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Daily Edge Summary - 23 June 2014

Core Content

This document provides a summary of financial market activity and economic outlook for the Philippines as of 23 June 2014. It includes key market indices, analyst insights, company updates, and future market outlook.

Key Market Data

Analysts

• Head of Research / Economist: Luz Lorenzo
• Analysts: Laura Dy-Liacco, Rommel Rodrigo, Lovell Sarreal, Katherine Tan, Ramon Adviento

Top Idea

• Economics: No policy rate hike expected this time, but a 50bps increase is anticipated by the end of 2015 due to the Federal Reserve's transition to normalizing interest rates.
• Inflation Outlook: 2014-15 inflation is expected to remain within the target range of 3-5% and 2-4%, respectively.
• M3 Growth: M3 growth has slowed from its peak in January but remains high. The central bank raised the SDA rate by 25bps to 2.25%, which is expected to have minimal impact on the economy.

Market Talk

• Property Sector: Megaworld Corp (MEG – BUY) and Alliance Global Group, Inc. (AGI – Under review) executed a property asset rationalization by swapping stakes in Travellers International Hotel Group Inc (RWM – BUY) and Global-Estate Resorts Inc (GERI – Not rated). The total amount involved was PHP10.42b (USD238m), with MEG now owning 80.4% of GERI and AGI owning 42.14% of RWM.
• Conglomerate: Metro Pacific Investments Corp (MPI-BUY) plans to expand the North Luzon expressway (NLEX) with a proposed PHP4b investment.
• Consumer Sector: SM Prime Holdings (SMPH – Under Review) has allocated USD200m for mall expansion in mainland China, focusing on the construction of SM Tianjin.

What's Our View

• The restructuring of property assets is a strategic move to enhance MEG's visibility and growth potential across the property sector.
• MEG's NAV estimate was lowered by 1% to PHP6.75/sh from PHP6.81, primarily due to reduced ownership in RWM, but there is a modest increase in GERI's valuation.
• MEG is now net cash of PHP1.9b, which will allow it to maximize assets and avoid land bank constraints with GERI's 2,200 hectares of land.

The Week Ahead

• 23 June: Emperador, Inc., Agrinurture, Inc.
• 24 June: Shang Properties, Inc.
• 25 June: Robinsons Retail Holdings, Inc., Philex Mining Corporation, Oriental Petroleum and Minerals Corporation, Jolliville Holdings Corporation, Supercity Realty Development 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.
• Annual Stockholder's Meeting: Multiple companies are scheduled to hold their annual meetings.

Earnings and Valuations Table (as of 20 June 2014)

Key Points

• The central bank maintained the policy rate at 3.5%, with no change in the reserve requirement.
• The SDA rate was increased by 25bps to 2.25%, aiming to manage liquidity and stabilize prices.
• MEG's property restructuring is a strategic move to consolidate assets and boost growth.
• The impact of the SDA rate hike is expected to be minimal due to the modest increase and reduced liquidity.
• A 50bps increase in the policy rate is anticipated by the end of 2015 as the Federal Reserve normalizes rates.
• Inflation is expected to stay within target ranges for 2014 and 2015, despite higher-than-expected May inflation and potential El Niño effects.
• The document outlines the performance and future outlook of various stocks, with recommendations and target prices provided.