Top Stories (MPI, FGEN, EDC, SCC, AP, MER)

MPI submits highest bid for CALAX project. The government announced that MPI submitted the highest bid for the Cavite-Laguna Expressway (CALAX) Project. MPI submitted a bid Php27.3Bil, which is the premium that MPI will pay the government for the project on top of the construction cost of the project, topping San Miguel Corp’s Php22.2Bil bid. Construction for the Php35.4Bil, 45.5km road project is expected to begin in July 2016 and be completed in July 2020, while the operating and maintenance period will be from July 2020 to July 2050. 20% of the Php27.3Bil premium will be paid upon the signing of the contract, while the remainder of the balance will be paid over 10 years. The DPWH said it expects the award of the contract on June 4. The CALAX would be the biggest single biggest toll road investment in MPI’s portfolio and we believe that it should further boost MPI’s long term earnings growth outlook. In terms of funding for the project, MPI said that the initial premium payment of Php5.46Bil will be funded internally, but will raise debt in the succeeding years for the future premium payments and the construction cost of the project. We will be waiting for more details on this project from management to see the rationale for MPI’s bid (how to justify the increase from its last year’s bid of Php11.3Bil to PHp27.3Bil) and the level of return MPI expects for this project. 

Maintain BUY rating. We have a BUY rating on MPI. We like MPI due to its focus on businesses that have massive growth potential due to underinvestment and population growth. Valuations are also attractive; given a potential upside of 36.3% based on our FV estimate of Php6.42/sh.

FGEN earnings beat estimates due to EDC and hydro plant. FGEN’s 1Q15 net income rose 17.7% to US$50.5Mil. On a recurring basis, earnings rose 9.3% to US$49.5Mil, representing 31.3% and 25.5% of COL and consensus forecast. Earnings beat forecast mainly due to the better than expected performance of EDC and the Pantabangan-Masiway hydro plant. Earnings of the gas plants were also better than expected. The Sta. Rita and San Lorenzo gas plants reported total earnings of US$33.3Mil, up 5.3% y/y, representing 27.8% of our full year forecast. 

EDC results ahead of COL forecast on higher than expected revenues. EDC’s 1Q15 core net income rose 11.0% to Php2.46Bil, ahead of COL forecast (27.1%), but below consensus forecast (21.6%). Revenues rose 19.1% to Php8.5 Bil and were slightly stronger than expected at 26% of our full year forecast. EDC benefited from the stronger than expected revenues of the PantabanganMasiway Hydro plant, partially offset by weaker than expected revenues from Palinpinon-Tongonan and Bacman. Operating expenses rose 20.5% y/y to Php4.34Bil, representing 24.3% of our full year forecast. 

SCC benefits from coal mining segment’s better than expected performance. SCC’s 1Q15 earnings increased 24.2% to Php2.51Bil, equivalent to 24.2% of COL and 27.1% of consensus full year forecast. Earnings met COL’s forecast mainly due to the coal segment’s stronger than expected performance. Revenues from power generation increased 88.2% to Php19.31Bil, representing only 19.3% of our full year forecast, as the 300MW Calaca Expansion Project will begin operations in 2H15 which is later than expected. 

Core EBITDA of AP’s power generation and distribution businesses disappoint. AP’s 1Q15 core earnings declined 1.2% to Php4.3Bil, in line with COL’s forecast (25.9% of our full year forecast), but representing only 23.3% of consensus forecast. However, AP’s operating performance as measured by its EBITDA was weaker than expected. EBITDA of AP’s power generation business declined 3.9% to Php7.2Bil, representing only 22.5% of our full year forecast, brought about by the disappointing performance of its large hydro and geothermal plants. EBITDA of its power distribution business also disappointed, rising by 14% to Php1.26Bil, representing 21.4% of our full year forecast. 

MER results below estimates on lower than expected sales volume. Meralco’s 1Q15 core net profit rose 8% to Php4.4 Bil, representing only 21.8% and 24.3% of COL and consensus forecast, respectively. Earnings missed estimates due to lower than expected sales volume growth and tariff. 1Q15 sales volume grew 2.3%, slower than our 3.5% growth forecast. Meanwhile, average tariff declined 5% to Php1.55/kwh, 1.9% lower than our full year average forecast.

- COLfinancial

Market Talk (AEV, FPH, DMC, LRI, PNB)

Conglomerates: AEV Potential source of more growth. Earnings and TP revised, HOLD rating maintained. AEV to potentially acquire LRI in partnership with CRH plc. Strong balance sheet can finance LRI acquisition.

Conglomerates: FPH earmarks PHP1.4b for industrial land expansion. First Philippine Holdings Corp (FPH-BUY) will spend PHP1.4b to further expand its 450-hectare facilities in First Philippine Industrial Park Inc located in Santo Tomas, Batangas. FPH plans on acquiring lands adjacent to its industrial park because of the influx of new investments from potential locators. It already bought a 46-hectare property owned by Brillante Realty Corp at the Philtown Industrial Park in Tanauan, Batangas. 

Conglomerates: DMC aims to raise PHP1b from bonds. DMCI Holdings Inc (DMC-Not rated) is planning to raise PHP1b through fixed-rate retail bonds. This will be used to finance projects for its subsidiary DMCI Project Developers Inc. 

Cement: LRI declares PHP0.50/sh cash dividend. Lafarge Republic Inc (LRI – HOLD) disclosed its board of directors approved yesterday the declaration of PHP0.50/sh cash dividend to common stockholders consisting of PHP0.20/sh regular and PHP0.30/sh special cash dividend. Record date is set on 9 June payable on 23 June. This is unchanged from last year’s total dividend of PHP0.50/sh and is in line with our PHP0.52/sh estimate, Dividend yield based on yesterday’s closing price is 4.9%. 

Banks: PNB’s credit rating raised to investment grade. Moody’s Investors Service has raised the credit rating of Philippine National Bank (PNB – HOLD) two notches to investment grade (Baa3). Moody’s says PNB’s high capitalization and loan loss coverage provides adequate loss absorption capacity which may help the bank withstand systemic stresses in the next 12-18 months. In particular, Moody’s noted the improvement in PNB’s asset quality due to low NPL ratio and declining non-performing assets from the sale of some of its foreclosed properties. Capital buffers have also improved following the bank’s PHP11.6b stock rights offering last year.

Economy. Government underspent in 1Q15. The national government incurred a budget deficit of PHP33.5b in 1Q15, 66% below its target of PHP98.1b and down 60% YoY. Revenues increased 18% to PHP470.5b but expenditures grew only 4% to PHP504.05b. While revenues were off 3% from the government’s target, expenditures were 13% short and also grew slower than the 12% achieved in 1Q14. According to the Department of Budget and Management there was still some fall-out from last year’s restrained spending as a result of the Supreme Court’s ruling that some government disbursement schemes are unconstitutional. The Department of Finance hopes to accelerate the pace of spending in the latter part of the year. Slow government spending likely will keep 1Q15 GDP growth at the lower end of the 6.1-7.3% third-party forecast range. 1Q15 national income accounts will be released on Thursday; we are looking at 6.4% growth, accelerating in later quarters to reach 7% for the year.  

- Maybank ATR

Market Talk (AT, EMP, AGI, PGOLD, TA, AP, TEL, BPI)

Mining: AT’s tough 1H15 priced in; U/G to HOLD. 1Q15 net loss of PHP637m continued from 4Q14 as metal prices declined and mill concerns remained. Rising copper prices & completion of mill works in June will moderate 2Q15F loss; expect 2H bottom line in the black. Decline in share price has brought it close to our TP, upgrade to HOLD.

