Market Talk (SCC, RFM, AP, MER, TA)

Mining: SCC unfortunate incident. According to Semirara Mining and Power Corp (SCC-BUY), a portion of the northern edge of Panian pit gave way about 3:45am last 17 Jul. Three bodies have been recovered while six are still missing. SCC is giving full support to the families of the victims. It is also coordinating with national and local authorities to keep them updated with the search-and-rescue efforts and other necessary measures, including adequate supply of coal since the Department of Energy has ordered the suspension of operations at the Panian pit pending results of the ongoing investigation. We will have a fuller report soon. 

Consumer: RFM’s 1H15 net profit rose 11% YoY to PHP471m. RFM Corp (RFM – BUY) reported net income grew 12.7% YoY in 2Q15 to PHP292m bringing it to PHP471m in 1H15, up 10.6%. This is equivalent to PHP50% of our full-year net income forecast of PHP951m. 1H15 sales went up 10% to PHP5.5b while EBIT increased 17.5% to PHP665m. Higher sales were led by ice cream and pasta. We will come out with a more detailed report on the results within the week. 

Utilities: Pagbilao on track to finish plant. According to Manila Standard, Pagbilao Energy Corp said in a recent interview it is on track to complete the 420MW Pagbilao 3 coal-fired power project in Quezon province in time for full commercial operations by 2018. The project, which started last year, is expected to take about 42 months to complete. Aboitiz Power Corp (AP-HOLD) CEO Erramon Aboitiz earlier said the project would be built as a merchant plant, or one without contracts as the company was confident in the “regime of open access.” Pagbilao Energy is the joint venture of TPEC Holdings Corp and Therma Power Inc, whollyowned subsidiaries of TeaM Energy Corp and AP, respectively.

Utilities: Meralco set to acquire distibution utilities. According to the Philippine Star, Manila Electric Co (MER-HOLD) said in a recent interview it has recommenced exploring opportunities and talks with its target distribution utilities and electric cooperatives after slowing down last year to focus on the rehabilitation of a debt-ridden electric cooperative in Pampanga. MER is scouting for opportunities on growing its electric distribution area in North Luzon and South Luzon through acquisitions of electric cooperatives and private distribution utilities in areas as far as La Union, Batangas, and Laguna. MER, however, declined to specify which distribution utilities and electric cooperatives it is targeting to purchase.

Utilities: Maibarara Geothermal expansion operational by mid-2017. According to BusinessWorld, an official from the Maibarara Geothermal, Inc (MGI) venture said the 10MW geothermal plant expansion in Batangas is programmed to be commissioned in mid-2017. PetroEnergy Resources Corp’s (PERC-Not Rated) subsidiary, PetroGreen Enery Corp, holds a 65% interest in MGI while Trans-Asia Oil and Energy Development Corp (TA-BUY) holds 25% and PNOC Renewables Corp holds 10%. Last month PERC reported MGI completed tests within the site that confirmed sufficient steam to support the 10MW expansion of the operational geothermal project in the municipality of Sto. Tomas. 

- Maybank ATR

Market Talk (NIKL, EW, AP, MER, TA)

Mining: NIKL posts 1H15 shipment volume increase of 25%. Nickel Asia Corp (NIKL – BUY) posted 1Q15 shipment volume of 9.68m WMT, a 25% increase YoY and 10% higher than guidance. Implied 2Q production of 6.17m WMT is higher by 15% YoY and 76% QoQ. Average price of USD23.10 per WMT is lower 29% QoQ and 44% YoY. The volume increase was carried by middle-grade saprolite and limonite across three of four mines, with Rio Tuba doubling shipment and Cagdianao tripling production volume. 

