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Daily Edge Summary - 10 June 2014

Core Content

• Date: 10 June 2014
• Source: Bloomberg, Maybank ATR Kim Eng
• Focus: Inflation, monetary policy, banking activities, and market outlook

Key Economic Indicators

Inflation Analysis

• May Inflation: Reached 4.5% YoY, the highest since Nov 2011.
• Food Inflation: Jumped to 7.1% YoY, driven by natural disasters in 4Q13 (e.g., super typhoon Yolanda, Bohol earthquake).
• Eastern Visayas: Led with 7.6% headline inflation, the highest in the region.
• Core Inflation: Remained subdued at 3.1% YoY, indicating supply shocks are the main driver.
• Monetary Policy: Analysts suggest rate hikes should not be the primary tool to address supply shocks, as they may dampen demand and the economy is already cooling.

ECB Impact on BSP

• The European Central Bank's easing policy may reduce pressure on the Bangko Sentral ng Pilipinas (BSP) to maintain a hawkish stance.
• The PHP/USD rate has strengthened, possibly due to ECB's actions.
• Inflation forecast remains at 3.7% for the year.

Banking Sector Updates

• AEV's Aseagas: Secured a PHP2b note facility to build a biomass plant.
• RCB: Offering PHP10b Tier 2 notes to strengthen capital base, expected to boost capital adequacy ratio by 3pps to 16% by end 2014.
• PNB: Conducting due diligence on UCPB, potentially acquiring it, and two other small banks.
• EW: Will fully own Green Bank Inc through a small share issuance, with minimal dilution.
• Senate Bill 2159: Allows foreign banks to own up to 100% of existing banks or invest in new subsidiaries, not just top 150 or top 5 banks.
• Potential Foreign Entrants: Likely to be ASEAN banks, not the top global banks.

Market Outlook

• Earnings and Valuations: Table shows various stocks with their share prices, target prices, upside, and financial metrics.
• Key Stocks:
  • BPI: Target price at PHP93.50, upside 8%, recommendation HOLD.
  • PNB: Target price at PHP109.00, upside 19%, recommendation BUY.
  • RCB: Target price at PHP65.00, upside 20%, recommendation BUY.
  • EDC: Target price at PHP7.25, upside 13%, recommendation BUY.
  • MER: Target price at PHP276.00, upside 6%, recommendation HOLD.
  • PF: Target price at PHP310.00, upside 32%, recommendation BUY.
  • DMPL: Target price at PHP30.00, upside 43%, recommendation BUY.

Events Ahead

• 10 June: San Miguel Corporation, Pancake House, Inc., Empire East Land Holdings, Inc., City & Land Developers, Inc.
• 11 June: Harbor Star Shipping Services, Inc., Keppel Philippines Properties, Inc.
• Annual Stockholder's Meetings: Multiple companies scheduled for these dates.

Summary

The document outlines the economic and market conditions in the Philippines as of 10 June 2014. It highlights the rise in inflation, primarily driven by food price increases due to natural disasters, and suggests that monetary policy should not be the main tool to address these supply shocks. The analysis also covers recent banking activities, including loan facilities and potential acquisitions, and discusses the potential impact of ECB policy on BSP's stance. Additionally, it provides an earnings and valuations table for various stocks, along with key recommendations and upcoming corporate events.