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Daily Edge Summary - September 16, 2015

Core Content

This report provides an overview of the financial and market performance of various companies in the Philippines, with a focus on the Construction sector, particularly EEI Corporation (EEI), and highlights key developments in the Utilities and Property industries. It also includes insights from analysts and upcoming events.

Key Information

EEI Corporation (PHP7.58)

• Performance: EEI's share price has fallen to a new 52-week low due to concerns over earnings from its 49%-owned joint venture with Al Rushaid Construction Co (ARCC) in Saudi Arabia.
• New Projects: In 8M15, EEI secured new contracts totaling PHP26.8b, which is 32% higher YoY and exceeds the FY14 level.
• Backlog: EEI's backlog stands at PHP50.4b, with PHP38.7b from domestic projects and PHP11.7b from foreign contracts.
• Earnings Forecast:
  • FY15E: Expected to drive 13% higher earnings to PHP1b.
  • FY16E: Anticipated to increase by 23% to PHP1.3b.
• Projects: The PHP15b Skyway construction is expected to ramp up in 2H15, helping offset weak ARCC contributions. Projects in Saudi Arabia are ongoing but delayed due to low oil prices.

Utilities Sector

• EDC - Bac-Man 3: Energy Development Corp (EDC) signed contracts with Hyundai Engineering and Galing Power & Energy for the 31MW Bac-Man 3 geothermal power plant in Sorsogon, expected to be completed by 4Q17. It is estimated to reduce 270 kilotons of CO₂ annually and enhance Luzon's power generation capacity.
• AP - Therma South: Aboitiz Power Corp (AP) has fully operationalized the first 150MW unit of its Therma South Energy project in Davao City. The second unit is expected to be operational in early 2016. The plant features the first coal dome in Southeast Asia and utilizes circulating fluidized bed technology to ensure compliance with health, safety, and environmental standards.

Conglomerates

• SMC Global vs. PSALM: SMC Global plans to sue PSALM for the unilateral termination of a contract related to the Ilijan power plant in Batangas. The company claims this action is based on erroneous claims and could affect supply and prices.
• LRMC - LRT1 Upgrades: Light Rail Manila Corp (LRMC), a joint venture of MPI and Ayala Corp, plans to upgrade the LRT1 system. Improvements include clearing stations, installing 32 elevators and escalators, and enhancing train speed to 40kph, without increasing fares.

Property Sector

• MEG - Pre-Sales Guidance: Megaworld Corp (MEG) is on track to hit PHP95b in sales take-up for 2015, a 12% increase from PHP85b in 2014.

Analysts

• Luz Lorenzo, Michael Bengson, Rommel Rodrigo, Lovell Sarreal, Katherine Tan are the analysts involved in the report. They are affiliated with Maybank ATR Kim Eng Securities and provide insights on various sectors including Construction, Utilities, Conglomerates, and Property.

Market Talk

• EEI's Outlook: Despite the drop in share price, the analysts remain optimistic about local construction. They note the strong project flow and expect continued growth.
• Infrastructure Spending: The government is accelerating public infrastructure spending, with a 37% YoY increase in 2Q15 and a 93% YoY increase in July. This is expected to continue into the next fiscal year.
• Public Infrastructure: The government is frontloading projects ahead of the Feb 2016 election ban.

Earnings and Valuations

The Week Ahead

• Sept 17: Filsyn Corporation
• Sept 24: Manila Broadcasting Company
• Sept 25: STI Education Systems Holdings, Inc.
• Sept 30: PAL Holdings, Inc.

Conclusion

The report emphasizes the positive outlook for the local construction sector, particularly for EEI, despite challenges from its foreign joint venture. It highlights the growth potential of Utilities and Property sectors, with notable developments such as the Bac-Man 3 and Therma South power plants. Analysts suggest that government infrastructure spending and project pipeline are key drivers of future growth.