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