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Daily Edge Summary - August 12, 2015

Core Content

The Daily Edge report for August 12, 2015, provides an overview of the performance of several key Philippine stocks and market insights across various sectors. It includes updates on financial results, analyst views, and strategic developments.

Key Sectors and Stocks

Consumer Sector

Jollibee Foods Corp (JFC - PHP191.20)

• Performance:

  • 2Q15 net income grew 1.6% YoY to PHP2.6b.
  • 1H15 revenues increased 9.6% to PHP45.5b, while EBIT declined 3.1% to PHP2.92b.
  • Operating income dropped 9% YoY in 2Q15 due to lower margins and higher raw material costs.
  • Same-store-sales growth (SSSG) in the Philippines decelerated to ~4% in 1H15 from ~5% in 1Q15.
  • Jollibee's flagship brand experienced weakness, likely due to adverse price hikes since 4Q13.

• Analyst View:

  • Earnings forecast cut by 2% to PHP5.4b this year and 9% to PHP6.4b next year due to lower margins.
  • Target price remains at PHP215, unchanged.
  • Upgrade to BUY from Hold as the market has already priced in the weak 2015 results and the recovery is expected to begin in 3Q15.
  • Overseas SSSG remains strong, exceeding growth in the Philippines.

• Store Expansion:

  • JFC ended 1H15 with 2,374 stores in the Philippines and 627 overseas.
  • Plans to open 300-330 stores in 2015, with 102 new Philippine stores and 29 overseas stores opened.
  • 60% of planned store openings will be outside Metro Manila.
  • JFC is on track to meet its full-year store-opening target.

Energy Sector (PCOR)

PCOR (PHP11.25)

• Performance:

  • 2Q15 net income before minority interest and preferred dividends rose 299% YoY to PHP3.15b.
  • 1H15 net income was PHP3.41b, or 40% of full-year forecast.
  • Operating income increased 142% to PHP5.91b, driven by inventory gains and higher sales volume.
  • Sales volume grew 9% YoY to 24.5m bbl in 2Q15.
  • RMP2 production increased to 145,000 bbl/day in June 2015.

• Analyst View:

  • Maintain BUY rating.
  • Full impact of PCOR's recovery is expected in 2016 due to the stabilization and optimization of RMP2.
  • Refinanced USD debts have less stringent covenants.
  • The company is expected to benefit from stable crude oil prices.

Banks (BPI)

BPI (PHP92.40)

• Performance:

  • 2Q15 earnings grew 0.5% YoY to PHP4.4b but fell 10% QoQ.
  • 1H15 net profit of PHP9.3b accounted for 44% of the full-year forecast.
  • Loan growth decelerated to 9.4% in 2Q15, well below the industry average.
  • NIM contracted by 10bps YoY to 2.9%.
  • Net interest income rose 9% YoY.

• Analyst View:

  • Downgrade to HOLD due to weak credit demand and slower-than-expected fee income growth.
  • Cut FY15F by 10% to PHP18.9b and FY16F by 15% to PHP20.5b.
  • Revised target price to PHP94, equivalent to 2.2x 2016F P/BV.
  • Upside catalysts include better-than-expected fee income and shift to more CASA deposits.

Ports (ICT)

ICT (PHP108.50)

• Performance:

  • 2Q15 net earnings fell 6% YoY to USD46.4m due to FX translation losses.
  • 1H15 earnings formed 51% of FY15F.
  • Gross revenue from port operations dropped 2%.
  • Volume increased 5%, but yield per TEU fell 7% to USD134.

• Analyst View:

  • Maintain HOLD rating.
  • Limited near-term catalysts and unchanged target price of PHP120.50.
  • Strong Asia operations tempered weaker performance in Americas and EMEA.

Market Talk Highlights

• Oil: PCOR's strong 2Q15 results were partly driven by inventory gains, with the full impact expected in 2016.
• Banks: BPI's downgrade is due to slow credit growth and NIM contraction.
• Ports: FX translation losses impacted ICT's 2Q15 performance.
• BSP: Ordered banks to separate deposit accounts used for investing, aligning with international standards.
• SMC: 1H15 earnings dropped 8% due to forex losses, with the traditional business showing 5% growth.
• Utilities: Maynilad and Manila Water are seeking sovereign compensation for revenue losses, with the DoF proposing PHP5b.
• Property: Ayala Land won the bid for the ITS South project, which is expected to unlock value for its Arca South estate.

Key Figures

JFC Financial Highlights (PHPm)

PCOR Financial Highlights (PHPm)

Summary of Analysts

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

Conclusion

The report highlights the mixed performance of the Philippine market, with some sectors showing recovery and others facing challenges. JFC and PCOR are noted for their potential for gradual improvement, while BPI and ICT face headwinds. The market is expected to benefit from improved conditions in certain areas, such as stable crude oil prices and strategic developments like the ITS South project. The report also emphasizes the importance of monitoring FX translation impacts and the role of regulatory changes in shaping market dynamics.