Mining: NIKL to guarantee up to PHP3b loans of power subsidiary. NIKL’s board of directors approved to guarantee the loan facilities of 55%- owned subsidiary Emerging Power Inc (EPI) for up to PHP3b over a maximum three-year period. EPI is a domestic company engaged in the renewable energy business and owns the Montelago geothermal project in Mindoro Oriental with resource of up to 30MW over a 25-year period. The loan facility will be used by EPI to finance the purchase of up to 99.99% ownership in Jobin-SQM Inc (JSI) and a 60% ownership in Biliran Geothermal Inc (BGI), and for the development of the initial generating facilities for both projects. JSI has 100MW solar and 50MW wind renewable energy service contracts in the Subic Bay Metropolitan Authority while BGI holds a geothermal contract in Biliran province which could potentially generate at least 100MW.

Banks: EW to put up its non-life insurance unit. East West Banking Corp (EW – BUY) is entering into non-life insurance brokerage via establishing a wholly-owned subsidiary East West Insurance Brokerage Inc. This is separate from its life insurance unit, EastWest Ageas Life, which is a joint venture with Ageas Insurance International of Belgium. The insurance businesses will add to EW’s financial products and help boost fee income. 

Utilities: AP intends to develop 5 big hydropowerplants. According to BusinessWorld, Aboitiz Power Corp's (AP-HOLD) subsidiary, Hedcor Inc, is planning to develop four to five hydropower plants with average capacities of 25MW and above to meet its target of 2b kWh annual generation by 2020. In a disclosure, AP clarified these projects are already in the pre-development phase. AP currently has 22 hydropower plants that are located in Benguet, Davao City, Davao del Sur, Ilocos Sur and Mountain Province. AP also has an ongoing construction of a 68MW hydropower project in Bukidnon which is composed of two units, 43MW Manolo Fortich 1 and 25MW Manolo Fortich 2, that will utilize hydropower resources from the Tagoloan River. 

Utilities: MER hopeful for an electric vehicle manufacturing plant. According to the Philippine Star, Manila Electric Co (MER-HOLD) is hopeful for the establishment of a manufacturing facility for electric vehicles (e-vehicles) in the country as it believes e-vehicles will be an increasing component of the overall transportation industry, initially in the smaller forms of public transport like tricycle and e-jeeps. But since manufacturing is not MER's core business, it will need a partner who knows the the trade. It will also have to initially consider the scale of local demand to determine when it would make concrete investments for a manufacturing facility. At the moment MER is doing its part in supporting the local e-vehicle industry by putting up e-vehicle charging stations in various areas. 

Utilities: TA spends PHP2b to boost energy portfolio. In a disclosure, Trans-Asia oil and Energy Development Corp. (TA-BUY) said it disbursed PHP1b from 14 Nov 2012 to 31 Mar 2015 for the development of its 54MW wind energy project in San Lorenzo, Guimaras in Iloilo and the second 135MW unit of the coal-fired power plant in Calaca, Batangas. The investment came from the PHP1.62b gross proceeds of its stock rights offering in 2012. TA also noted it spent PHP1.04b for its coal power projects and PHP105m for Maibarara Geothermal, Inc, which was funded from PHP1.16b gross proceeds of a stock rights offer in 2011. It also utilized PHP41.6m for the expansion of a 21MW bunker-fired power plant in Calamba, Laguna operated by its wholly owned CIP II Power Corp from 28 Nov 2007 to 31 Mar 2015.  

- Maybank ATR

Market Talk (SMC, BDO, SECB, RCB, EDC, FLI, NIKL)

Banks: Several parties interested in UCPB sale. The Businessworld reported the UCPB sale has garnered interest in several new parties. Conglomerate San Miguel Corp (SMC – Not rated) is said to join the bidding, together with US private equity companies CAP IV Engagement Limited (an affiliate of Carlyle Asia Partners IV), Lone Star Funds, and TPG Capital Management. Likewise, foreign lender Mitsubishi UFJ Financial Group Inc of Japan is also reportedly interested. Previously, BDO Unibank, Inc (BDO – BUY), Security Bank Corp (SECB – BUY), Rizal Commercial Banking Corp (RCB – BUY) and Robinsons Bank had indicated their interest in UCPB. The government agency tasked to sell UCPB said there are 12 letters of intent to bid that were submitted, of which four came from foreign firms. 

