PESO HAS STRONG SUPPORT AT PHP 45.50-46.00

As of 29 January 2014

SUMMARY OF BROKER'S OPINION

Last week, emerging market currencies including the Philippine Peso suffered another vicious beating after the Banco Central de la Republica Argentina pulled out its support on the Argentinian peso, triggering its single biggest day drop against the dollar since the country defaulted on its debt in 2002. The Argentine Peso devalued by 13.2% on Thursday spreading turmoil in neighbouring Brazil, Latin America and across the emerging world. By Friday, the Argentine peso, Turkish lira, Russian ruble and the South African rand were among the worst performers reaching multi-year lows.

Interestingly, the peso showed incipient signs of recovery when it fell by a just a muted 0.7% when other emerging market currencies were falling sharply. In addition to the peso’s muteddrop last week, note that the slope of the peso’s decline is becoming less steep since the May 2013 taper speech of Bernanke (see graph below). In the case of the Philippines, whose fundamentals we believe are firmly intact, we think it is just the unwinding of overweight positions rather than the market placing a negative bet that caused the price volatility.

CONCLUSION: Today, foreign banks are saying that the peso will reach PHP 48.00. A look at the longer-term chart, however, shows that the peso is nearing strong support at the PHP 45.50 to 46 level. If ASEAN markets continue to show resiliency and if China improves, then we may see a rebound in the peso. At this point, we continue to believe that the country in general is better off with a slightly weaker peso than an overly strong peso. We believe that the peso is now at a new trading range between 43 and 46 where we expect it to consolidate for some time.

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Stock in Focus: GMA7 by AB Capital Securities

Broker: AB Capital Securities

Recommendation: SELL

Target Price: 8.32

Target Price issued on: January 27, 2014

SUMMARY OF BROKER'S OPINION: We downgrade GMA Network, Inc. (GMA7) to SELL

with a Target Price of PHP 8.32. Talks of a minority stake acquisition by TEL or SMC prompted valuation multiples of GMA7 to rerate towards 19x 2014 P/E. We think this is unjustified based on current fundamentals, specifically slower growth on recurring advertisements and inability to expand profit margins.

Phil. Long Distance Telephone Co. (TEL) and San Miguel Corp. (SMC) are in talks of acquiring a minority stake in GMA7. The Philippine Daily Inquirer reported a PHP 48 billion transaction value from TEL. Assuming this as enterprise value, we arrive at PHP 8.81-10.16 as GMA7’s per share range. In a separate article, SMC’s Ramon Ang is said to be offering to buy at PHP 10.80 per share. Ang also has a connection with one of the controlling families in GMA7.

GMA7 reported nine month revenues at PHP 9.7 billion compared to PHP 9.3 billion in 9M 2012, growing 4.4% year-on year (y-o-y). However, this only makes up 74% of the full year forecast vs 79% last year.

Net profits were at PHP 1.4 billion compared to PHP 1.59 billion on year-ago levels, down 6% y-o-y. This makes up 86% of full year forecast vs 98% last year.

Recurring advertsing sales in the third quarter declined by 13% to PHP 2.6 billion from PHP 3.1 billion last year. We think this implies that advertisers continue to favor ABS-CBNs' current program offering.

RECOMMENDATION: We place our Target Price at PHP 8.32 after adjusting for 9M results. However, we downgrade rating to SELL given valuation multiples.

GMA7's P/E is at 19x 2014 vs peer median at 14x 2014. Multiples trade at an average of 12x and the current levels reflect excitement on the acquisition rather than the improvement on recurring advertisements and profit margins. We also lower our earnings projection to PHP 1.5 billion for 2013E and maintain 2014F at PHP 1.52 billion. We expect multiples to derate over the coming months given deteriorating fundamentals.

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Stock in Focus: URC by Angping & Associates Securities

Broker: Angping & Associates Securities

Recommendation: HOLD

Target Price: 122.95

Target Price issued on: January 27, 2014

SUMMARY OF BROKER'S OPINION: With its strong free cash-flow and ongoing expansion, URC shareholders that are positioned below market valuations can hold the stock for superior long-term growth. It is not advisable, though, to position in the stock at current prices.

