20140616-Maybank_KERPL-Daily_Edge_11页_324kb

Daily Edge Summary - 16 June 2014

Core Content

This document is a financial report dated 16 June 2014, summarizing the performance of various sectors in the Philippine stock market, including banking, consumer, gaming, and conglomerates/infrastructure. It provides key financial metrics, analyst recommendations, and insights into market developments and risks.

Main Points

Banking Sector

• Performance Overview:

  • Consolidated 1Q14 net earnings of the banking universe dropped by 48% YoY to PHP22b, primarily due to a sharp decline in treasury gains.
  • Trading and foreign exchange gains fell by 85% to PHP5.9b.
  • Loan growth was better than expected, rising 25% YoY, which boosted net interest income by 31%.
  • Fee-based earnings increased by 14%.
  • Operating costs and provision expenses were conservatively managed.
  • AFS (Available-for-sale debt securities) were affected by global interest rate volatility, leading to a 16% QoQ rise in MTM losses.

• Fundamentals:

  • Philippine banks are fundamentally strong, with robust loan growth expected at 19% in 2014 and 15% in 2015.
  • GDP forecast for FY14-15 is 6.7% and 7.5%, respectively.
  • Loan-to-deposit ratio is only 66%, indicating strong liquidity.
  • Gross NPL ratio is 2.16%, and the cover ratio is 141%, showing solid asset quality.
  • Core capital ratios under Basel III are above the minimum requirement of 8.5%.

• Risks:

  • Interest rate volatility continues to pose a challenge.
  • AFS volatility could impact book value.
  • The banking sector is expected to undergo consolidation, especially with the integration of ASEAN banking.

• Analyst Recommendations:

  • BUY: SECB, RCB, PNB, PBB.
  • HOLD: BDO, BPI, CHIB, EW, MBT, UBP.

Market Talk

• Banks: The BSP (Bangko Sentral ng Pilipinas) will start monitoring salary loans more closely, requiring banks to report them separately. This move aims to improve data accuracy and support better policy-making. A new regulatory framework is also being considered to manage credit risks and protect consumers from over-indebtedness.

• Consumer: PGOLD (Puregold Price Club Inc) has entered into a joint venture with Lawson Asia Pacific Inc to expand into the convenience store segment, targeting the upper middle-income segment. The JV is expected to open 500 stores by 2020, but risks include securing key locations and establishing logistics.

• Gaming: RWM (Travellers International Hotel Group) plans to invest PHP9b in 2014 for expansion phases 2 and 3. These phases include the construction of a gaming area, retail area, and parking decks, expected to be completed by 2015 and 2017, respectively.

• Conglomerates/Infrastructure: The AC-AEV consortium submitted the highest bid of PHP11.659b for the CALAx project. The project is a 47-km road connecting Cavite and Laguna, with construction expected to start in October 2015 and be completed by September 2017.

• Mining: SCC (Semirara Mining Corp) clarified that the exemplary damages claimed by a contractor are only PHP500,000, not PHP500m. The total damages claimed amount to PHP7.6m, with the impact considered immaterial.

Key Financial Metrics

Valuation Summary

Earnings and Valuations Table (as of 13 June 2014)

The Week Ahead

Several companies are scheduled to hold their annual stockholder meetings in the following days, including:

• 16 June: Philippine Racing Club, Inc. and Apex Mining Company, Inc.
• 18 June: Euro-Med Laboratories, Phils., Inc. and The Philodrill Corporation.
• 20 June: Sta. Lucia Land, Inc., Megaworld Corporation, Steniel Manufacturing Corporation, Panasonic Manufacturing Philippines.
• 23 June: Emperador, Inc. and Agrinurture, Inc.
• 24 June: Shang Properties, Inc.
• 25 June: Robinsons Retail Holdings, Inc. and Philex Mining Corporation.
• 26 June: Global-Estate Resorts, Inc., Lorenzo Shipping Corporation, Cebu Air, Inc., Anchor Land Holdings, Inc., JG Summit Holdings, Inc., Solid Group, Inc.
• 27 June: Arthaland Corporation, Primex Corporation, AG Finance, Inc., Vivant Corporation, Macay Holdings, Inc., Jolibee Foods Corporation, MJCI Investments, Inc., Cosco Capital, Inc., Marcventures Holdings, Inc.
• 30 June: Philippine Realty & Holdings Corporation, Rizal Commercial Banking Corporation, Manila Jockey Club, Inc., Starmalls, Inc.

Conclusion

The banking sector remains fundamentally strong despite challenges from interest rate volatility and regulatory changes. Analysts highlight the importance of loan growth and solid asset quality, while also noting the risks of AFS volatility and potential industry consolidation. Consumer and infrastructure sectors show positive developments, such as PGOLD's expansion into convenience stores and the AC-AEV consortium's bid for the CALAx project. The mining sector has seen a clarification of damages claims, with minimal impact on SCC's outlook. Overall, the report provides a comprehensive view of the market, with key insights into each sector and actionable recommendations for investors.