Consumer: EMP 1Q15 profits down 18%. Emperador Inc (EMP – BUY) disclosed yesterday its 1Q15 earnings amounted to PHP1.4b, implying an 18% drop YoY. This is disappointing as 1Q accounted for only 20.2% of our full-year forecast of PHP6.9b, slightly lower than consensus. In 2013- 2014, 1Q accounted for 24.7-27.9% of full-year earnings. Net sales grew 16% to PHP8.9b, behind management’s target of 35% growth for full-year 2015. We note EMP is coming from a high 1Q14 base as sales got a big boost from trade loading ahead of a price increase then. In 1Q14, sales grew 22%, EBIT went up 36% while net income grew 19%. But we also note 1Q15 would include contributions from newly acquired Whyte and Mackay. We will come out with a detailed note as soon as EMP releases their financial statements.

Conglomerates: AGI reports PHP3.4b net profit in 1Q15. Alliance Global Group Inc’s (AGI-Not Rated) reported PHP3.4b net profit to equity holders in 1Q15 was down 12% YoY due to lower net income contributions from Megaworld Corp (MEG-BUY), Emperador Inc. (EMP-BUY) and Golden Arches Development Corp (GADC). MEG reported net profit of PHP2.34b, 12% lower due to one-time gains of PHP600m booked in 1Q14. Meanwhile, EMP’s net income of PHP1.4b was 14% down as the company is coming off a high base in 1Q14 boosted by trade loading. GADC reported a 5% decline in net profits to PHP161m as higher revenues were offset by a faster increase in cost of inventory due to higher raw material prices and shift in product mix. On the other hand, Travellers International Hotel Group (RWM-BUY) reported 2% growth in net profits to PHP1.7b in 1Q15 due to lower operating costs and expenses.

Consumer: PGOLD-ALI JV to open up to 10 supermarkets in three years. The Philippine Daily Inquirer quotes a top official from Puregold Price Club Inc (PGOLD – BUY) as saying its 50-50 joint venture with Ayala Land Inc (ALI – BUY) intends to open 10 mall-based supermarkets within three years. The first one is expected to be launched in the next few months while a second store will be opened also within the year. The JV, which intends to put up supermarkets in ALI’s upcoming projects, has not yet finalized its brand name although it has been loosely dubbed by the media as Ayagold. Our forecasts do not yet include the JV’s impact to earnings and valuation.

Utilities: TA's Renewable received green light from ERC. Trans-Asia Oil and Energy Development Corp's (TA-BUY) wind-energy development unit, Trans-Asia Renewable Energy Corp. (TAREC), got the Final Certificate of Approval to Connect (FCAC) for its 54MW wind farm. This allows the project to connect to National Grid Corp of the Philippines (NGCP). The wind farm is expected to produce 120.79 GWH of electricity per year to support the yearly electricity demand of almost 48,000 households and contribute reduction of 65,000 tons of carbon dioxide a year.

Utilities: AP seeking banking loans of up to PHP44b for two new projects. Aboitiz Power (AP-HOLD) announced that Therma Visayas Inc. will borrow up to PHP34b for its 510MW base load plant in Cebu while Hedcor Sabanagan Inc will borrow up to PHP10b for its 68MW Manolo Fortich run-of-river hydropower plants in Bukidnon. The construction is now ongoing and the plant in Cebu is expected to operate in 2018 while the hydro plant is targeted for end-2017. AP has allocated PHP52b in capex this year to reach its goal of increasing total capacity by over 2,000MW in the next five years.

Telecoms: TEL's Smart unveils new plans for mobile-data use. Philippine Long Distance Co (TEL-HOLD) subsidiary Smart Communications released four new postpaid offers namely: the Roaming Plan for frequent travellers; the Consumable Plan with flexible elements and highest volume allocation for LTE; the Tri-Net Plan for those who need unlimited calls and SMS to Smart, Sun and Talk 'N Text subscribers; and the Multi-Plan that comes with multiple lines under a single account.

Banks: BPI declares PHP0.90 semi-annual cash dividend. Bank of the Philippine Islands (BPI – HOLD) declared PHP0.90/sh cash dividend in 1H15. Record and payment dates have yet to be finalized. We expect another PHP0.90/sh cash dividend in 2H15, bringing total cash dividends for the year to PHP1.80/sh. Based on yesterday’s closing price, this translates to 1.8% dividend yield. Gaming: Tiger Resorts finds new partner for casino project., Universal Entertainment Corp, owned by Kazuo Okada, has sold its 40% stake in Eagle II Holdco Inc to All Seasons Hotels & Resorts Corp, 100% owned by Antonio Cojuangco. All Seasons is the new partner of Tiger Resorts Leisure and Entertainment Inc for its USD2b casino project and is the owner of the land in which the casino will be built. The sale could be the legal remedy to finally completing the project.


- Maybank ATR

Market Talk (EMP, HLCM, FGEN, TA, LPZ)

Consumer: EMP sets 2015 capex at PHP3b. Various news dailies quoted a top official from Emperador Inc (EMP – BUY) saying the company has earmarked a total of PHP3b in capital expenditures this year, higher than our PHP2.3b forecast. Of this amount, PHP1.5b will reportedly be spent to upgrade the production facilities of Whyte and Mackay in Europe while the remainder will be deployed to expand domestic production. The company plans to add four more lines to its existing distillery in Laguna, where newly launched Smirnoff Mule is being produced. EMP likewise plans to build a new PHP300m glass plant to be completed by 2017 for the production of nonreturnable bottles dedicated to Smirnoff Mule. Meanwhile the company has already submitted a bid to acquire France-based cognac maker Louis Royer SAS from Japan’s Suntory Holdings. The deal reportedly will not exceed the USD700m price tag for the acquisition of Whyte and Mackay last year.

Cement: HLCM declares PHP0.82/sh cash dividend. Holcim Philippines Inc (HLCM – BUY) disclosed its board of directors approved yesterday the declaration of PHP0.82/sh cash dividend to stockholders on record 15 June with payment date on 9 July. This is equivalent to a dividend yield of 5.7% based on yesterday’s closing price.

Utilities: FGEN 1Q15 profit up 17%. First Gen Corp (FGEN-HOLD) grew net income before preferred dividends 17% YoY to USD50.5m. Growth was due to increased revenue from subsidiary Energy Development Corp (EDC-BUY). Recurring net income increased to USD49.5m (9.3% YoY) mainly due to the higher recurring net income contribution of the geothermal and natural gas businesses.

Utilities: TA 1Q15 net income declined 40%. Trans-Asia Oil and Energy Development Corp (TA-BUY) posted PHP65.455m in 1Q15, down 40% YoY. Although consolidated generation revenues increased 121% to PHP432.95m, net trading revenues declined 64% to PHP94.03m due to higher cost of power per kWh. Also, financing charges increased YoY.

Conglomerates: LPZ 1Q15 earnings up 25%. Lopez Holdings (LPZ-BUY) posted PHP1.1b (+25% YoY) in 1Q15 net income before preferred dividends. It was driven mainly by growth in income contribution from First Philippine Holdings Corp (FPH-BUY). Revenues went up 10% YoY to PHP25.94b due to increases from business units associated with FPH.


- Maybank ATR

Market Talk (AP, ICT, ALI, DNL, PGOLD, CIC, CNPF, SSI, GTCAP, MBT, BPI, GLO)

Utilities: Growth and yield; Keep HOLD on AP. Reduce 2015F-16F earnings 7-8%, trim TP 1% to PHP46.60. Davao Coal plant a key driver for 2016F EPS growth. Keep HOLD on earnings growth and 3.9% dividend yield.

Ports: Strong start in 1Q15 for ICT. 1Q15 core income up 38% to PHP54m, above expectations. Recovery in volumes handled, especially in Asia. TP of PHP120.50 provides 8% upside. ICT’s full-year volume growth guidance of 7-8% is close to our 9% forecast. HOLD.

