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Daily Edge Summary - 12 March 2014

Core Content

This document provides an overview of market trends and analyst views on selected stocks, including performance metrics, forecast adjustments, and company-specific updates. It includes data from the Philippine Stock Exchange (PSEi), key financial indicators, and detailed analysis of several firms in the banking, conglomerates, and utilities sectors.

Key Financial Indicators

Main Points

Mining Sector: Atlas Consolidated Mining (AT)

• Expansion Update: The company completed its capacity expansion, now producing over 50k tpd with recovery rates at 85%. The mill is expected to reach 60k tpd by 1 April, with a target of 70k tpd.
• Production and Earnings: Gold production increased by 60% in 2013 due to high-grade ore but is expected to revert to the mean. The analyst maintains a BUY rating with an updated target price of PHP21.45, implying a 39% upside.
• Forecast Adjustments: The 2014 average daily production is revised to 56,250 tpd from 60ktpd, and the recovery rate to 86.75% from 88%. This leads to a 12% decrease in 2014 net income to PHP4.52b. For 2015, the production and recovery rate are maintained, resulting in a 0.2% increase in profit to PHP5.63b.

Banking Sector: China Banking Corp (CHIB)

• Earnings Performance: CHIB posted flat earnings of PHP5.1b in FY13, slightly below the forecast and street estimate. 4Q13 net income dropped by 38% YoY to PHP1.2b.
• Core Lending Business: Improved by 16% to PHP221b, with interest income rising 7% to PHP14.1b. Net interest income increased by 23% to PHP9.9b.
• Trading and FX Gains: Declined by 43% YoY to PHP1.8b, offset by gains on asset sales and miscellaneous income.
• Provisions: Credit loss provisions almost doubled to PHP414m, despite a drop in NPL to PHP4.5b.
• Capital and Dividend: CHIB has a strong capital base with Basel II CAR and Tier 1 ratios at 15.39% and 14.50%, respectively. A rights issue of up to PHP8b is planned, and the dividend yield is expected to reach 3.4%.
• Rating: Maintains HOLD rating with a target price of PHP57.75.

Conglomerates: Ayala Corp (AC)

• Profit Growth: 2013 profit increased by 28% to PHP14.83b, driven by higher equity earnings from units, especially from BPI and ALI.
• Dividend Yield: The dividend yield for AC is 0.2% in 2013, rising to 1.9% in 2014 and expected to reach 11.3% in 2015.
• Rating: Maintains BUY rating with a target price of PHP15.40.

Utilities: Energy Regulatory Commission (ERC)

• WESM Price Adjustment: ERC voided the WESM prices for November and December 2013 and replaced them with regulated prices based on the average of the previous nine months. This is expected to reduce prices by 70% compared to the voided WESM prices.
• Exemption: Manila Electric Co (MER) is exempted from the price adjustment due to a Supreme Court temporary restraining order.

Media: ABS-CBN Corp (ABS)

• Loan Acquisition: ABS-CBN secured a PHP1b 10-year loan with a 5.4% fixed interest rate. The loan will be used for capital expenditures and working capital.

Key Insights

• The mining sector is showing strong potential with capacity expansion and improved production metrics.
• The banking sector is facing challenges due to FX and trading losses, but core lending remains robust.
• Conglomerates are benefiting from increased equity earnings, particularly from subsidiaries.
• The utilities sector is affected by regulatory changes, leading to potential price reductions.
• The media sector is securing financial support for expansion and operational needs.

Analysts

• Luz Lorenzo – Head of Research / Economist
• Laura Dy-Liacco
• Rommel Rodrigo
• Lovell Sarreal
• Katherine Tan
• Ramon Adviento – Analyst for AT

Market Highlights

• AT (PHP15.40): Maintains BUY rating with updated target price and upside.
• CHIB (PHP58.70): Maintains HOLD rating with adjusted forecasts.
• BPI (PHP92.05): Maintains HOLD rating.
• ALI (PHP29.30): Maintains BUY rating.
• FLI (PHP1.45): Maintains BUY rating.
• MEG (PHP4.18): Maintains HOLD rating.
• RLC (PHP20.70): Maintains BUY rating.
• VLL (PHP5.14): Maintains BUY rating.

The Week Ahead

• Aboitiz Equity Ventures and Aboitiz Power Corporation are highlighted for upcoming briefings.
• The document includes a table of earnings and valuations for various stocks, including BDO, UBP, and others, with their respective ratings and target prices.

Conclusion

The report outlines a mix of positive and negative trends across different sectors. While some companies like AT and ALI show strong potential and maintain BUY ratings, others like CHIB face challenges with flat earnings and higher provisions. The document also includes regulatory updates and financial adjustments, providing investors with a comprehensive view of market dynamics.