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.