Utilities: EDC to spend PHP58b for Leyte expansion. Energy Development Corp (EDC-BUY) said in its disclosure it intends to spend PHP58b in the next 25-30 years for the expansion of its Leyte Geothermal Project (LGP) by adding 7,106ha to the current 7,400ha. EDC seeks to amend its current environmental compliance certificate (ECC) to include additional areas outside the existing geothermal block, specifically for the drilling of required replacement wells over the next 25-30 years. The existing 700MW, as per the current ECC, will be maintained. 

Utilities: Electricity power of choice, soon. According to the Businessworld, as the Department of Energy (DoE) moves to expand coverage of the retail competition and open access (RCOA) regime by the mid-2016, establishments that consume less than 1MW each month will soon be allowed to choose their own electricity suppliers. When initial implementation began two years ago, the RCOA covered only “contestable customers” (CCs) with monthly average consumption of at least 1MW after accreditation with the Energy Regulatory Commission (ERC). In the latest circular the DoE directed all CCs with 750-999kW average monthly use in the past year to secure retail supply contracts with suppliers by 25 June 2016. At the same time, existing customers covered by RCOA have been directed to secure contracts with suppliers instead of staying with their respective distribution utilities indefinitely.

Property: FLI wins bid for lot in Cebu SRP. Filinvest Land Inc (FLI-BUY) won the bidding for lot no 1 which spans 19 hectares in South Road Properties (SRP), Cebu. FLI plans to follow the bidding guidelines which states that 70% of the buildable area will be for commercial and office while the remaining 30% will be for residential projects. The project will complement FLI’s City di Mare project in Cebu. Consumer: URC commissions 46MW biomass plant. BusinessWorld Online reports Universal Robina Corp (URC – BUY) has commissioned its 46MW biomass power facility in Negros Occidental, Visayas. Output of the PHP2.52b facility will be used mainly to power URC’s sugar mills in Negros but part will be dispatched to the national electricity grid. The biomass plant uses bagasse as its primary input, a by-product of URC’s 9k ton-per-day sugar mill in the municipality of Kabankalan. We expect URC’s biomass plant to contribute PHP350m to EBIT annually under the commodity foods group. 

Mining: SEC approves NIKL’s 100% stock dividend. Nickel Asia Corp (NIKL – BUY) disclosed the Securities and Exchange Commission (SEC) approved yesterday the company’s increase in authorized capital leading to the approval of an earlier declaration of 100% stock dividend. This translates to 3.8b new common shares to be issued at par of PHP0.50. Consequently, our EPS forecasts will be halved to PHP1.16/PHP1.96/PHP2.75 in 2015F/16F/17F while our target price will likewise by halved to PHP16.92 from PHP33.85. Record date is set on 16 July with payment on 11 August.  

- Maybank ATR

Market Talk (SMPH, ALI, DMC, AEV, GLO, CNPF, APX,

Property: SMPH and ALI JV wins Cebu SRP Lot. SM Prime Holdings (SMPH-BUY) and Ayala Land, Inc. (ALI-BUY) has joined forces and won the bid for the 26-hectare Lot No. 8-B-1 at SRP (South Road Properties) in Cebu at the amount of PHP10.0b. Based on our initial estimates the cost per sqm is PHP38.5K, which we believe is in the highend of the current market price range of PHP30K-PHP40K per sqm in the said location. We believe this is positive moving forward as it illustrates that the two can coexist and collaborate. We think it has also to do with future possible projects like Lake Shore in Laguna and the Reclamation in Pasay and Paranque, which can be developed by both property companies. We maintain our BUY rating for both SMPH and ALI. 

