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报告摘要

Daily Edge Summary - 17 March 2014

Core Content

This document provides an analysis of the Philippine stock market and banking sector as of 17 March 2014. It includes market performance data, analyst insights, and investment outlooks for key companies, particularly focusing on Bank of the Philippine Islands (BPI) and Ayala Land Inc (ALI). The report also outlines the financial forecasts and valuation metrics for various stocks across different sectors.

Key Market Indicators

Indicator	Value	% Change
PSEi	6,391.24	(0.60)
Turnover (PHPm)	7,559.92	15.63
PLDT ADR (USD)	59.01	(1.80)
PLDT ADR (PHP)	2,635.09	(1.57)
Ave interbank rate	2.03	0 bps
PHP/USD rate	44.67	(0.24)

Analysts

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

Top Idea

Banks: BPI (PHP91.00)

BPI (PHP89.20): Bolstering organic growth
- Maintain HOLD rating with unchanged target price of PHP93.50.
- 2014F PBV of 2.5x, equivalent to 2014F earnings of PHP20.8b.
- Earnings are expected to grow by 2% in FY14 and 7% in FY15, leading to a 14% CAGR.
- The proceeds from the capital rights issue will support core lending and net interest earnings.
- EPS will be diluted by 9.5% to PHP5.28 in FY14, and ROE is projected to decrease to 16.7% from 18.7% in FY13.
- The stock currently trades at 2.48x PBV and 17.2x PER.
- Upside to target price is limited to 2.7%, with total returns including dividends expected to be 4.7%.
- Analyst recommends switching to parent company Ayala Corp (AC - BUY) for better value.

Market Talk

Banks: UBP is reportedly looking to acquire Export and Industry Bank (EIB) as part of its strategy to grow in preparation for ASEAN integration.
- EIB's uninsured depositors (PHP10.7b) are seeking to rehabilitate the bank.
- The acquisition's success depends on conditions set by the BSP and Philippine Deposit Insurance Corp.
Property: Ayala Land Inc (ALI) signed an MOA with Boulevard Holdings Inc (BHI) for the development of a 3,000-hectare beachfront estate in Puerto Azul.
- The acquisition could support ALI's strategy in tourism and leisure.
- The deal is not yet factored into ALI's NAV.
- Current rating: BUY with a target price of PHP37.80.

Banking Sector Insights

BPI (PHP89.20)

What's New:
- FY14-15 earnings forecast raised by 2% and 7%, resulting in a 14% net profit CAGR.
- Loan growth is expected to be 18% in FY14 (vs. management's 22% target).
- Net interest income is projected to grow 19% in FY14 due to 16% increase in interest earnings and 8% growth in interest costs.
- NIM is projected to contract by 4bps to 3.11% in FY14, then expand by 10bps to 3.21% in FY15.
- CET1 is expected to fall to 14% in FY14, still above the 8.5% minimum requirement.
- BPI may issue Basel III-compliant Tier 2 notes in FY15 to bolster capital.
- Fee-based income is expected to grow at a two-year CAGR of 15.5%.
- Trading gains are projected to decline by 40% to PHP2.9b in FY14.
- Non-interest income is expected to fall 5% YoY in FY14 but recover 6% in FY15.
- Investment portfolio is conservative with 51% held-to-maturity.
- Operating expenses are expected to increase by 9-10% in FY14-15.
- BPI added 618 new employees last year, but managed to keep manpower costs at 1.6%.
- The bank plans to add 20 new branches in FY14, increasing the total branch network to 845.
- Credit costs are expected to remain steady at 0.4% as the NPL ratio fell to 1.8% in FY13.

Unchanged TP of PHP93.50

The target price for BPI remains at PHP93.50, based on a PBV multiple of 2.5x.
ROE is projected to drop to 16.7% post-rights issuance.
Annual cash dividend per share is expected to remain at PHP1.80.
Analysts maintain a HOLD rating due to rich valuation, but note potential value-enhancing acquisitions as a key catalyst.

Acquisition Remains in Play

BPI has not made a significant acquisition since 2005.
It is expected to acquire either Philippine National Bank (PNB) or Rizal Commercial Banking Corp (RCB) to regain market share.
These banks are rated BUY and could provide a significant upside for BPI.

Earnings and Valuations Table

Stock	Share Price (PHP)	Target Price (PHP)	Upside (%)	Recommendation	Net Profit (PHPm)	EPS Growth (%)	PE (x)	DPS (PHP)	Yield (%)	BV/share (PHP)	P/BV (x)	Net Gearing (%)	ROA (%)	ROE (%)
BDO	83.60	88.00	5	BUY	16,352	15.0	19.4	1.80	2.0	36.75	16.9	1.2	11.5	16.7
BPI	89.20	93.50	5	HOLD	20,765	0.1	16.9	1.80	2.0	36.75	16.7	1.6	11.9	16.7
UBP	128.60	127.00	(1)	HOLD	8,605	(4.7)	9.6	2.20	2.2	67.46	22.4	2.8	20.3	22.4
ALI	28.40	37.80	33	BUY	15,139	24.1	26.6	0.30	1.1	8.30	13.6	5.0	14.9	13.6
EDC	5.53	6.85	24	BUY	6,711	24.1	15.4	0.14	2.6	2.08	2.7	15.9	15.4	18.2
MER	290.00	280.00	(3)	HOLD	20,246	14.3	16.1	10.90	3.8	72.44	4.0	26.0	7.6	26.0

The Week Ahead

17 Mar: Manila Electric Company
18 Mar: Philippine Trust Company
Annual Stockholder's Meeting

Summary of Key Points

BPI is expected to maintain a HOLD rating due to rich valuation, but may benefit from potential acquisitions.
The banking sector faces pressure from low interest rates, with NIM expected to contract.
Ayala Land Inc (ALI) is in talks to acquire a 3,000-hectare estate, which could support its tourism strategy.
Trading gains are expected to decline significantly due to the tapering of the US Federal Reserve's bond-buying programme.
Operating expenses are projected to rise due to expansion plans and increased manpower.
Capital adequacy remains strong, with CET1 at 14% in FY14, above the minimum requirement.
The parent company Ayala Corp is recommended as a better investment option for BPI.
BPI's target price remains at PHP93.50, with limited upside.
Earnings and valuations show a decline in ROE and an increase in operating costs.
The stock market is under pressure from lower interest rates and competition.
The Philippine banking sector is evolving, with a focus on organic growth and strategic acquisitions.