Property: ALI plans to increase ownership in MCT Bhd. Ayala Land Inc (ALI-BUY) has secured a call option to increase its stake in Modular Construction Technology Bhd up to a maximum of 32.95% from 9.16% currently. The call option is excerciseable beginning 7 Oct 2015.

Conglomerates: DNL 1Q15 in line, declares 100% stock dividend. D&L Industries Inc (DNL – HOLD) disclosed 1Q15 net income increased 16% YoY on a pro-forma basis to PHP512m. Pro-forma assumes consolidation of Chemrez in 1Q14. 1Q15 net income is 21% of our 2015F estimate. Revenues went up 15% to PHP4.8b, also 21% of our full-year forecast. The commodity businesses contributed 59% to top line while the highmargin specialties were the remaining 41%. Gross profit grew 9% to PHP818m, bringing gross profit margin 1ppt lower to 16.9% due mainly to product mix in favor of lower-margin commodities. Based on category, commodities posted a 0.6ppt improvement in GPM to 5.1% while highmargin specialties grew GPM 0.4ppt to 24.1%. The food business continues to be bulk of DNL's revenues at 53% and earnings at 38%. Double-digit sales growth was posted by food, aerosols and oleochemicals. Specialty plastics declined 14% in revenues due to the negative impact of port congestion on availability of raw materials. Higher earnings are expected in succeeding quarters and management indicated it can achieve 20% earnings growth for the full year in line with ours and consensus estimate. The board approved declaration of 100% stock dividend in Aug pending approval by the Philippine Stock Exchange. We will be coming up with a more detailed report in the coming days.

Consumer: PGOLD 1Q15 earnings up 12%. Puregold Price Club Inc (PGOLD – BUY) announced in a press release its 1Q15 net income increased 12% YoY to PHP1.05b, 21% of our full-year estimate. In 2014, 1Q earnings was also 21% of full-year bottom line. Revenues grew 12.5% to PHP20.7b, within our expectation. Growth was driven by the flagship brand’s better-than-expected same-store sales growth (SSSG), opening of four new Puregold stores and acquisition of the nine-store NE Bodega chain in February. Puregold SSSG stood at 4.4%, trending higher than our and company's 1-2% forecast for fullyear. Operating income grew at a slightly slower pace at 9.3% to PHP1.5b, still within our expectation. As a result, operating margin dropped about 20bps to 7.1%. 1Q15 net margin was maintained at 5.1%. We shall provide more details after the company’s 1Q15 results briefing.

Consumer: CIC 1Q15 net income down 6% to PHP120m. Concepcion Industrial Corp (CIC – BUY) disclosed 1Q15 net income fell 6.4% to PHP120m, 16% of our full-year forecast. Revenues grew 2.1% to PHP2.25b or 20% of our 2015F forecast. Operating income went up 3% to PHP328m, bringing 1Q15 operating margin 10bps higher to 14.5%. However net margin was 50bps lower at 5.3%. Lower earnings were due to lower consumer sales for air conditioners as it comes from a high base (1Q14 was boosted by trade loading), delayed summer; port congestion issues which affected the availability of imported raw materials; and higher logistics cost. Notwithstanding lower 1Q15 earnings, it is expected to rebound in succeeding quarters and management is maintaining its 15% full-year earnings growth guidance. We will come up with a more detailed note in the coming days.

Consumer: CNPF completes PHP2.7b equity placement. Century Pacific Food Inc (CNPF – Not rated) disclosed it has completed a PHP2.7b equity placement of about 143m common shares at PHP18.75/sh. This represents a 5% discount to its last closing price of PHP19.68. The deal was done via overnight book built offering with CNPF parent Century Pacific Group Inc (CPGI) as the sole selling shareholder. The sale represents approximately 6.4% of CNPF’s total issued common stock, effectively increasing public free float from 10.4% to 16.4%. Last week Singapore-based Arran Investment Private Ltd exercised its option to convert a PHP3.4b loan made to CPGI into an 11% stake in CNPF. CPGI remains CNPF’s largest shareholder with a 72% stake in the company.

Consumer: SSI 1Q15 earnings up 22% to PHP267m. SSI Group Inc (SSI – Not rated) disclosed 1Q15 net income increased 22% to PHP267m, accounting for 21% of full-year earnings consensus estimate of PHP1.29b. Revenues increased 19% to PHP4b as its retail footprint grew 27% YoY to 138k sqm as of end-1Q15. The company opened 23 new stores during the quarter, bringing total store count to 746. Operating income also increased 28% to PHP514m as operating margin improved about 90bps to 12.9%.

Conglomerates: GTCAP to be added in MSCI index. According to Bloomberg, GT Capital Holdings Inc (GTCAP – BUY) will be added to the MSCI Global Standard Index with a weighting of 3.88%. The biggest decreases in index weightings include TEL (-0.52%), URC (- 0.35%), BDO (-0.35%), AC (-0.31%), SMPH (-0.29%), SM (-0.25%), AEV (-0.20%), JGS (- 0.18%), JFC (-0.17%), BPI (-0.16%). Changes will take effect on 29 May.

Banks: MBT 1Q15 reached PHP5.1b. Metrobank (MBT-BUY) posted 1Q15 net income of PHP5.1b, down 9% YoY from PHP5.7b in 1Q14. Stripping one-off gains from an asset sale last year, core income was reportedly up 50%. This accounts for 30% of our full-year estimate, generally in line with expectations as 1Q is historically the strongest quarter of MBT. Loans grew 19%, well ahead of peers and industry average of 13.7%. However, net interest income was up by only 4.5%. Strong trading and FX operations surged 2.6x to PHP2.3b. We shall provide more details later.

Banks: BPI 1Q15 up 36% to PHP4.9b. Bank of the Philippine Islands (BPI – HOLD) reported 36% YoY growth in 1Q15 earnings to PHP4.9b, 23% of both our forecast and consensus estimate. This translates to ROE of 13.8% and ROA of 1.5%. Net interest income rose 15% on slight NIM expansion as loans grew only 14% to PHP730b. This is weaker than previous growth rates of 25% in 1Q14 and 27% in 4Q14. Non-interest income jumped 23% to PHP5.1b but no breakdown was given. This strong growth was expected as 1Q14 had trading losses of PHP80m. Operating cost was contained at single-digit growth of 8.8%, resulting in cost-toincome ratio of 50.2%. Asset quality improved with gross NPL ratio of 1.7% from 1.89% a year ago while NPL cover stood at 111.7%. In terms of capital, CET1 ratio at both parent and consolidated basis were 13.58% and 14.81%, respectively, well above the central bank’s minimum requirement. Maintain HOLD. We will provide more details once the line-by-line results come out.

Telecoms: GLO 1Q15 Core net income grew 25%YoY. Globe Telecom, Inc. (GLO-HOLD) posted 1Q15 core net income of P4.2 billion (+25% YoY). The growth in net income was driven by the record level of EBITDA which is PHP11.0b (+25% YoY), despite the increase in depreciation expenses, and higher non-operating charges recognized during the period. The sustained growth trajectory was due to impressive gains across all business segments, the rapid customer base expansion of both mobile and broadband, the continued strong mobile data adoption and increasing smartphone penetration among its customers, and the introduction of innovative products and services most relevant to GLO subscribers.

- Maybank ATR

Megaworld Corporation: 1Q15 earnings disappoint

1Q15 earnings up 10.50% but miss estimates. MEG reported a net income of Php2.26 Bil for 1Q15. This is 14.7% lower than the reported income of 1Q14. Nevertheless, excluding the Php604 Mil one-off gain in 1Q14, core income is up 10.5% y/y. Performance of MEG in 1Q15 missed COL and consensus estimates as it accounted for just 19.9% and 20.4% of COL and consensus estimates respectively. Earnings missed on higher than expected operating expenses. Opex grew 33.4% y/y and amounted to 29% of our full-year estimates. 

