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Daily Edge Summary - September 8, 2014

Core Content

This document provides a financial analysis of selected Philippine stocks, focusing on performance, valuation, and market outlook for the Consumer and Retail sectors. It includes data on stock prices, earnings, and target prices, along with insights from analysts regarding company performance and future growth.

Main Points

CIC (Concepcion Industrial Corp)

• Performance: CIC reported robust earnings growth of 54% YoY in 1H14, driven by strong sales of air conditioners and refrigerators and improved margins.
• Key Drivers: Sales of air conditioners grew 11% YoY in 2Q14, while refrigerator sales increased significantly from 11% to 19% YoY.
• Gross Profit Margin: Improved to 23.7% in 2Q14 from 21.5% in 1Q14 and 19.6% in 2Q13.
• Target Price: Revised to PHP46, up 20% from the previous target of PHP50, based on the consumer sector's average 20x PER for 2015F.
• Stock Dividend: A 30% stock dividend was declared in July, increasing the number of outstanding shares to 339.62 million.
• Valuation Justification: The revised target price reflects increased confidence in management's ability to meet targets and a removal of the 20% discount for execution risk and liquidity.
• Market Position: CIC has strong partnerships with global brands (United Technologies Inc/Carrier and Midea), high ROE (25%), and strong cash flows with minimal capex.

RRHI (Robinsons Retail Holdings)

• Performance: RRHI reported strong net income growth of 46% YoY in 2Q14 and 26% in 1H14, outperforming its competitors.
• Target Price: Raised to PHP91, up 17.4%, based on a 12.7x EV/EBITDA average of regional retailers.
• Market Reaction: Despite a 6% drop in share price since August 20, the strong performance justified the upward revision in target price.
• Valuation Metrics: RRHI has a high PER and EV/EBITDA compared to other retailers, but its performance is expected to be sustainable.
• Competitor Performance: PGOLD and SM Retail had lower earnings growth and margin compression, which may have negatively impacted RRHI's share price.

Key Information

Market Indicators

• PSEi: 7,263.58, up 0.83%.
• Turnover (PHPm): 11,400.96, down 3.20%.
• PLDT ADR (USD): 78.68, up 0.63%.
• PLDT ADR (PHP): 3,435.17, up 0.72%.
• Ave interbank rate: 2.28%, no change.
• PHP/USD rate: 43.67, down 0.25%.

Economic Outlook

• Inflation: August inflation was 4.9% YoY, the same as July.
• Food Inflation: Continued to rise at 8.3% YoY, with rice prices decelerating but other food items still increasing.
• Transport Inflation: Eased to 1.1% YoY due to price rollbacks in gasoline and diesel.
• Monetary Policy: The Central Bank may consider raising the policy rate by 25 bps due to persistent inflation, although the European Central Bank's easing provides some policy space.

Market Talk Summary

• Consumer Sector: CIC and RRHI are highlighted for their strong performance and potential for growth.
• RRHI: Despite recent share price weakness, its performance outperformed competitors, leading to a higher target price.
• PGOLD: Had lower earnings growth and margin compression, leading to a downgrade in forecasts and target price.
• SM Retail: Also faced earnings decline and margin pressure, affecting its valuation.

Valuation Summary

• CIC: Target price revised to PHP46 (20x 2015F PER), with potential upside of 15%.
• RRHI: Target price raised to PHP91 (12.7x EV/EBITDA), with potential upside of 36%.
• Sector Averages:
  • Consumer Sector: PER averaged 20x, EV/EBITDA averaged 12.7x.
  • Retail Sector: PER and EV/EBITDA varied by sub-sector, with RRHI showing higher valuations than others.

Upcoming Events

• September 9: Wellex Industries, Inc.
• September 13: Waterfront Philippines, Inc.
• September 16: Alliance Global Group, Inc.
• September 18: MRC Allied Industries, Inc.
• September 22: APC Group, Inc.
• September 24: Liberty Flour Mills, Inc.

Analysts

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

Summary of Key Figures

Conclusion

The report highlights the strong performance of CIC and RRHI in the Consumer and Retail sectors, respectively, with both companies showing robust earnings growth and improved margins. Analysts maintain a BUY rating for CIC with a revised target price, and for RRHI, despite a recent share price dip, the performance justifies a higher valuation. The economic outlook remains mixed with persistent food inflation and easing transport inflation, which may influence monetary policy decisions.