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

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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