Revenues in line with estimates. Real estate revenues grew 14.4% and realized gross profit improved 21.4% as MEG completed more projects in 1Q15. Realized gross profit in 1Q15 accounted for 22.1% of our full year estimates, higher than the 20% average for the past two years. Rental revenues were also in line with expectations, totaling Php1.99 Bil or 24.5% of our full year estimates. 

Operating expenses remain elevated. Operating expenses in 1Q15 surged 33.4% to Php1.99 Bil. This accounted for 29% of our full-year estimates. Recall that in FY14, MEG also missed estimates due its high operating expenses. Part of the increase in operating expenses is due to the consolidation of GERI which started in 4Q14. However, based on the quarterly average operating expenses of GERI, only around 27% of the increase was due GERI’s consolidation thus a large part of the increase was organic. 

Estimates to be reviewed. We will be reviewing our income forecast in light of the elevated level of operating expenses. Our rating is a BUY with a fair value estimate of Php5.86. We believe MEG is still an attractive value play with extensive landbank in attractive locations. MEG’s growing portfolio of office buildings and retail centers is also a strong selling point as it improves revenue and earning visibility of MEG. 

Bloomberry Resorts Corporation: Underperforms with 1Q15 core net loss of Php506Mil

Underperforms with 1Q15 core net loss of Php506Mil. BLOOM reported a net loss of Php533Mil for the first quarter of the year. Stripping out foreign exchange and mark-to-market losses, core net loss for the period amounted to Php506Mil. Results disappointed on slower-than-expected revenue growth as well as faster-than-expected growth of operating expenses attributable to the opening of Sky Tower. Total revenues only saw an 8.8% improvement y/y while operating expenses ballooned by over 27%. 

Net gaming revenues improve 8.4%, misses estimates. BLOOM raked in Php8.1Bil in gross gaming revenues in 1Q15, translating to an improvement of 14.6% y/y. Deducting promotional allowances, net gaming revenues were at Php6Bil, growing by 8.4% from 1Q14’s Php5.5Bil. Net gaming revenues fell short of expectations, accounting for only 21.2% of COL forecasts. Management said that gaming revenue mix was maintained at 50% VIP, 50% mass. We were expecting the mix to be skewed more towards VIP at 52% and 48% for mass. This implies that BLOOM’s VIP gaming revenues underperformed. 

Operating expenses balloon by over 27%. Following the opening of Sky Tower last November 2014, BLOOM’s operating costs expenses grew by 27.4% in 1Q15 to Php5.8Bil from Php4.5Bil. Operating expenses expanded more than expected, as these costs represented 26.6% of our forecast. As a result, EBITDA margins sunk to 27.3% in 1Q15 from 34.1% during the same period last year.

The Sky Tower doubled BLOOM’s size, adding restaurants, gaming and non-gaming facilities as well as increasing the total hotel room count by 64% to 800 rooms. According to management, it expects the Sky Tower to generate profits soon. 

Keeping an eye on receivables risk. In February this year, the Chinese government declared a crackdown on foreign casinos, leading to concerns not only over BLOOM’s revenues but its receivables from junket operators. As of March 2015, receivables from junket operators were at Php2.5Bil, lower than the Php3.1Bil as of end 2014. This implies that BLOOM is still able to collect from its junket operators. Nevertheless, we will continue to monitor the company’s receivables, as 61.2% of total gross receivables are already past 90 days due. 

Estimates to be reviewed. We will be reviewing our estimates in light of significantly lower-thanexpected revenues and faster-than-expected growth of expenses in 1Q15. We currently have a FV estimate of Php16.30/sh and a BUY rating on BLOOM. 

- COLfinancial

Metropolitan Bank & Trust: Earnings top estimates on higher trading revenues

1Q15 profits beat estimates. Metrobank booked Php5.1Bil in net income in 1Q15, 10.7% lower year-on-year but ahead of COL and consensus forecasts at 26.0% and 26.8% of fullyear estimates respectively. Profits were down from the same quarter last year after 1Q14 saw significant non-recurring gains from the sale of a relatively large investment property and its 33.3% stake in Charter Ping An. Excluding those one-time items, MBT’s core earnings grew 50% year-on-year. Meanwhile, MBT’s profits ended above estimates on stronger-than-expected trading income. The first quarter performance translates to an annualized ROE of 12.1%.

Rebound in trading gains leads to outperformance. MBT’s outperformance for the period was largely due to a pickup in trading revenues. Trading and FX gains more than doubled from Php865Mil in 1Q14 to Php2.3Bil in 1Q15. Similar to the other banks that booked one-time trading gains for the first quarter, we believe that MBT took the opportunity to further lock in gains during the period after interest rates briefly dropped in January. Note that interest rates fell from 3.9% as of end 2014 to as low as 3.1% in early February, before settling at around 4.4% today. In terms of MBT’s investment securities portfolio, the bank continued the shift from AFS securities to HTM securities. As of end March, HTM securities accounted for 37% of its total portfolio, up from 34% as of end 2014 and 18% as of end 1Q14. 

Reiterate BUY rating. We currently have a BUY rating on MBT with an FV estimate of Php109/ sh based on 1.8X 2015E P/BV. The recently concluded stock rights offering should also address market concerns that its capital base will not be able to support its aggressive growth. At Php92.00/sh, MBT is trading at 1.5X 2015E P/BV. This is lower compared to that of the two other big banks BDO (2.1X) and BPI (2.55X).

- COLfinancial

International Container Terminals Inc: 1Q15 earnings exceed COL forecast on higher than expected revenues

ICT’s 1Q15 recurring net income rose 37.8% y/y to US$54Mil, beating estimates, representing 27.4% and 29.1% of COL and consensus forecast, respectively. Core income beat estimates mainly due to higher than expected revenues and lower than expected interest expense. Revenues were above COL estimate, with 1Q15 gross port revenues up 18.9% to US$296.1Mil or 26.2% of our full year forecast.

Revenues above COL estimate as higher yield offsets weaker than expected volume. 1Q15 revenues were above COL forecast due to higher than expected yield/TEU. Container volume grew by 12.8% to 1.98Mil TEU, representing only 23.4% of our full year forecast. Container volume of flagship Manila International Container Terminal (MICT) rebounded after the port congestion last year, growing by 7% y/y. Container volume growth was also boosted by the continuous ramp up in the port in Mexico, Honduras, Ecuador, as well as the first time contribution of ICT’s port in Iraq. However, container volume still fell short of estimates due to a sharp decline in the port in Portland , Davao and Madagascar . Nevertheless, revenues still exceeded forecast as ICT’s lower than expected volume throughput was offset by ICT’s higher than expected yield as blended yield/TEU increased 5.4% to US$149.3/TEU. The said value is 11.7% above our forecast. This was mainly due to improving yield of MICT and ports in Mexico, Honduras and Subic. 

EBITDA margin in line with estimate. Cash operating profits as measured by EBITDA grew 23.1% in 1Q15 to US$127.5Mil, equivalent to 26% of our full year forecast. The growth in EBITDA was due to the higher than expected 18.9% increase in revenues as a result of rising yield/TEU. Meanwhile, rise in ICT’s cash operating expenses was in line with estimates, increasing by 11% to US$119.7Mil, representing 25.4% of our full year forecast. Consequently, EBITDA margin improved 150 basis points to 43.1%, in line with our forecast. 