Conglomerates: DMC issues official statement for Torre De Manila. DMCI Holdings Inc (DMC-Not Rated) issued a statement regarding the public uproar over its Torre De Manila project. DMC said that they complied with all the necessary permits for the project and that the permit issued to them was for a 49-storey condominium instead of 7-storeys according to rumors. They also believe that their project did not violate any heritage laws and that it does not obstruct the view of the Rizal monument as the project is 800 meters behind it. 

Conglomerates: AEV raises PHP615m from treasury sale. Aboitiz Equity Ventures Inc. (AEV-HOLD) has raised PHP614.8m from the sale of 10.6m shares at PHP58 apiece last June 30. The treasury shares are part of the AEV’s 50m treasury shares to be sold either in tranches or in a single block at prevailing market prices which its board approved in August 2014. According to its disclosure at the Philippine Stock Exchange (PSE) portal, the balance of treasury shares authorized to be sold currently stand at 17.61m shares. 

Telecoms: GLO receives green light from SEC. Globe Telecom Inc. (GLO-HOLD) disclosed yesterday in the Philippine Stock Exchange (PSE) the approval from Securities and Exchange Commission (SEC) of the incorporation of its wholly-owned holding company, Globe Capital Venture Holdings Inc., through which new and strategic businesses will be made and consolidated. The creation of this holding company aims to provide more focus on developing and growing said businesses. 

Utilities: Major gas well found. Philippine National Oil Company– Exploration Corp. (PNOC-EC) has discovered the country’s next major commercial natural gas supply at its Mangosteen project in Santiago City, Isabela. PNOC-EC records showed that the Mangosteen field, located 8km south of Santiago, Isabela, had a recoverable resource potential of 71b cubic feet of natural gas reserves that could contribute 60MW to the Luzon power grid for more than 15 years.

Utilities: DOE chief orders re-evaluation of Bat-Man. Department of Energy (DOE) secretary Carlos Petilla has ordered the re-evaulation of the 121km transmission pipeline which runs from Batangas-Manila (Bat-Man) due to the project lacking a middle offtaker. Philippine National Oil Company (PNOC), who proposed the Bat-Man, will seek a private partner to build the project through a bidding process. Foreign investors who were reported to have taken interest in the project were PTT Plc. of Thailand, Japan's Marubeni Corporation and Russian state-owned Gazprom. 

Utilities: Malaya Thermal contract up for bids. The Power Sector Assets and Liabilities Management Corp. (PSALM) will auction off the one-year operation and maintenance service contract (OMSC) for the 650MW Malaya thermal power plant this month. PSALM has allotted a PHP457.28m budget for the contract. Interested parties are required to pay a non-refundable fee of PHP50,000 for the bidding documents which were made available at PSALM’s office in Makati City. 

Oil: Euro 4 fuel, New emission standard begins. Administrative Order (AO) 2015-14, which requires the use of cleaner Euro 4 fuel and imposes stricter emission standards for all vehicles, was issued by the Department of Environment and Natural Resources (DENR) last March and took effect yesterday, July 1, 2015. As stipulated in the AO, all new vehicles to be used and introduced in the market by 2016 should comply with Euro 4 emission standards. The AO also requires that oil companies ensure the availability of Euro 4 fuels by July 1, 2015. 

Consumer: CNPF earmarks PHP820m capex for 2015. Century Pacific Food Inc (CNPF – Not rated) confirms a Philippine Star report stating the company has earmarked a total of PHP820m in capex this year, significantly higher than its PHP540m capital spending last year. About PHP450m is allocated for the construction of cold storage facilities in General Santos City, Mindanao while the balance of PHP370m shall be used for regular maintenance. CNPF aims to grow its revenues and profits between 10-15% annually over the next two to three years. 

