has been slowing since January when it reached 37.3%, the fastest growth since the central bank started to limit access to the SDA facility in July 2013. We believe the impact of the SDA rate hike will be minimal given the modest size. While the amount in the facility will probably not rise significantly as access has become more selective, it may slow the exit of SDA funds.

Utilities: AP buys 100% stake of LiMA Utilities Corp. Aboitiz Power Corp (AP – HOLD) disclosed it acquired 100% stake in LiMa Utilities Corp (LUC), an electricity distribution utility operating in LiMA Technology Center, Batangas. AP bought 8m common shares of LUC from affiliate LiMA Land Inc, a wholly-owned subsidiary of Aboitiz Land Inc, at a price of PHP166.2083/sh or a total consideration of HP1.33b. Aboitiz Land is a wholly-owned subsidiary of AP’s parent, Aboitiz Equity Ventures Inc (AEV – SELL).The acquisition is in line with the company’s strategy of expanding its EnerZone brand.

Banks: RCB raises PHP7b in Basel III Tier 2 notes. Rizal Commercial Banking Corp (RCB – BUY) has raised PHP7b worth of Basel IIIcompliant Tier 2 notes yesterday, higher by PHP2b from original target. It closed the public offering one day ahead of its 20 June deadline due to oversubscription. Issuance of the note will be on 27 June and will have a tenor of 10 years and 3 months. Coupon rate is 5.375%, 142bps over the 10-year PDST-F government benchmark rate of 3.95% and similar to the rate fetched by second largest bank Metrobank (MBT HOLD) for its PHP16b Tier 2 notes raised early this year. As of end-March, RCB reported a Basel III Tier 1 ratio of 10.72% and CAR of 11.31%. We estimate the new issuance could boost CAR by 2pps to 13.3%.

Banks: PBB buys a rural bank. Philippine Business Bank (PBB – BUY) will purchase 100% of Rural Bank of Kawit for a total consideration of PHP15m. PBB will pay in cash as it had PHP590m at end-March. Based on latest data as of end-2012, Rural Bank of Kawit had assets worth PHP367m (0.8% of PBB), loans of PHP168m (0.5%), deposits of PHP315m (0.8%) and capital of PHP35m (0.5%). It has one branch in Kawit, Cavite and net income of PHP572,352. Gross income in 2012 reached PHP15.4m with operating costs of PHP14.8m, leading to a high cost-to-income ratio of 96.1%. Bulk of lending stems from agrarian reform (21% of total), and real estate, renting and business services loans (20%). It registered end-2012 ROE of 2%, NIM of 5%, CAR of 9.86%. In terms of asset quality, it has gross NPL of PHP65m, equivalent to NPL ratio of 35%. This will increase PBB’s NPL by 8% to PHP876m and will slightly raise NPL ratio to 2.6% from 2.5%. Due to its small scale of operations, any impact on PBB’s financials will be minimal. The main incentive for PBB is the potential branch licenses the central bank can grant, in line with the SPRB Plus program that aims to strengthen the country’s rural banks.

- ATR Securities

Market Talk (EW, MEG)

Banks: EW to offer up to PHP5b Tier 2. East West Banking Corp (EW – HOLD) yesterday started to offer up to PHP5b worth of unsecured subordinated Tier 2 notes. The offer period will run until 27 June, with issue date set on 4 July. The notes will have a term of 10 years and 6 months, with redemption option after five years and five months. Proceeds will be used to strengthen EW’s capital to support its growth plans. This could boost capital adequacy ratio by 2pps to an estimated 20% at end 2014. 

Property: MEG allots PHP230b capex for the next five years. Megaworld Corp (MEG-BUY) is planning PHP230b in capex for the next five years to develop townships, build real estate projects and acquire additional land bank across the country. The company plans to launch 10 residential projects and six office projects each year. MEG is aiming to have 1m square meters of office space in the next five years. 

- ATR

SINO's hammer was confirmed

SINO closed yesterday with 10.71% gain. Its price closed above the 38.2% Fibonacci resistance at 1.15 which is good. Notice that the volume on the daily chart below is also increasing which is also good because more buyers are coming. 

Let's see if SINO will be able to pass the next resistance at 1.34 today.

