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