Mining: APX doubles 2015 capex to PHP1.9b. Various news dailies report Apex Mining Co Inc (APX – Not rated) has doubled its capex to PHP1.9b this year from PHP914m in 2014. This is in line with the company’s goal of ramping up its gold production and other mine development projects in the coming years. A top official was quoted as saying bulk of this year’s capital spending is allotted for the acquisition of property and equipment for the exploration activities in APX’s Maco gold mine in Compostela Valley. The amount does not yet include expenses related to the recently acquired Itogon mine which requires about PHP150m to restart operations. 

Economy: Infra spending up 40% in April. Data from the Department of Budget and Management show infrastructure spending in April rose 40.3% YoY to PHP23.3b. This was mainly due to higher fund disbursements from the Department of Public Works and Highways amounting to PHP5.2b. For 4M14, infrastructure spending is still lower by 1.9% YoY to PHP91.9b. This is 21.3% of the PHP431.57b programmed for infrastructure expenditures for 2015. With the increase in April, the government believes the acceleration in spending will continue on to the next months. Likewise, the government held discussions to tackle the issues that hampered spending previously. The government plans to adopt measures to help achieve further improve spending and achieve the targets for the year. 

- Maybank ATR

Market Talk (PBB, FGEN, MER, MWC, PGOLD, CNPF)

Banks: UCPB sale may be put on hold. The Supreme Court issued a temporary restraining order (TRO) on the implementation of Executive Orders 179 and 180, both of which deal with the sale of the coconut levy assets. Among these assets is the 73.9% stake of the government in United Coconut Planters Bank (UCPB), targeted to be sold on 18 Sep. According to a BusinessWorld report, the Privatization and Management Office has yet to verify if the TRO covers the UCPB privatization, and whether the bidding schedule has to be adjusted. A total of 12 banks reportedly submitted their letters of intent for the government stake, for which it is asking for a minimum price of PHP1/sh. It is also requiring PHP15b in recapitalization through subscription of up to 37.2b primary common shares at minimum subscription price of PHP1/sh.

Banks: Loan growth eased to 14.5% in May. Lending by universal and commercial banks net of reverse repurchase placements expanded 14.5% YoY in May, slower than 15.4% growth last month. Credit extended to sectors for production decelerated to 14.1% YoY from 15.1% rise in April. The slowdown was evident in most of the major sectors: electricity, gas and water (12.9% from 16.3%), manufacturing (12.9% from 15.2%), trade (12.9% from 14.4%), and financial intermediation. Real estate and business services which comprise 17.8% of the total loan portfolio picked up pace to 12.9%, a bit faster than 12.5% growth a month ago. Meanwhile, loans for household consumption climbed 20.5%, slightly better than 20.1% expansion last month. Auto loans continued to surge at 28.3% (from 28.1%) while credit card receivables rose 5.6% from 4.9% rise a month ago. Other household loans which include personal and salary loans continued to beat the other segments with growth of 62.1% (from 61.5%) as it comes from a low base.

Banks: PBB acquires Insular Savers Bank. Philippine Business Bank (PBB – HOLD) yesterday disclosed it acquired 100% of Insular Savers Bank (ISB), a rural bank, for PHP518m. ISB was formed following Insular Rural Bank’s acquisition of Filipino Savers Bank. ISB has a primary focus on consumer and commercial loans with a network of eight branches in areas such as Taguig, Rizal, Pampanga, Bulacan, and Laguna. Approvals from relevant regulators have yet to be secured. PBB says the acquisition is in line with its expansion plans and will help them reach out to SME clientele. PBB plans to add 30 branches this year to its current network of 122 branches. We believe PBB can pay cash as it had PHP896m in cash and other cash items as of 1Q15.