Maintaining HOLD rating. We currently have a HOLD rating on ICT with a FV estimate of Php110.6/sh. While near term earnings growth outlook waned due to rising cost pressures, we still like the company’s long term outlook given its successful track record of growing its port portfolio through acquisitions and greenfield projects, and its focus on emerging economies which have a favorable long term growth outlook compared to overall global economy, However, valuations are not compelling at this point. Based on ICT’s current price of Php110/sh, the stock is already fairly valued. 

- COLfinancial

Aboitiz Equity Ventures: 1Q15 earnings decline on lower contribution of banking and power businesses

AEV’s 1Q15 core earnings declined 7.3% y/y to Php4.07Bil, representing 19.2% of full year consensus forecast. The decline in AEV’s profits for the period was largely due to the lower earnings contribution of its banking and power subsidiaries which together account for the bulk of AEV’s profits. 1Q15 earnings contribution of the banking business declined 47.7% to Php382Mil, while earnings contribution of power subsidiary AP fell by 1.2% to Php3.33Bil. On the other hand, earnings of food subsidiary Pilmico foods rose by 22.7% to Php416Mil. 

UBP earnings decline in 1Q15. UBP reported Php1.48Bil in earnings during the first quarter of 2015, down 39% from its 1Q14 earnings of Php2.41Bil. The decline was primarily due to slower trading revenues, which fell from Php1.07Bil to Php0.54Bil. While UBP’s loan portfolio grew 5% year-on-year to Php149Bil, total interest earning assets fell 12% to Php330Bil. This led to a 5% decline in net interest income to Php2.5Bil, weaker than our forecast of a 4% growth for 2015. Compared to estimates, the bank’s 1Q15 results ended significantly lower, representing just 19.4% and 19% of COL and consensus estimates respectively. 

AP 1Q15 core operating performance weaker than forecast. AP’s 1Q15 core earnings declined 1.2% to Php4.3Bil, representing 25.9% of COL forecast, but only 23.5% of consensus forecast. The decline in earnings was brought about by the expiration in the income tax holiday of the Magat hydro plant, as well as lower sales volume of the Tiw-Makban geothermal plant. While AP’s core income was in line with COL forecast, its operating performance as measured by its EBITDA was weaker than expected. 1Q EBITDA of AP’s power generation business declined 3.9% to Php7.2Bil, representing only 22.5% of our full year forecast, while the EBITDA of the power distribution business rose 14% to Php1.26Bil, representing 21.4% of our full year forecast. 

Pilmico earnings rise on feeds business, offsets flour and farm businesses’ lower earnings. AEV’s food subsidiary Pilmico Foods posted a 22.7% y/y increase in 1Q15 net income to Php416Mil. Earnings rose primarily due to higher earnings contribution from the feeds segments, and the first time contribution from its feeds business in Vietnam, tempered by the drop in earnings from the flour and farm businesses.

Consensus HOLD rating. Consensus rating on AEV is a HOLD with a FV estimate of Php65.05/sh. 

- COLfinancial

GTCAP, PLC, SSI, WEB, RFM: GTCAP added to MSCI Philippines Index; WEB, PLC, SSI added to small cap index

In its latest semi-annual review, MSCI announced that GTCAP will be added to the MSCI Philippines Index. There were no deletions in the main index. Meanwhile, WEB, PLC, and SSI will be added to the MSCI Philippines Small Cap Index while RFM will be removed. All changes will be effected close of May 29, 2015. 

GTCAP’s inclusion to the main index is expected to put an upward pressure on its share price as funds following the index load up on the issue. As of the time of writing, GTCAP is already up 6.4% versus its closing price yesterday. 

- COLfinancial

SSI GROUP, INC. (SSI): Net income rises 22% to Php267Mil, in line with consensus

Net income rises 22% to Php267Mil. In a press release, SSI reported that 1Q15 net income rose 22% to Php267Mil largely due to higher revenues driven by store expansion. Revenues grew by 19% to Php4.0Bil as store footprint rose by 27% y/y. Meanwhile, an improvement in gross margin and slower increases in key operating expenses such as rent and personnel expense led to a 20 basis point improvement in net margin to 6.7%. Results were in line with consensus expectations, accounting for 20.8% of the full year forecast. Note that last year, the first quarter accounted for ~22% of full year net income. 

Top line growth still driven by store expansion. SSI’s 19% revenue growth continued to be driven by store expansion. During 1Q15, SSI opened 23 new stores covering 4,100 sqm of selling space. This brought SSI to a total of 746 specialty stores and a store footprint of 137,700 sqm, an increase of 27% y/y. SSI also added seven new brands in 1Q15, namely the bridge brand Max & Co., the accessories brands Charming Charlie and Radley, and the footwear brands Amazonas, Jelly Bunny, Kurt Geiger, and Lipault. In total, SSI operated 112 brands as of end-1Q15. 

Consensus has a BUY rating on SSI with a FV estimate of Php11.62/sh. 

- COLfinancial

Ayala Land Inc: 1Q15 earnings on track to meet forecast

1Q15 earnings up 19% to Php4.1 Bil. ALI disclosed that earnings for 1Q15 grew 19% from Php3.5 Bil to Php4.1 Bil driven by strong growth in revenues. Real estate revenues grew 19% y/y to Php25.1 Bil from Php21 Bil in 1Q14. Performance of ALI in 1Q15 is in line with estimates, with income accounting for 24.6% of COL and 24% of consensus estimates.

Growth coming from all segments. ALI’s overall revenues grew 19% to Php25.1 Bil. Residential sales continue to drive the growth but all other segments also improved y/y. Residential revenues grew on higher completion of projects. Take-up sales remained strong, growing 9.9% y/y to Php23.4 Bil. Revenues from shopping centers grew by 11% to Php3.2 Bil due to higher occupancy and increasing foot traffic in new malls Fairview Terraces and UP Town Center. Additionally, revenues from office leasing increased by 14% to Php1.2 Bil during the same period last year due to contribution of new offices, higher occupancy and higher average rental of existing offices. Lastly, revenues from hotels and resorts grew by 9% to Php1.5 Bil primarily driven by the higher occupancy of its existing hotels and resorts.

Maintain BUY with FV estimate of Php43.17. We maintain our BUY rating on ALI with a fair value estimate of Php43.17. We like ALI as it continues to deliver solid earnings every year while maintaining an aggressive growth stance. We will provide more details on ALI’s 1Q15 performance after the company’s briefing. 

- COLfinancial

Bank of Philippine Islands: Core business continues steady growth; profits meet estimates

1Q15 earnings meet estimates. BPI reported Php4.9Bil in net income during the first quarter, 36% higher year-on-year. The growth came from a 15% increase in net interest income to Php9.43Bil and a 23% rise in non-interest income. Meanwhile, operating expenses grew a manageable 8.8% for the period. Earnings ended in line with estimates, accounting for 23% of both COL and consensus forecasts. The first quarter figure translates to an annualized ROE of 13.8%. 

Core operations continue steady growth. BPI’s core businesses remained strong during the period. Net interest income rose 15% year-on-year. This was driven by a 14% rise in net loans to Php730Bil and a 15% expansion in average asset base. Meanwhile, we estimate that net interest margin averaged ~2.8% during the quarter, at par with its margins in 1Q14. The bank’s lending operations were in line with our estimates, with 1Q15 net interest income accounting for 23.4% of our full-year forecast. 

Meanwhile, BPI’s non-interest revenues grew 23% year-on-year to Php5.13Bil. This represents 23.3% (in line) of our 2015 forecast. According to BPI, the growth was mainly attributable to notable increases in its insurance business, fees and commissions, and securities trading. No other details were given. 

