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Daily Edge Summary - August 3, 2015

Core Content Overview

This document provides a detailed market update and analysis for August 3, 2015, with a focus on the stock market performance, analyst insights, and key developments in the financial and utility sectors. It includes data on the PSEi index, turnover, and exchange rates, as well as specific insights into several companies and sectors.

Key Market Indicators

• PSEi Index: Closed at 7,550.00, showing a 0.53% increase.
• Turnover: Reached PHP8,358.37 million, with a 17.57% rise.
• PLDT ADR (USD): Closed at 64.35, with a 0.47% increase.
• PLDT ADR (PHP): Closed at 2,943.37, with a 0.73% increase.
• Ave interbank rate: 2.50%, down by 3.13 bps.
• PHP/USD rate: 45.68, with a 0.14% change.

Analysts

• Head of Research / Economist: Luz Lorenzo
• Analysts: Ramon Adviento, Michael Bengson, Rommel Rodrigo, Lovell Sarreal, Katherine Tan
• Contact Information: Provided for each analyst.

Top Idea: Utilities Sector

Manila Water Company (MWC)

• Stock Price: PHP25.20
• Rating: HOLD (Unchanged)
• Key Points:
  • Reduced 2016 and 2017 net income before preferred dividends by 6% and 7%, respectively, due to lower CPI-based rates.
  • Adjusted rates based on the previous year's July CPI, which was at the low end of the central bank's range.
  • Revised DCF valuation and target price (TP) are lower by 7%, to PHP31.5/sh and PHP25.2/sh.
  • 2Q15 net income before preferred dividends was PHP1.60b (-7% YoY).
  • 1H15 net income was PHP3.04b, equivalent to 53% of the full-year forecast.
  • Includes a one-off expense of PHP156m related to back rentals.
  • East Zone billed volume grew 3% YoY to 119.8 million cubic meters, equivalent to 50% of the full-year forecast.
  • Earnings outside the East Zone contributed 14% of 1H15 earnings.

Market Talk

Property

• MEG: Reports brisk sales in Iloilo project, with 80% of commercial lots sold. Lot prices surged by 49% to PHP70,000/sqm from PHP47,000/sqm in 2013.

Consumer

• SEVN: Targets 10,000 stores in 10 years. It has 1,405 stores as of end-1H15 and expects to reach 1,600 by the end of 2015. Aims for 25% annual growth in store network and revenues.

Utilities

• TSI: May temporarily shut down the first 150MW unit of its new coal-fired power plant in Davao due to technical problems and unstable grid supply. This could lead to four-hour power interruptions in Davao del Norte.
• MER: Plans to complete the relocation of its facilities affected by the NAIAX project by September. Phase 2A was delayed to October due to the APEC Summit, and Phase 2B to March 2016. 175 out of 197 facilities have been relocated for Phase 2A, and 123 out of 143 for Phase 2B.

Banks

• Lending Growth: 14.5% YoY in June, similar to May. MoM growth was 0.7%.
• Sector Growth:
  • Accommodation and food services: +29.1%
  • Construction: +28.9%
  • Electricity, gas, steam, and air-conditioning supply: +28.9%
  • Wholesale and retail trade, and repair of motor vehicles and motorcycles: +15.1%
• Slowdown:
  • Manufacturing: 8.9% from 12.9%
  • Financial and insurance activities: 14.4% from 15.1%
• Real Estate Activities: Composed 17.1% of the total loan portfolio, up 16.3% YoY.
• Household Consumption Loans: Eased to 14.9% from 20.5% rise in May.
• Auto and Salary Loans: Surged by 28.3% and 46.1%, respectively.
• Credit Card Receivables: Steady with a 5.8% increase.
• Other Household Loans: Fell by 9.4%.
• Bank Loan Growth:
  • Rizal Commercial Banking Corp (RCB): 18% growth
  • BDO Unibank, Inc (BDO): 16% growth
  • Union Bank (UBP): 30% credit surge
  • Security Bank Corp (SECB): 20% loan expansion

Financials: Insurance Business

• Growth in 1H15:
  • Net income rose by 32.7% to PHP10.9b.
  • Total premiums increased by 42% to PHP116.1b.
• Life Insurance:
  • Profit jumped by 31.3% to PHP9b, driven by a 49.5% increase in premiums written to PHP98.8b.
  • The Philippine Life Insurance Association's 2015 target of PHP200b in life insurance premiums is within reach.
• Non-Life Insurance:
  • Earnings rose by 40.4% to PHP1.8b.
  • Total premium written climbed by 10.5% to PHP17.3b.
• Industry Assets: PHP1.1 trillion.
• Penetration Rate: 1.84%.
• GT Capital Holdings (GTCAP):
  • Its life insurance unit, Philippine AXA Life, reported a 56% growth in total premium to PHP11.88b.

Utilities Sector Analysis

Analyst: Michael Bengson

• Key Metrics:
  • Revenue: PHP16,465.1m in FY15E.
  • EBITDA: PHP11,161.2m in FY15E.
  • Core net profit: PHP5,757.1m in FY15E.
  • Core EPS: PHP2.80 in FY15E.
  • Net DPS: PHP0.82 in FY15E.
  • Core P/E: 8.9x in FY15E.
  • P/BV: 1.3x in FY15E.
  • Net dividend yield: 3.3%.
  • ROAE: 15.8% in FY15E.
  • ROAA: 7.3% in FY15E.
  • EV/EBITDA: 6.3x in FY15E.
  • Net debt/equity: 48.4% in FY15E.

The Week Ahead

• August 3: Metro Pacific Investments Corp. - Analysts’/Investors’ Briefing
• August 4: Globe Telecom Inc., Philippine Long Distance Telephone Co. - Analysts’/Investors’ Briefing
• August 6: GMA Network, Inc. - Analysts’/Investors’ Briefing
• August 7: Ayala Land Inc. - Analysts’/Investors’ Briefing

Earnings and Valuations Table (as of 31 July 2015)

• BDO: Target price PHP123.00, 23% upside, BUY rating
• BPI: Target price PHP101.00, 6% upside, HOLD rating
• CHIB: Target price PHP51.00, 10% upside, HOLD rating
• EW: Target price PHP29.00, 34% upside, BUY rating
• MBT: Target price PHP105.00, 19% upside, BUY rating
• PBB: Target price PHP24.11, 14.8% upside, HOLD rating
• EMP: Target price PHP13.00, 48% upside, BUY rating
• ALI: Target price PHP48.60, 30% upside, BUY rating
• FLI: Target price PHP2.40, 27% upside, BUY rating
• MEG: Target price PHP7.10, 50% upside, BUY rating
• RLC: Target price PHP31.00, 10% upside, HOLD rating
• VLL: Target price PHP8.40, 19% upside, BUY rating
• SMPH: Target price PHP22.00, 3% upside, BUY rating
• AP: Target price PHP46.60, 7% upside, HOLD rating
• EDC: Target price PHP9.20, 28% upside, BUY rating

Summary

This report covers key financial metrics, regulatory updates, and market performance for the Philippines. The focus is on the utilities sector, particularly MWC, with an analysis of its financials and the impact of lower CPI-based rates. It also discusses property, consumer, and banking sectors, highlighting growth and challenges. Analysts provide insights and ratings for various stocks, and the week ahead is outlined with key events.