URC achieved its best financial condition in 10 years, with net working capital expanding to its highest level of PHP 18 billion in 2013. Debt-to-equity ratio also improved to its best of 0.31x in FY 2013.

Free cash-flow reached its highest level of PHP 22 billion, while cash dividends paid in 2013 was also URC’s biggest in ten years.

URC’s operating income grew by 31% to PHP 10.28 billion in FY 2013 from PHP 7.85 billion in FY 2012.

In terms of EBITDA, URC’s EBITDA margin improved from 15.76% in FY 2012 to 17.16% in FY 2013.

Following its best year in a decade, URC plans to expand further locally and abroad. URC will spend its highest capex in 10 years of PHP 9 billion. Around PHP 5.73 billion will be used for the installation of new lines to increase capacities in snack foods and grocery products in the Philippines, new plants, beverage and bakery lines in Vietnam and the expansion of biscuits and wafer lines in Thailand. PHP 3 billion will be used for the completion of a bio-ethanol plant, construction

of a power cogeneration plant and for maintenance capex. Around PHP 270 million will be used for farm expansion and handling facilities for the feeds division.

Though still positive, this will reduce free cash-flow significantly and temporarily generate a negative 2014F Return on Invested Capital. 2014 looks promising but will be weighed down by URC’s expansion costs. Revenue growth is seen to be around the same level as with 2013. Costs may be tighter though as the peso has weakened back to August 2010 levels of PHP45:USD1.

RECOMMENDATION: URC is a HOLD. It's Fair Value and Target Price is PHP 122.95 per share. This is based on Discounted Cash Flow valuation taking into account URC's interest-bearing debt.

URC is trading only at a discount to 1x PEG and at a premium to market and fair value. URC is one of the most expensive stocks in our coverage. Though its fundamentals are strong, it is not advisable to position in the stock at current prices. With its strong free cashflow and ongoing expansion, investors that acquired URC below market valuations can hold the stock for superior long term growth.

-The contents presented in this page is courtesy by PinoyInvestor-

JFC: Where are we going?

JFC fell with -3.2% from the previous day. Currently on a downtrend, JFC may hit the 100% Fibonacci retracement anytime soon. If you observe the volume, the number of sellers are really want to dispose this stock. With RSI at 30.96, we can expect that there will a chance that we'll have a reversal as we approach the 147 price of this stock.

Note that there is a gap down near 78.6 fibo. We can assume that we'll experience a gap up to seal it.

Good luck!

Economy: Resilient consumer spending and rebound of exports responsible for strong GDP numbers

Fourth quarter GDP grew by 6.5%, beating consensus growth forecast of 6.0%. This brought full year GDP growth to 7.2%, also above consensus growth forecast of 7.0%. The main driver of growth was resilient consumer spending and the rebound of exports. During the fourth quarter, consumer spending grew by 5.6%, bringing full year growth to 5.6%. 

Meanwhile, exports continued to rebound, growing by 6.2% during the fourth quarter after rising by 16.7% during the third quarter. For the full 
year, exports rose by 2.4% despite suffering from a drop during the first half of 2013.

--The content presented in this page is courtesy by COL financial--
https://ph1.colfinancial.com/ape/Final2/researchcompupdates/Downloads/2014-01-30-PH-A-Economy.pdf

EMP: A leader for long term.

Emperador, Inc:

A leader for the long term

We met with the management of EMP this week and based on our discussions, sales remained robust in 4Q13 despite calamities during the period. They expect more growth this year as they capitalize of its strong brand equity and resumption of industry growth. We have a HOLD rating on EMP with a FV estimate of Php11.33. Despite our positive outlook on the company, we believe the market has priced in much of the positives at this point. Upside risks to our FV estimate are higher than expected revenue growth and margin expansion.