Maintaining HOLD rating. We reiterate our HOLD rating on BPI with an FV estimate of Php107.00/sh based on 2.8X 2015E P/ BV. Although we continue to like BPI given its size and its track record of superior profitability and asset quality, we believe that its current valuations are not attractive. Based on our FV estimates, capital appreciation potential is limited at 5.8%.

- COLfinancial

Metro Pacific Investments Corporation: 1Q15 earnings in line with COL forecast, operating performance of subsidiaries lower than expected

MPI’s 1Q15 core earnings rose 14.4% y/y to Php2.56Bil, representing 25.6% of COL and 27.3% of consensus full year forecasts. Earnings met COL forecast and exceeded consensus forecast mainly to due to the group’s lower interest expense booked during the period, amounting to Php1.1Bil, representing only 18.2% of our full year forecast. Operating performance of major subsidiaries missed our forecast, with earnings contribution reaching Php3.01Bil or 22.9% of our full year forecast.

MER 1Q15 disappoints on lower than expected revenues. Meralco’s 1Q15 core net profit rose 8% to Php4.4 Bil, trailing estimates, representing only 21.8% and 24.3% of COL and consensus forecast, respectively. Earnings likely missed estimates due to lower than expected sales volume growth and tariff. 1Q15 sales volume grew 2.3%, slower than our 3.5% growth forecast. Meanwhile, average tariff declined 5% to Php1.55/kwh, 1.9% lower than our full year average forecast.

Maynilad beat estimates on lower than expected costs. Water distribution subsidiary Maynilad reported a 6.7% increase in 1Q15 core earnings to Php2.25Bil, representing 31.3% of our full year forecast. Despite failing to get approval for the implementation of the tariff increase won from the arbitration panel in January, Maynilad’s earnings still beat estimates due to lower than expected expenses. Total operating cost declined 2.03% to Php1.69Bil, representing only 14.3% of our full year forecast. Billed volume grew by 3%, lower than our 5% growth forecast.

MPTC revenues below expectation due to regulatory hurdles. 1Q15 core income of MPI’s toll road subsidiary MPTC rose 15% to Php683Mil, representing 21.8% of our full year forecast. Earnings missed estimates mainly due to lower than expected revenues, which rose 7.8% to Php2.27Bil, but representing only 20.2% of our full year forecast, mainly due to the prolong delay in the implementation the MNTC and Cavitex’s tariff increase. MNTC’s traffic volume rose 8% y/y, slightly above our 7% growth forecast, while the Cavitex’s volume grew 9% y/y, exceeding our 4% growth forecast.

Maintain BUY rating. We are reducing our FY15E net income forecast for MPI by 4.3% to Php9.57Bil to account for the lower earnings contribution of its toll road business. The impact of the lower net income on MPI’s FV estimate is minimal, reducing it by only 1.07% to Php6.49/sh to Php6.42/sh. We have a BUY rating on MPI. We like MPI due to its focus on businesses that have massive growth potential due to underinvestment and population growth. Valuations are also attractive; given a potential upside of 37.5% based on our FV estimate of Php6.42/sh.

- COLfinancial

Ayala Corporation: 1Q15 earnings on track to meet estimates

1Q15 core earnings up 36.2%. AC’s income in 1Q15 reached Php5.04 Bil, implying a growth of 36.2% from AC’s core income of Php3.63 Bil. Recall that in 1Q14, AC booked a Php1.8 Bil gain from the divestment of its BPO unit. The strong growth in AC’s income was driven by the growth of ALI, GLO, and BPI. Income of MWC was flat compared to last year. The performance of AC in 1Q15 puts them on track to meet COL and consensus full-year estimates.

Most subsidiaries perform within expectations, GLO outperforms. ALI, BPI, and MWC all performed within expectations in 1Q15. ALI registered an 18.4% growth, BPI with a 36% growth, and MWC was flattish. GLO, on the other hand, outperformed COL and consensus estimates on higher than expected margins.

Maintain BUY with FV estimate of Php877.00. We maintain our BUY rating on AC with a FV estimate of Php877.00. We like AC for the solid performance of GLO, BPI and ALI. Although our outlook for MWC is negative, its contribution to AC’s NAV is limited to 3.8%. We also like AC for its growing exposure in the power generation sector. We believe AC’s value will be enhanced going forward as more of AC Energy’s investments start operations, making AC more than a parent company for listed companies ALI, BPI, GLO, and MWC but also a play on the power and infrastructure sector.

- COLfinancial

Market Talk (HLCM, PIP, CNPF, SCC, EEI, GLO)

Cement: HLCM’s clinker imports hurt 1Q15 margins. HLCM’s use of higher costing imported clinker increased due to plant maintenance in Jan. Margins could recover in succeeding quarters with the next plant maintenance scheduled 15-18 months hence. Forecasts, BUY rating unchanged. Robust cement demand expected to be sustainable.

Consumer: PIP posts 41% YoY jump in 1Q15 net income. Pepsi-Cola Product Philippines Inc (PIP—BUY) reported earnings grew 41% YoY to PHP192m, accounting for 22.5% of our full-year forecast of PHP867m. Last year, 1Q accounted for only 16.8% of full-year earnings. Net sales amounted to PHP6.3b, up 14.1%, while operating income surged 56.1% to PHP295m. EBIT margin widened to 4.7% from 3.4% due to better scale and improvements in selling price. We will come out with a more detailed report within the week. 

Consumer: CNPF 1Q15 profits up 37% YoY. Century Pacific Food Inc (CNPF – Not rated) disclosed 1Q15 earnings of PHP438m, up 37% YoY and accounting for 23% of full-year 2015 consensus forecast of PHP1.9b. Revenues went up 16% to PHP5.2b driven by strong demand for its branded products due to better brand visibility and positioning. Gross profit margin improved 50 bps to 25.7% with cost of sales up 15% to PHP3.9b. Operating income grew faster at 31% to PHP469m with operating expenses increasing only 9% YoY. As a result, EBIT margin expanded 130 bps to 11.7%. 

Mining: SCC signs joint venture to build 350MW power plant. Semirara Mining and Power Corp (SCC—BUY) is reportedly entering a joint venture with a local partner to build a 350MW power plant in Calaca, Batangas worth PHP22b. SCC and the local partner will share equity in the project and will create a new company for this. The contract will be signed in 90 days. We are confirming with the company if this is the St Raphael Power Generation Corp project or a new one. 

Construction: EEI finalizes Skyway Stage 3 project. EEI Corp (EEI – BUY) disclosed it has signed a contract for the construction of Sections 3 and 4 of the Metro Manila Skyway Stage 3 Project of San Miguel Corp (SMC – Not rated) and government-owned Philippine National Construction Corp. EEI will undertake the construction of 7.52km of the total 14.82km expressway that will effectively link the South and North Luzon Expressways. The total project is worth PHP26.66b and we expect EEI will get PHP14-15b. As we had written previously (Clinching Bohol airport and another, 8 April 2015) the Skyway project and the Bohol airport project together account for about PHP16.5-17b worth of new projects YTD. Our initial estimate shows these two projects may contribute around PHP132m in 2015F net income and PHP396m in 2016F. This is based on a minimum 8% profit margin and FY15-16 completion rates of 10% and 30%. Our target price of PHP14 implies 13.5x 2015F PER. We will provide more details later. 

GLO launches unlimited data roaming for prepaid subs. Globe Telecom Inc (GLO— HOLD) launched a new unlimited data roaming service for its prepaid subscribers, Globe Prepaid Roam Surf. Under this service, prepaid subscribers can avail of unlimited data roaming in 50 countries for a flat rate. There are three variants: PHP599 for 24 hours, PHP1,797 for three full days, and PHP2,995 for five full days. The service offers convenience to travelling Globe subscribers who will no longer need to buy local SIM cards and change numbers or look for Wi-Fi areas to access data. Note that In 2014 the company launched the same unlimited data roaming service of PHP599/day for its postpaid subscribers.

