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