• 4Q13 sales look good. According to Emperador management, sales during the fourth quarter of last year remained robust despite the country being hit by typhoon Yolanda. In fact, sales in Leyte for the month of December reached a new monthly high. While Emperador has not yet disclosed market share figures, it most likely improved further in 4Q13.
• Industry growth to resume this year. Last year, the liquor industry saw sales volume contract due to the price shock brought about by higher sin taxes. Despite the drop in industry wide sales, EMP was able to maintain its sales volume, thereby increasing its market share. This year, EMP’s management expects sales volume of the industry to be back on a growth path. In the past, growth in sales volume averaged 6.5%. With a higher market share and better prospects for the industry, Emperador is set for another record year.
  
• Unfazed by competition. Competitors are trying to take a piece of Emperador Lights’s market share in light of its success. For example, Cosco Capital is trying to break in the brandy market with Excellente Brandy while Tanduay has Compañero Light. Emperador believes it still has the best product in the market and given its strong brand equity and superior product, the barrier to entry will be high for competitors.
  
• Preparing for capacity expansion. Emperador’s local bottling facility is currently running at around 75% capacity, which leaves little room for future growth. Thus, EMP is preparing to expand its local production capacity by 2016. It is earmarking Php4 Bil for expansion which it can easily fund with its cash from its share placement last year wherein it raised Php11.2 Bil.

SHARE DATA

Rating                    HOLD

Ticker                    EMP

Fair Value              11.33

Current Price         11.40

Upside (%)            -0.61

-The content presented in this page is courtesy by COL financial-

https://ph1.colfinancial.com/ape/Final2/ResearchCompUpdates/Downloads/2014-01-30-PH-S-EMP.pdf

127.2% Fibonacci Retracement level hold?

JFC has fallen 4.7% so far this week as it closed at week’s low at 157. When is it going to bounce? From its high of 186.2 per share last November, it dropped to 160.70 after a month. Although it made a bounce, it retraces and continue to fall and is now near the 127.2% Fibonacci Retracement levelfrom the last bounce. This level will be very interesting and worth watching. There is a great chance price will hit here and if we will see a good candlestick pattern, JFC will bounce from here.

Absence of anothe other indicator means it will continue to fall. You may test buy at 155.50 but prepare for your cutloss plan since the next stop is quite far.

Caveat!

AC following an upward channel

AC seems to be creating an upward channel with Bullish Harami Pattern. We saw this pattern on the base of the channel and as we notice the pricemove up after that. We can speculate that this will also happen again this time. Projecting our retracement based on higher highs and higher lows, AC may hit 560 per share on its way up before hitting strong resistance.

RSI or Relative Strength Index is still healthy at 46. Looks like we still have a lot of buyers to push this price up.

Caveat!

BEL broke from Kumo

BEL went up by 6.8% today closing at 5.49 per share. The rally pierced through the 61.8% Fibonacci Retracement level. Current support will be around 5.39 while we are seeing a resistance around 5.59

Based Ichimoku system, today’s movement sends an additional bullish sentiment by way of Kumo break. Note that we already have few weak bullish signals before.

If support at 5.39 will hold then price may continue to go up with little challenge until it hits 5.85 It is also very important to look for other indicators such as candlestick formation. If we will see a shooting star, hanging man or whatever bearish candlestick pattern tomorrow, then its a warning that the bulls are already tired. RSI or Relative Strength Index is now at overbought level.

Plan your trade and trade your plan.

Caveat!

ROXAS HOLDINGS

After ROX rally to as high as 7.5 per share from 2.58, it has retraced and moved sideways at 38.2% Fibonacci Retracement level. This level has been a very important support for ROX so far but there are also forces that makes it difficult for it to rise. Recently we have our Kijun Sen moving in a horizontal line at 5.77 where in the price has been attracted.

For those who would like to get some ROX, you may test buy at this leveldown to the 38.2% line because there is a cup in development. If this willindeed be developed then we will see ROX to hit the 7.50 again.

Downside of this is that we also have a threat of ROX going to 4.89 in case our support will not hold. This 4.89 is the Senkou Span B of our daily cloud and on weekly chart, it is where our Kijun Sen is moving horizontally.

Have your trading plan ready in case you want to get in.

Caveat!