RSI or Relative Strength Index is in overbought at 76.54.

Caveat!

Did DAVIN hit the 4.56 resistance?

Yesterday DAVIN showed a strong opening at 4 and closed with a 20.27% gain. It's highest price reached the 261.8% resistance but was not able to closed above it. Observe on the daily chart below, the RSI (Relative Strength Index) also touched the resistance slope (purple line) which indicates a sell signal. Also its current value is in overbought at 81.18. Take note that DAVIN leave a huge gap below and can attract the price to seal that gap.

Let's see what will happen today.

Caveat!

HOUSE ready to take off again?

HOUSE bounced from the 78.6% Fibonacci level  (7.98 pesos). Last candlestick seen last Friday showed a bullish sign. Will this be enough to break the last resistance at 8.77 pesos and go forward to reach 9 pesos?

RSI or Relative Strength Index is 64 which is far from overbought and has more room to go just like what it did when it reached it's highest RSI value at 80.72.

So far, overall trend of this stock is still in bullish mood.

Caveat!

Can BEL fill the gap next week?

BEL closed last Friday with 2.64% gain from it's previous price. Observe the candlestick pattern on the daily chart below, it is called Bullish Harami pattern. 

According to Investopedia, "bullish harami indicates that the falling trend (bearish trend) may be reversing, it signals that it's a good time to enter into a long position. The smaller the second (white) candlestick, the more likely the reversal.".  

This pattern was also supported with the RSI that bounced from the green trend line below. (see the green arrow).

Take note also that there's a gap the needs to be filled. (see the white square)

Caveat!

Market Talk (ANS, SCC, ELI, MEG, GTCAP)

Conglomerates: ANS 1Q profit surge on trading gains. A. Soriano Corp’s (ANS) 1Q14 profits surprise, jumping 94% YoY to PHP1.09b, accounting for 85% of our full-year estimate. Trading gains, mostly on sale of investments, reached PHP987m, up 120%. Maintain HOLD with increased TP to PHP7.76 factoring in higher end-1Q14 investment portfolio balance. Details on page 3. 

Mining: SCC receives summons on civil complaint by contractor. Semirara Mining Corp (SCC – Under review) disclosed yesterday it received a summons based on a civil complaint filed by Bauer Foundation Philippines Inc against the company and two of its officers with respect to the drill and grout of 122 holes at 150 meters each for stabilization measures along the Panian fault in the Panian pit. Damages requested is PHP507.1m broken down into PHP7m actual damage, PHP500m exemplary damages and PHP100,000 on cost of litigation. According to SCC the outlook is favorable as Bauer was not able to deliver on deadline and forced SCC to complete the project themselves. We expect a long civil case which will be reflected in a contingent liability of PHP507m. An adverse decision would be appealed to lower exemplary damages as the PHP500m demanded is inappropriate to the actual damage claimed of PHP7m. 

Property: ELI finalized deal on Pasig property. Empire East Land Holdings Inc (ELI-Not rated), a unit of Megaworld Corp (MEG-BUY), is finalizing a deal to take over a 23-hectare abandoned factory in Pasig City. ELI plans to develop this property as a mixed-use development to be called Empire East City as part of its PHP25b planned expansion. In addition, ELI’s president Anthony Charlemagne Yu said the company’s revenues could grow 10-20% and net profits by 15-30% this year. 

Consumer durables: Vehicle sales up in May. Vehicle sales in May jumped 23.6% YoY and 8.3% QoQ to 19,598 units. Passenger car sales climbed 44.3% to 7,507 units while commercial vehicles went up 13.4% to 12,091 units. In 5M13, total vehicle sales expanded 22.4% to 89,335 units. Passenger cars rose 35.3% to 32,331 units while commercial vehicles grew 16.1% to 57,004 units. Toyota Motor Philippines, a subsidiary of GT Capital Holdings (GTCAP – HOLD), remains the market leader with 44.4% market share on sales of 40,062 units. The Chamber of Automotive Manufacturers of the Philippines Inc (CAMPI) sold 181,283 units in 2013 while the Association of Vehicle Importers and Distributors sold 31,999 units, leading to combined auto sales of 211,558 units, higher than the 210,000 target. This year CAMPI is looking at industry sales of 230,000 units. 