 Utilities: FGEN talks with potential partners. First Gen Corp. (FGEN-BUY) is already in talks with potential partners from Japan, Europe and the Philippines to help finance and operate the following projects: three plants worth USD1.5b which will run on Malampaya gas and a liquefied gas terminal worth USD1.2b. The 414MW San Gabriel plant, the first of three gasfired generators that FGEN wants to add, is already funded and will be operational next year. This will be followed by two plants with total capacity of 800MW, expected to be completed in 2018 and 2021, respectively. For the gas terminal, it is targeted to be up and running by 2021, before the Malampaya gas field runs dry in 2024.

Utilities: Lower power demand by August. According to Energy Secretary Carlos Petilla, threats of power interruptions will not stop for Luzon in July because of high demand and the fact that several power plants are still scheduled for maintenance shutdowns. He noted the July demand is estimated to hover at 8,400-8,500MW. He also added that by August there would still be maintenance shutdowns of power plants, but the difference lies in the fact that system demand will already be lower, estimated to be at 8,000-8,200MW.

Utilities: Meralco awards San Buenaventura EPC. Meralco (MER-HOLD) confirmed the awarding of the engineering procurement and construction (EPC) contract of the 460MW San Buenaventura coal-fired power facility project to the consortium of Japanese firm Mitsubishi Heavy Industries and Korean firm Daelim Industrial Co Ltd. MER chairman Manuel V. Pangilinan noted the awarding of the EPC is the biggest step which will finally propel the project that is targeted to go on stream by 2018. The corporate vehicle for the San Buenaventura project is majority owned by Meralco subsidiary Meralco PowerGen while the balance is held by Thai firm EGCO.

Utilities: PEMC pushed to stand by its decision. Energy Secretary Carlos Petilla urged the Philippine Electricity Market Corp. (PEMC) to stand by its decision to impose penalties against power firms that violated the must-offer rule of the Wholesale Electricity Sport Market (WESM). PEMC earlier imposed penalties against Therma Mobile Inc. (TMO), a unit of Aboitiz Power (AP-HOLD), Power Sector Assets and Liabilities Management Corp (PSALM) and Panasia Energy Inc (Panasia), after they were found to have breached the WESM rule in Nov-Dec 2013. Aside from PSALM, TMO and Panasia, the following are the other power producers that violated the WESM rule but for whom penalties were not meted out: AP Renewables Inc, CIP II Power Corp, Trans-Asia Power Generation Corp, Udenna Management and Resources Corp, Strategic Power Development Corp and SEM-Calaca Power Corp.

Utilities: MWC amends agreement with Province of Laguna. Manila Water Philippine Ventures Inc. (MWPV), a unit of Manila Water Co Inc, (MWC-HOLD) and the provincial government of Laguna signed an amendment to their joint venture agreement that expands Laguna AAAWater Corp’s (Laguna Water) concession area to cover all cities and municipalities in the province of Laguna. It further includes the provision of wastewater services and the establishment of an integrated sewage and septage system in the province. Laguna Water, their joint venture company, likewise signed an amendment to its concession agreement with the local government to reflect those changes.

Consumer: PGOLD eyeing another supermarket chain acquisition. In a clarification to a Manila Bulletin news article, Puregold Price Club Inc (PGOLD – BUY) disclosed it is finalizing another supermarket chain acquisition worth PHP800m-1.4b. The target company has eight stores with annual revenues of about PHP4b and has presence in areas where PGOLD is not heavily represented. In early Feb PGOLD acquired nine-store grocery chain NE Supermarkets in Central Luzon for an undisclosed amount. Our forecasts do not yet factor in the looming acquisition but we estimate it could raise PGOLD’s annual revenues by 4%.

Consumer: CNPF declares PHP0.20/sh cash dividend. Century Pacific Food Inc (CNPF – Not rated) disclosed its board of directors approved yesterday the declaration of PHP0.20/sh cash dividend, consisting of PHP0.10/sh regular and PHP0.10/sh special cash dividend. The dividends are to be paid to stockholders of record as of 30 Jul and payable on 25 Aug. This translates to a 1.1% yield and payout ratio of 26% based on last year’s earnings.

- Maybank ATR