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Daily Edge Summary - September 18, 2015

Core Content Overview

This report provides an analysis of the Philippine Stock Exchange Index (PSEi) and key stocks, including their performance, target prices, and analyst recommendations. It also covers insights on specific sectors, such as Mining, Oil, and Telcos, as well as the Ports & Transportation sector, particularly International Container Terminal Services (ICT).

Key Market Data

• PSEi: 7,123.99 (up 0.42%)
• Turnover (PHPm): 6,763.08 (down 4.33%)
• PLDT ADR (USD): 51.02 (up 0.59%)
• PLDT ADR (PHP): 2,369.37 (up 0.14%)
• Ave interbank rate: 2.53 (up 3.13 bps)
• PHP/USD rate: 46.52 (up 0.39%)

Analysts

• Luz Lorenzo – Head of Research / Economist
• Michael Bengson
• Rommel Rodrigo
• Lovell Sarreal
• Katherine Tan

Top Idea: Ports & Transportation ICT

• Stock: PHP87.50
• Rating: HOLD
• Reason: Global trade woes and FX translation losses are affecting the stock, which has underperformed the PSEi by 23ppts YTD and is at a two-year low.
• Earnings: Post-perpetual distribution earnings are expected to fall by 5% to USD136m in FY15F and 1% to USD134m in FY16F.
• Valuation: DCF-based valuation suggests an equity value of PHP108.60/sh, but a 15% discount is applied due to short-term pressures, resulting in a 12-month TP of PHP92.30.

Market Talk

Mining

• AT (HOLD): Aims to increase daily output to 55k tons by yearend. The recently expanded copper plant is designed to generate 60k metric tons per day.
• RMP-2: Petron Corp (PCOR-BUY) is expected to improve margins and increase production to 180,000 bbl/day from 120,000 bbl/day. Gross margin is projected to rise from 3-5% to at least 20%.

Oil

• PCOR (BUY): Anticipated to remain profitable with improved margins from the RMP-2 upgrade. Achieved 98.7% recovery, surpassing the target of 98% by 2016.

Telcos

• GLO (BUY): Partnered with Wattpad for an advertising scheme targeting millennials and Gen Z. The Philippines is Wattpad's largest market in Asia, with users under 30 years old.
• NTC Testing: Internet speed tests for service providers showed:
  • PLDT (TEL-HOLD): 3.367mbps vs 3mbps advertised
  • Globe (GLO-BUY): 2.785mbps vs 3mbps
  • ABS-CBN (ABS/ABSP-BUY): 2.818mbps vs 3mbps
  • Bayantel: 0.563mbps vs 2/4mbps advertised

What's New: ICT

• Share Price: PHP87.50 (two-year low)
• Earnings Impact: Concerns over global trade and FX translation losses are affecting performance.
• Currency Depreciation: Brazil (BRL) and Argentina (ARS) have seen significant depreciation against USD, impacting ICT's USD-denominated earnings.
• New Projects:
  • River Port, Matadi (DRC): 120,000 TEUs capacity, 52% stake, PHP100m capex, completion in 1H16
  • Port of Umm Qasr (Iraq): 900,000 TEUs capacity, 100% stake, PHP130m capex, completion in 2Q16
  • Port of Melbourne (Australia): 1,350,000 TEUs capacity, 90% stake, PHP508m capex, completion in 2017

What's Our View

• Earnings Revisions: FY15F and FY16F earnings are reduced by 14% and 24%, respectively.
• Recurring Net Profit: Decreased by 19% to USD136m in FY15F and 32% to USD134m in FY16F.
• EBITDA Margin: Remains at 42.3%.
• Valuation: DCF-based value is PHP108.60/sh, but with a 15% discount, TP is set at PHP92.30.

The Week Ahead

• Sept 24: Manila Broadcasting Company
• Sept 25: STI Education Systems Holdings, Inc.
• Sept 30: PAL Holdings, Inc. (Annual Stockholders' Meeting)

Earnings and Valuations Table (Summary)

Key Insights

• ICT: Suffers from global trade issues and currency depreciation, which negatively impact its USD earnings.
• PCOR: Benefits from the RMP-2 refinery upgrade, which is expected to significantly improve margins and production capacity.
• GLO: Engages in a strategic partnership with Wattpad, leveraging its user base for advertising.
• Market Outlook: Analysts suggest a cautious approach due to global economic uncertainties and FX risks.

Conclusion

The report highlights the impact of global economic conditions and currency fluctuations on the performance of key stocks, particularly in the Ports & Transportation and Mining sectors. While some companies like PCOR show potential for improvement, others like ICT face short-term challenges. Analysts maintain a HOLD rating on ICT, suggesting a need for patience amid ongoing issues.