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