Market Talk (ALI, MBT, GTCAP, JFC)

Property: ALI lists seven-year bonds in PDEX. 

Ayala Land Inc. (ALIBUY) listed yesterday PHP7b worth of bonds at the Philippine Dealing Exchage. These bonds are due 2022 carrying a fixed rate of 4.5%. ALI plans to raise PHP15-20b worth of debt for 2015 to partly finance its capital expenditure of PHP100b for the year. Property: ALI plans to build their largest mall in Parañaque. Ayala Land Inc (ALI-BUY) president Bernard Vincent Dy said they plan to build their biggest mall complex in Parañaque City. The mall will rise from nine hectares of land and will be leased with a term of 45 years. There will also be a 12-storey hotel and office buildings for business process outsourcing. This new mixed-use estate is not yet in our estimates and we believe it will be NAV-accretive and consistent with their 2020 Vision strategy. We maintain our BUY rating. Our forecasts will be revised for the inclusion of this new development. 

Banks: MBT targets 18%-20% loan growth. 

Metrobank (MBT – BUY) is looking to grow its loan portfolio by 18%-20% this year with focus on the middle market as well as small and medium enterprises. MBT likewise plans to add 30 branches annually in the next three years through organic growth. Currently the bank has 920 branches nationwide. 

Conglomerates: GTCAP enters into JV with ALI. 

GT Capital Inc’s (GTCAP – BUY) property unit Federal Land reportedly entered into a JV with Alveo Land Corp, a subsidiary of Ayala Land Inc (ALI – BUY). The JV will develop a 45ha property in Laguna as a master-planned residential community. The Laguna landbank owned by the Ty Family is only a few kilometres away from the proposed Cavite-Laguna Expressway and in the general vicinity of ALI’s Westgrove Heights and NUVALI projects. ALI has not confirmed the JV. 

Cement: 1Q15 cement sales up 9.6%. 

The Philippine Star reports Philippine cement sales grew 9.6% YoY in 1Q15 to 5.7m tons, according to Cement Manufacturers Association of the Philippines. Growth was driven by both public and private sector spending. In 2014, total cement sales also grew 9.6% YoY to 21.3m tons. 

Consumer: JFC not affected by potential ban on US chicken importation. 

The Manila Times reports the government is mulling the imposition of a ban on importation of chicken from the United States, following the avian flu outbreak in certain states. We believe the potential ban would have no material effect on Jollibee Food Cor (JFC–BUY) as the company normally sources its chicken requirements from local suppliers. 

- Maybank ATR

TOP STORIES FOR THE WEEK

MWC: Resuming coverage with a FV estimate of Php19.10/sh, SELL recommendation 

Last April 21, 2015, the Appeals Panel decided on the arbitration proceedings between Manila Water and the MWSS wherein the concessionaire was told to slash rates by more than 10% or Php2.76 per cubic meter from its 2012 basic water rate of Php25.88. At the same time, MWC was granted future capex of Php200Bil and opex of Php127Bil during the life of the concession. After factoring in the reduction in tariff and the continuous capital and operating expenditures required, we have computed a FV estimate of Php19.10/sh on MWC. The said level is 22.4% lower than MWC’s current price of Php24.75/sh. Sentiment for the stock is also expected to remain poor as profits are projected to be on a downtrend in the next few years. Consequently, our new recommendation on MWC is SELL.

NIKL: Outlook dims on weakening end-user demand; downgrading to SELL

We are downgrading our rating on NIKL from a HOLD to a SELL with a lower FV estimate of Php15.00/sh from Php28.40/sh previously. Although the Indonesian ore ban is likely to remain in place, we believe it will no longer be able to drive ore prices higher like it did the previous year given the continued weakening of underlying end-user demand for steel and therefore nickel. Thus we are assuming 1Q15 average metal prices to hold for the rest of the year. Valuations are not compelling either, as NIKL is trading at a 38.7% premium to our revised FV estimate based on its latest close, implying a potential downside of 27.9%. Moreover, assuming that NIKL sees realized prices for the year recover to their 2014 average levels, our FV estimate would increase to only Php19.90/sh, implying that NIKL is fairly valued at best. 

BDO: 1Q15 earnings meet estimates; full-year guidance set at Php25.1Bil, 10% higher y/y 

BDO reported Php6.1Bil in net income for 1Q15, up 12% year-on-year on higher trading gains. We believe that BDO took the opportunity to further lock in gains during the period after interest rates briefly dropped in January. Meanwhile, net interest and fee-based income also sustained its solid growth, growing by 17% and 22% respectively. Compared to estimates, the bank’s first quarter numbers ended in line with both COL (23.8%) and consensus (24.1%) estimates. For the year, BDO announced a net income guidance of Php25.1Bil, representing a 10% growth versus 2014. This is just slightly below COL and consensus targets of Php25.8Bil and 25.5Bil respectively. We will be releasing a more detailed report on BDO. We currently have a HOLD rating on BDO with a FV estimate of Php118.00/sh based on 2.2X 2015E P/BV. 

- COLFinancial

Market Talk (MPI, NIKL, MARC, AP, LRI)

Conglomerate, MPI: Vote of confidence in MER, Part 2. Maintain BUY, raise our NAV estimate to PHP8.80/sh and target price to PHP7.00, increasing both by 4%. 2015F profit improves 5% and growth goes to 6% from flat. Higher stake in MER increases earnings visibility and cash flows to parent.

