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