-Maybank ATR

Stock In Focus: PSPC

PSPC (Phoenix Semiconductor Philippines Corporation)

The Underdog of Semiconductors

PSPC was among the five companies who had their IPO last year of 2014 (CNPF, DD, SSI, PSPC, X) and seems to be the unluckiest of them all, and as of the moment, still trading below its IPO price of 3.15php/share. Could it be that PSPC will someday prove to the market they were wrong in dictating PSPC’s fate and drove the price lower than its initial strike price? As of this writing, May 03, 2015, current market value of PSPC is around 5,022,855,938 PHP trading at 2.32php/share. Although in the technical aspect looking at the chart, PSPC is surely an unattractive fellow, but why does the numbers and valuations for this company seems do not give justice to its chart. Most Fundamental Analyst will agree that as of the moment this feeble stock is currently trading undervalued, but the big question would be, is it worthy of keeping in the portfolio or would it be capable of something big to be qualified as a bagger stock? In these section I will be presenting information about this neglected stock so that PSPC holders or non-holders alike may weigh in risk versus rewards in their outlook for PSPC.

Company Background

PSPC is a Korean semiconductor company which was established in 2010 at Clark Freeport Zone, Philippines. The company offers wide variety of products from SD cards and memory modules used for mobiles, laptops and PCs. Aside from the product itself, it’s business encompasses the manufacture, assembly, test and warehousing of these semiconductors and memory devices. PSPC is a limb of the Korean Based company STS Semiconductor known in Korea as its leading provider of semi-conductor packaging. In the present though, it only relies to a single client which is SAMSUNG but PSPC is recognized by these tech giant as 1 of the five Outsourced Semiconductor Assembly and Test (OSAT) that provides outsourced service to SAMSUNG and the ONLY ONE with the capacity to provide SAMSUNG with 3 production processes in a full range of assembly, test and module, the other being 1-2 processes only.

STS Semiconductor – Parent Company

“STS Semiconductor was created during the financial crisis in 1998 as Samsung Electronics decided to split its semiconductor business division. Since then it has undergone incessant transformations and sought technological development through aggressive management to grow as a leading non-memory semiconductor OEM (Original Equipment Manufacturer). 21st century is to be a network society based on advancement and extended use of computer and internet technology. They have competitive edge in a wide range of fields from semiconductor PKG test service to chip development for message transmission and imaging in telecommunication industry. They’re also planning to expand beyond their current business areas in an effort to earn solid loyalty from customers and contribute to the growth of the nation and the global community in general.”

Website: http://www.sts-semi.co.kr/english/about/philosophy

Bokwang Group – The Business Empire

Bokwang Group was established in October 1983 and built a firm base as a full-scale business group with the production of TV picture tube in 1987. Bokwang Group’s effort to become a leading company in various area such as distribution, finance, service, and manufacturing started with expanding business field to Food and Beverages distribution with Family mart CSV business in 1989 and leisure industry with completion of the Phoenix Park in 1996.

Website: http://www.bokwang.com/english/

Business Line

• Leisure/Finance (Bokwang Phoenix Park, Phoenix Island, Phoenix Springs CC, Bokwang Investment Corp., Phoenix Development & Investment) 
• Food and Beverages Distribution (Bokwang Family Mart, Phoenix Vending Service) 
• Advertisement/Culture (Phoenix Communications, Dentsu Korea, Korea Culture Promotion, C & Marketing Services, Interworks Media) 
• High Technology (BKE&T, Core Logic, Phoenix materials, Clairpixe, STS Semiconductor) 

For those of you who do not know, STS Semiconductor belongs to the family business of the Samsung family... The South Korean Business Empire Bokwang Group's current CEO Hong-Seok Gyu is a first-degree brother of Hong Ra-Hee, director of Leeum Samsung Museum and the wife of Samsung Group Chairman Lee Kun-Hee -- Korea's richest individual. Mrs. Hong Ra Hee happens to own a stake hold in STS Semiconductor...which I only found out upon stumbling around a Korean News release. If we will trace therefore blood ties and relationship of the Samsung Group with the Hong Family (who owns the Bokwang Group), we can start by looking at what Wikipedia has for us regarding Mrs. Hong Ra hee and Bokwang CEO Hong-Seok Gyu’s father Hong Jin-Ki.

Fundamentals

Let’s look at the numbers: Data as date of writing May 3, 2015.

OUTLOOK: 2015 and Beyond - Stronger and Promisingly Will Be Bigger 

• Analyst forecast the semiconductor industry to grow between four percent to seven percent. 
• From an application point of view, tablets, smartphones, and ultra-mobiles are expected to register the highest growth (Garter Report). 
• Building a new facility in Clark by 4Q2015 to meet an expected surge in global demand for its products. The new production facilities will be expected to generate an additional monthly output of 40 million units of memory chips (62% of 2014 output). 
• The new production machineries and equipment installed in 2014 is expected to significantly increase its production capacity from 65 million to 72 million units beginning January 2015 (around 10% increased capacity compared to 2014). Estimated impact to the 2015 net earnings will be around +$1.9m. 
• Debt balance is relatively lower in 2015 than 2014 by around $20m resulting to lower interest expense in 2015 as compared to 2014. Estimated net impact to the 2015 bottom line will be around +$0.8m. 
• US Dollar is expected to be stronger in 2015 due to impending Fed rate hike. Stronger dollar is very positive to PSPC since big chunk of the costs and expenses which are in Phil Peso will be relatively lower in USD equivalent. This means higher income in USD terms.

Just a brief comparison with stocks in similar industries: Take note; although the industry is the same, the business scope and target market of these companies may differ. This is for the purpose of showing how PSPC is currently valued in the current market environment. 

Note: Data as of April 26, 2015

Any other reasons why PSPC “MIGHT” be an ideal stock to keep? Here are just some of the list

1. It has an IN DEMEND product with a global market
   ...that is, Semiconductors… who wouldn't want a smartphone these days? A Laptop? Tablet? Or PC? Mostly everybody who can afford right? Semiconductors surely is an essential element to these gadgets. And who wouldn't want to invest in technology? It’s not as if we are going back in the stone-age… we are surely on our road for more technological advancements… Robotics perhaps? Robots has semiconductors. The point is, we don’t know where the future is headed but surely technology is always there as people always find ways to make life easier and easier for us.
   
2. PSPC upholds its vision “Strive to be the WORLD’s BEST SEMICONDUCTOR Company”. 
   Great things starts from small beginnings. We all do know that PSPC is still a young company having just started merely 5 years ago (2010) but it has already achieved much.“Since 2011, PSPC has been the front-line of semiconductor production consistently producing chips that have made their way into devices such as industrial servers and consumer goods like the trendiest gadgets”
   
   source: Phoenix Semiconductor Philippines Corporation: Taking the Lead in the Semiconductor Industry (Manila Bulletin - 10.31.2014).
   On Dec 14, 2012, PSPC was awarded as TOP Export Performer in FOB value in Clark Freeport zone As of 2014, PSPC still reigns to be on the TOP exporters list in Clark as per management during the stockholders meeting.
   
3. PSPC belongs to the electronic sector, Philippine’s TOP product abroad. 
   "Moody’s Analytics also noted that Philippine shipment of electronics -- the country’s top product abroad -- “improved” in January-February on the back of stronger demand from the United States. Overseas sale of electronics, which accounted for 45% of total export receipts in the first two months of the year, jumped by 9.5% to $4.010 billion from $3.660 billion logged in the comparable 2014 period."
   
   http://www.bworldonline.com/content.php?section=TopStory&title=q1-growth-estimatedbr-fastest-in-seven-quarters&id=106772
   
4. PSPC is not only satisfied with product production, manufacture and distribution but has an eye for product improvement and advancement. 
   PSPC addresses a very important factor to assure its future growth by emphasizing their strategy which includes Research and Development. As stated by Mr. Kim Dongjoo, VP&CFO of PSPC, PSPC will FOCUS on manufacturing and are unlikely to involve Research and Development here in the Phil.
   