 Mining: NIKL’s 1Q15 ore sales up 95% YoY. 1Q15 shipment higher by 95% in value. Current weak ore prices factored in 2Q15 estimates but we believe supply tightness will become evident in 2H15. Share price has declined 32% the past two weeks which we believe is unjustified given NIKL’s strong position.

Mining: MARC 2014 results 3.8% higher than forecast. Marcventures Holdings Inc (MARC–BUY) released 2014 results with gross revenues ofPHP2.527b, up 2.8% from forecast, coming from sales volume of 2.1m WMT of nickel ore, in line with our expectation, and bottom line at PHP841m, 3.8% better than our estimate. For 2015, MARC expects to ship out 3.0m WMT of nickel ore as there are no more legal impediments to operation. Guidance is for 50:50 split between high-iron limonite and saprolite.

Power: Commissioning of AP’s Davao coal Unit 2 delayed. Aboitiz Power Corp (AP–HOLD) said the Mindanao-wide blackout on 5 Apr caused damage to auxiliary components of the boiler of Unit 2 of the Davao coal power plant owned by subsidiary Therma South Inc. The affected components include the air-preheater and electrostatic precipitator. The damage will delay commercial operations of Unit 2 by approximately 10 months or until 2016. The commissioning schedule of Unit 1 is not affected. AP expects commercial operation of Unit 1 by end-Jun 2015.

Cement: LRI’s 1.7m MT capacity expansion to be completed this year. Business World reports Lafarge Republic Inc (LRI–HOLD) is set to complete expansion of the Teresa and Norzagaray plants within the year, boosting total cement capacity to over 7m MT. Each grinding mill will contribute an additional 850k MT cement capacity or a total of 1.7m MT. Yesterday, LRI inaugurated the PHP892m new grinding mill in Teresa, Rizal while the new mill in Norzagaray, Bulacan is expected to operate in Dec. The two plants, together with the LRI’s Batangas and Cebu facilities, will be sold to Ireland-based CRH Plc upon completion of the global merger between Lafarge SA and Holcim Ltd. Meanwhile Holcim Philippines Inc (HLCM – BUY) is set to acquire LRI’s Iligan plant with 800k cement capacity and the aggregates business and terminal in Harbour Centre in Manila.

Banks: PBB FY14 net income down 47% YoY. Philippine Business Bank’s (PBB – HOLD) FY14 net earnings plunged 47% YoY to PHP536m. This is 18% lower than our estimate and 7% behind consensus, likely due to higher provisioning and tax expenses. Net interest income went up 29% to PHP2.2b, in line with our forecasts, as PBB’s loans and receivables expanded 29% to PHP41b. Deposits grew 23% to PHP47b, helped by the opening of 16 new branches to bring total network to 116 at end-2014. Pre-provision operating profit fell 26% to PHP969m, as expected, likely due to lower trading income. PBB reported its NPL ratio improved to 1.5% from 2.4% in FY13 as nonperforming loans declined 17% to PH601m. Implied 4Q14 net income is PHP55m, substantially better than the PHP1m profit posted in 4Q13. Meanwhile, PBB declared a 25% stock dividend, subject to stockholder and central bank approval.

- Maybank ATR

Market Talk (PIP, AP, TA, GTCAP)

Consumer: PIP’s earnings rebound sustained. 2014 profit of PHP811m exceeded forecast by 7%. Earnings rebound sustained in 2H14 after disappointing 1H14. EBIT up 66% in 4Q14 as cash operating expenses kept at bay. Elevated capex to help support PIP’s long-term growth. Positive earnings momentum to continue this year. BUY.

Power: Malampaya to go back online. The Malampaya natural gas facility is expected to go back online this week after a 30-day maintenance shutdown. During the shutdown, three power plants (Sta Rita, San Lorenzo and Ilijan) shifted to more expensive liquid fuel in lieu of nat-gas. 

Power: Aboitiz, Vivant start construction on Cebu plant. Therma Visayas Inc, owned by Aboitiz Power Corp (AP – HOLD) and Vivant Corp, announced the commencement of construction of a 340MW coal-fired power plant in Toledo, Cebu with net capacity of 300 MW. The engineering, procurement and construction contract was awarded last year to Hyundai Engineering Co Ltd and Galing Power Energy Co Inc. The company said the plant is targeted to go online by 1Q18. 

Power: TA looks to double capacity in five years. Trans-Asia Oil and Energy Development Corp (TA – BUY) is looking to invest USD1.2b to double its power generation capacity in five years. The company said the expansion will be financed by borrowings and internally generated funds. Another option is to issue shares. TA is also looking at the remaining assets of PSALM to be privatized. 

Consumer durables: Car sales up 21.6% in 1Q15. Data from the Chamber of Automotive Manufacturers of the Philippines Inc (CAMPI) and the Truck Manufacturers Association show vehicle sales jumped 21.6% YoY to 62,882 units in 1Q15. Passenger cars leaped 38.2% to 25,051 units and accounted for 40% of total automotive sales. CAMPI says demand stems from the business process outsourcing market and attractive financing. Commercial vehicles climbed 12.6% to 33,595 units which CAMPI attributed to demand from SME businesses. In March, total auto sales grew 23% YoY and 14% MoM to 23,557 units. GT Capital Holdings Inc’s (GTCAP – BUY) automotive subsidiary Toyota Philippines remains the market leader with 44.2% share as it sold 10,237 units (+16% YoY) in March and 27,816 vehicles (+22%) in 1Q15. 

-Maybank ATR