Market Talk (GMA, TEL, MWC, PCOR, AP, AEV, NIKL, TA, PBB,

Media: GMA’s lower ad revenues hit earnings. 1Q14 net income down 46% to PHP325m as revenues fall 12% due to lower regular ads and absence of election-related ads. 1Q14 income is 19% of our 2014F

forecast of PHP1.75b. Maintain SELL with 10% potential downside to our PHP7.00 TP. (Details on page 4).

Telecoms: TEL’s 1Q14 core earnings up 2% YoY. Philippine Long Distance Telephone Co’s (TEL – BUY) 1Q14 results were mixed, in line in terms of profits but fell slightly short on the revenue side. Core income grew 2% YoY to PHP9.76b, representing 24.1% of our full-year estimate. Service revenues of PHP41.22b were higher 3% but slightly lower than our full-year growth target of 5%. Non-SMS data continue to be the main growth driver, with revenues up 22%. Cellular voice revenues grew 6%, partially offsetting declines in SMS, down 10%. Meanwhile, LEC, NLD and fixed international were relatively flat at PHP6.8b. Blended cellular ARPU was slightly lower YoY at PHP124 from PHP125 in 1Q13 but down 5% from the seasonally high 4Q13 ARPU of PHP130. TEL added 450k net subscribers in 1Q14, bringing total cellular subscribers to 70.49m. Broadband had a total of 3.55m subscribers, representing a 136k increase from end-2013. Fixed line subscriber base remained at 2.1m.

Utilities: MWC posts 7% growth in 1Q14 earnings. Manila Water Co Inc’s (MWC - HOLD) 1Q14 results came in better than expected with net profits up 7% to PHP1.43b. We were expecting flat growth this quarter following the suspension of rate adjustments for the East and West zones late last year due to the ongoing arbitration case between the Metropolitan Waterworks and Sewerage System (MWSS) and water

concessionaires MWC and Metro Pacific Investments Corp (MPI) subsidiary Maynilad. EBITDA grew 4% to PHP2.82b, but net earnings rose at a faster pace as depreciation and amortization expenses declined 4% to PHP594m while interest expenses stayed relatively flat at PHP406m. MWC attributed the decline in depreciation expenses to the reversal of certain capital expenditures booked in 2013. As a percentage to earnings, MWC's East zone concession contributed close to 90% of the company's consolidated earnings with net profits of PHP1.28b, up 6%.

Energy: PCOR 1Q14 net income reaches PHP2.23b. Petron Corp (PCOR – BUY) announced 1Q14 consolidated net income (before minorities) of PHP2.23b, 28.6% of our full-year forecast (before minorities and preferred dividends) of PHP7.81b. Although results were flat YoY, this is triple 4Q14’s PHP740m and is already 44% of full-year 2013. Consolidated revenues reached PHP125.2b, up 12%, while consolidated volume sales grew 4% to 20.7m barrels. Considering the company faced several challenges in 1Q14 as it

prepared for the completion of RMP-2, we believe the results are good. There was a scheduled refinery shutdown in February to mid-March. However, volume sales in the Philippines still grew 2% as the company was able to prepare in advance. We expect to get more details in the analysts’ briefing and once the full financials becomes available.

Utilities: AP’s core income down 3% YoY to PHP4.4b. Aboitiz Power Corp (AP – HOLD) announced core net income went down 3% YoY to PHP4.4b in 1Q14, representing 25% of our full-year estimate of PHP17.6b. The company attributed the decline to lower income contribution from the power generation business, which dropped 3% to PHP3.8b due to lower profits from Tiwi-Makban (higher steam cost) and Pagbilao (expiry of tax holiday). The power distribution group also registered lower earnings, down 17% to PHP618m due to higher operating costs. We expect to get more details on the results in the analysts’ briefing

this afternoon.

Conglomerates: AEV’s core income down 20% YoY to PHP4.4b. Aboitiz Equity Ventures Inc (AEV – SELL) reported a 20% YoY drop in 1Q14 core net income to PHP4.4b. This represents 24% of our full-year estimate of PHP18.53b. Aboitiz Power Corp (AP – HOLD) contributed earnings of PHP3.4b, down 3% as both AP’s power generation and distribution businesses registered lower profits in 1Q14. Banking affiliate Union Bank of the Philippines (UBP – HOLD) also contributed lower earnings, down 59% to PHP731m because of lower trading gains. Food subsidiary Pilmico Foods Corp posted a 4% increase in income contribution to PHP339m while property unit Aboitiz Land Inc registered a 181% increase to PHP121m. We expect to get more details in the analysts’ briefing this afternoon.

Mining: NIKL 1Q14 surprises. Nickel Asia Corp (NIKL-BUY) announced unaudited financial and operating results for 1Q14 with attributable net income of PHP593.7m, a 492% YoY increase. A one-time gain of PHP416.6m was booked from the revaluation of equity interest by its 60% owned subsidiary Rio Tuba Nickel Mining Corp in Coral Bay Nickel Corp (CBNC). Ownership increased to 10% from 6% of CBNC. Core income of PHP177.1m is 77% higher stemming from product sales to the new Taganito HPAL (THPAL). Production volume of 2.65m WMT was up 52%, mostly coming from the feed to the THPAL. 1Q results normally comprise 10% of full-year production and at the 1Q14 rate might beat guidance volume of 16m WMT. While 1Q14 production volume is ahead of our forecast, the financial result is off 79% based on 1Q14 core income and full-year average prices. However, we expect the numbers to catch up with the current higher prices than our full-year assumption and higher volume, of which usually 30% is for 2Q, 41% for 3Q, and 19% for 4Q.

Oil&Gas/Utilities: Updates on service contracts 55 and 51. In a disclosure, Otto Energy Ltd (Otto; ASX: OEL) announced the Department of Energy acknowledged the revised timeline of the work program of service contract (SC) 55 for an extension of around 14 months. The extension followed an interruption in SC 55’s work schedule due to the delay in issuance of the Strategic Environmental Plan clearance. Under the revised work program, two deepwater wells will be drilled. The first well should be drilled on or before 23 Dec 2014 while the second well is between 23 Dec 2014 and 23 Dec 2016. Selection of a new joint venture partner which will participate in the drilling of the Hawkeye-1 exploration well is ongoing. Moreover, in a separate disclosure, Otto also announced it elected to withdraw from SC51 due to drilling safety concerns. The detailed analysis of the drilling well results showed a well cannot be drilled safely at the Duhat-2 well location given certain geological issues. Trans-Asia Oil and Energy Development Corp (TA – BUY) has 6.82% and 6.67% participating interests in SC 55 and SC 51, respectively.

Banks: PBB declares dividends. Philippine Business Bank (PBB – BUY) yesterday declared a 25% stock dividend, subject to stockholders and central bank approval. Outstanding common shares will increase by 86m to 429m post stock dividend. Likewise, PBB declared a total PHP62.3m or PHP1/sh cash dividends for preferred stockholders. The latter has not been factored into our forecast and would bring our 2014F net income to common shareholders lower by about 7% to PHP861m.


-ATR