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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