- ATR

LTG to bounce next week.

LTG may bounce next week based on the daily chart below. 

Notice the RSI is on the support trendline and the bounce can lead to 15.14 as the first resistance which is tested many times. 

Notice the Kijun-sen line and the 50% Fibo level are sync in 16.44 which will also attract LTG's current price. 

Caveat.

Market Talk (FLI, SMPH, MER, EDC, AP, MPI)

Property: Cebu treasurer mulls charging FLI interest. Cebu City treasurer Diwa Cuevas wants to collect interest from Filinvest Land Inc (FLI- BUY) for the late payment of PHP800m that is the government’s share in the joint venture project at the South Road Properties. Monthlyinterest would amount to PHP16m for a total of PHP32m for two months.

Property: SMPH files case against DOTC and LRTA. SM Prime Holdings Inc (SMPH-Under review) filed a case before the Pasay City regional trial court against the Department of Transportation and Communication (DOTC) and Light Rail Transit Authority (LRTA) for an apparent breach of contract. The case seeks an injunction that prevents DOTC and LRTA from transferring the location of the proposed common station to Trinoma Mall (owned by Ayala Land Inc, ALI-BUY) instead of SM North EDSA. The common station will interconnect LRT1, MRT3 and MRT7 and this was in the terms of the memorandum of agreement between SMPH and LRTA.

Utilities: MER signs two power supply agreements. As reported by Business Mirror, Manila Electric Co (MER – HOLD) signed two separate power supply agreements (PSAs) with Philippine Power and Development Co (PPDC) and Montalban Methane Power Corp (MMPC). The PSA with PPDC was signed on 15 May for capacity of up to 1,051 kW at PHP5.0056/kWH. PPDC owns and operates three run-of-river hydropower plants in Laguna, namely the 448-kW Palakpakin, 75-kW Calibato and 528-kW Balugbog. Meanwhile, the PSA with MMPC, signed on 16 May, covers the purchase of 8,190 kW at a price of PHP5.50/kWh. MMPC owns and operates the 15-MW methane power plant in Rizal. The PSAs with PPDC and MMPC are valid for five and two years, respectively.

Utilities: 10 companies signify interest on Mindanao geothermal IPPAs. As reported by Manila Standard Today, 10 companies submitted letters of interest to the Power Sector Assets and Liabilities Management Corp (PSALM) for the bidding of the independent power purchase agreement (IPPA) of the Mt Apo 1 and 2 (2x54.2 MW) geothermal power plants. The IPPA pertains only to the management of the output of the two plants, currently at 390 GWh for unit 1 and 398 GWh for unit 2, but ownership and operation remains with Energy Development Corp (EDC – BUY). Out of the 10 bidders, two are  foreign owned while eight are Filipino-owned entities. No names were provided by PSALM but EDC and Aboitiz Power Corp (AP – HOLD) earlier expressed interest in participating. PSALM will hold a pre-bid conference on 26 June.

Banks: BSP eases banking hours. The Philippine central bank (BSP) will now allow local banks to extend or change their banking hours without prior regulatory approval. The liberalization rule is in line with the BSP’s thrust of empowering financial consumers, which is essential to fostering the stability of the financial system. Banks need only to send a written notice to the BSP for any changes in operating schedule. At present, banks are required to open for a minimum of six hours a day, five days a week, except during holidays. The new framework also allows banks to render full banking services during their extended operating hours.

Conglomerates: MPTC increases stake in MNTC. Metro Pacific Tollways Corp (MPTC), a subsidiary of Metro Pacific Investments Corp. (MPI- Under review) will increase its ownership in Manila North Tollways Corp (MNTC) to 75% after a share purchase deal with Egis, the company’s French partner in MNTC. MPTC agreed to buy an additional 4.6% in MNTC for a total cost of PHP1.7b.

Will TA continue to rise tomorrow?

TA rising slowly each day which bounced from the 38.2% Fibonacci level (2.39). If you observe the Volume int the below, you can see that it also increasing each day. Does this sound bullish? I guess so. Slowly but surely...

Relative Strength Index or RSI is 61.09, so there's still room before it will become overbought.

Caveat.