   “High caliber degreed engineers—this is among our biggest problems, some of the best people you have are not inside the country. More prefer to work abroad”. Kim said the company is looking at maximizing South Korea’s strength in R&D and the Philippines’ strength in manufacturing. Source: Phoenix Semiconductor becomes 1st Korean firm to list at PSE (ABS - CBN News, December 1, 2014).
   
   With this, we see how effective their managing was, as it is essentially true to any company… utilize your workforce’s strength and never send your ducks to an eagle school. This matter has been addressed by them. Although we know that PSPC operates independently of STS, surely, its mother company will stretched out its hand to its son to ride the wave into the future of semiconductors through its advancements.
   
5. SAMSUNG as its single client? No worries, PSPC is already in talks for their additional clients to be added in their distribution list.
   As we've read it in the news,
   
   Mr. Kim said “the company expects to seal any of the negotiations it has with a Japanese and several American semiconductor firms by “early next year” Source: Phoenix Semiconductors eyes more expansion, Shares close flat on debut (Manila Bulletin, December 1, 2014).
   
   This was actually the reason why PSPC needed to go public, for expansion and to accommodate new clients. We, PSPC investors, are excited for the much awaited announcement of WHO??? Lol Even though PSPC will end its contract to SAMSUNG on 2017, I strongly believe that they will make it to renew its contract by then. Why? I already mentioned above, another thing, are you aware that SAMSUNG itself assisted STS when they established PSPC in employee training and selection of machines and equipment to assure quality… would they want to dump them in the long run? And with the qualities of PSPC, it wouldn't be difficult for them to find new clients.
   
6. Will PSPC be satisfied with just 1 Manufacturing Plant in Clark? The answer is No.
   PSPC, although still in the process of undertaking its short to midterm goal in its PHASE 2 expansion. We are assured that its growth will not stop there. As what has been reported to the news,
   
   “Phoenix Semiconductors Philippines Corporation (PSPC) is considering a third phase expansion, even though it is just undertaking the second phase, as it talks to potential customers for its new production capacity. In an interview after the listing of the firm’s shares, PSPC chief finance officer Dong Joo Kim said the third phase is still in the “conceptual” stage although the company is looking forward to its implementation.” Time-span: three-to five-year plan of the company. Source: Phoenix Semiconductors eyes more expansion, Shares close flat on debut (Manila Bulletin, December 1, 2014).
   
   We see a road map here.
   
7. PSPC has our government’s support.
   When President Benigno S. Aquino III has approved the 2014 Investment Priorities Plan (IPP) which identifies the preferred areas of economic activities that will be entitled to government incentives, PSPC is one of the companies highlighted in the list under the electronics sector. In general the IPP will give government incentives to those included. Aside from the fact that PSPC sits in the Freeport Zone which entitles its investors to the same tax-free and other duty-free privileges enjoyed by their counterparts at the Subic Bay Freeport.
   
   See:http://www.philippineembassy-usa.org/uploads/DTI/DTI%20PBR%20Dec%202014.pdf
   
8. Dividend Policy 
   Who wouldn’t be attracted to dividends? As per PSPC’s prospectus, “The Company’s Board has approved an annual dividend payment ratio of approximately 20% of its net income from the preceding fiscal year, subject to the requirements of applicable laws and regulations and the absence of circumstances which may restrict the payment of dividends including, but not limited to, substantial cash requirements of the Company for major projects and developments, and covenants restricting payments of cash dividends in the Company’s loans and credit agreements.”
   
   On March 3, 2015- PSPC declared a 0.0054 USD cash dividend or amounting to approximately 0.24php, that is 10% yield if we are to use the current 2.32 php/share price of PSPC. 

SOME ISSUES…

People who doesn't understand the business of PSPC, especially the semiconductor industry, tends to relate PSPC's ability to generate income based on the sale of SAMSUNG Mobiles alone...

For me, I do not rely simply on that basis, while it is true that when Samsung has a huge demand for its mobile releases, this will increase the demand for PSPC's semiconductors as well, but SAMSUNG's mobile business is independent to that off its SEMICONDUCTOR business. Aside from servicing its own brands, SAMSUNG Semiconductors also caters to other players and supplies semiconductor for other electrical equipment (not only mobile) which makes PSPC an indirect supplier to them.

So will PSPC be gravely affected to the downtime sale of SAMSUNG mobiles? PSPC's claim...UNAFFECTED

"Engaged by Samsung as a main supplier for memory semiconductors, PSPC has been asked of the effects to its operations of the reported slump in sales of Samsung smart phones. “It is unfortunate that most people only think of Samsung as a producer of mobile phones, Kim lamented, even as he clarified: “Samsung makes all kinds of electronic devices and while Samsung may experience slowdown in one particular segment, there are other electronic segments that all need semiconductor chips.”

Han added: “While Samsung may have been down in its mobile phone sales, the entire segment as a whole grew. We see the potential to serve other players in the market, not just Samsung.” Going IPO and building a new facility are the initial steps toward that direction, Han said.

Source:http://punto.com.ph/News/Article/21669/Volume-8-No-34/Headlines/Clark?s-top-exporter-going-IPO

Samsung Profit Falls on Slowing Smartphone Sales

"Samsung said Wednesday its net profit for the three months ended March 31 was 4.63 trillion Korean won ($4.3 billion), down 39% from a year earlier."

So what's up for PSPC? I think we can all agree here that SAMSUNG is not PSPC right, so let's look at the segment in which PSPC's product is directly involved? And what is that? Memory chips and related semiconductor... So what does SAMSUNG numbers has to say...?

"Samsung’s semiconductor business is divided into two parts: the PROFITABLE MEMORY-CHIP BUSINESS and the beleaguered logic-chip division that manufactures microprocessors for clients like Apple and Samsung’s own mobile unit."

http://www.wsj.com/articles/samsung-profit-falls-on-slowing-smartphone-sales-1430266156

"Outside the mobile division, Samsung's semiconductor business continues to flourish, with an operating profit of 2.93 trillion won ($2.7 billion), up from last year's 1.95 trillion won ($1.8 billion). The Display Panel division's also doing well thanks to an increasing demand for UHD TVs, earning a 520 billion won ($490 million) profit that's much larger than last year's 80 billion ($75 million)."

http://www.engadget.com/2015/04/29/samsung-earnings-q1-2015/

Closing Remark

As the great investor Mr. Warren Buffet teaches us,

“When I buy a stock, I think of it in terms of buying a whole company, just as if I were buying a store down the street,” says Buffett.

Analyze the ins and outs of a company then ask yourself if it is a business you are willing to buy if you had the resources. This way, you don’t have to depend on gurus to make investment decisions for you."

With the details presented above which are all based upon information available to the public (prospectus, disclosures, news and releases) feel the need to weigh your own sentiments with regards to this unlucky IPO stock. As for me, as long as I have a reason to believe in a stock as worthy of keeping in my portfolio, I will continue to hold the stock as an investor. What will be my basis? Financial records, growth performance, etch... in other words, as long as my expectations towards the company are met, HOLD... One good thing with this stock, PSPC is very transparent in giving their investors idea with regards to its future goals and ventures. That way, we know what to expect and if that expectations fails us, then we know what to do... 

Author: Jerico Zubiri

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