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Daily Edge Summary - 23 May 2014

Core Content

This report provides an analysis of key financial and market developments for several companies in the Philippines, focusing on the utilities, mining, banking, and property sectors. It also outlines the analysts' views and updated forecasts for selected stocks.

Main Sectors and Key Insights

Utilities Sector

• Trans-Asia Oil & Energy Development Corp (TA):
  • 1Q14 net income fell 33% YoY to PHP110m, likely due to a one-time downward revenue adjustment for WESM sales in Nov-Dec 2013.
  • The report maintains a BUY rating with a revised target price (TP) of PHP2.84, reflecting the lower cost of capital from new loans.
  • Expected earnings growth of 103% in 2015, driven by the completion of two major projects: the 135MW SLTEC coal plant and the 54MW San Lorenzo wind farm.
  • The company is expected to benefit from the completion of these projects, and the report anticipates that the WESM fiasco will be priced in.

Mining Sector

• Atlas Mining (AT):
  • 1Q14 net income dropped 79% YoY to PHP122m due to lower metal prices, FX losses, and higher costs from capacity testing.
  • Despite this, the report maintains a BUY rating with a revised TP of PHP19.72, projecting 80% and 47% earnings growth for 2014 and 2015 respectively.
  • The company expects to benefit from the development of the Carmen deposit and its higher copper grade, as well as from the nickel deficit caused by the Indonesian ore ban, which could add PHP400m annually to earnings.
  • Sensitivity analysis shows that earnings could vary significantly based on copper prices, with a 41% upside potential if prices rise.

Banking Sector

• Philippine Business Bank (PBB):
  • 1Q14 net income fell 81% YoY to PHP113m due to market volatility and FX losses.
  • The report lowered its FY14E and FY15E net earnings estimates to PHP687m and PHP838m, respectively.
  • Despite the earnings cut, the BUY rating is maintained with a revised TP of PHP27, equivalent to 1.1x 2015F PBV and 11.1x PER.
  • Net interest income increased 57% YoY to PHP520m due to 45% loan growth and 4.51% NIM.

Key Information

Market Talk Highlights

• Ports: ICT plans to acquire a 51% stake in Yantai Port's container terminal, aiming to consolidate operations and improve economies of scale.
• Media: Talks between GMA Network and San Miguel Corp are progressing, but the SELL rating on GMAP remains unchanged.
• Property: SM Prime Holdings plans to raise USD300m via club loans for landbanking and mall development in China.

Analysts

• Luz Lorenzo, Laura Dy-Liacco, Rommel Rodrigo, Lovell Sarreal, and Katherine Tan are the key analysts involved in the report.
• Ramon Adviento is also mentioned, providing insights on the banking sector.

Target Prices and Upside Potential

• TA: Target price of PHP2.84 with 15% potential upside.
• AT: Target price of PHP19.72 with 41% upside potential.
• PBB: Target price of PHP27 with 15% upside potential.

Financial Highlights

TA

• 1Q14 Net Income: PHP110m (down 33% YoY).
• Revenues: PHP1.20b (down 3% YoY).
• Gross Profit: PHP310m (up 31% YoY).
• Revised TP: PHP2.84.
• 2015E Net Income: PHP1.24b (up 103% YoY).

AT

• 1Q14 Net Income: PHP122m (down 79% YoY).
• Revenues: PHP3.33b (up 6.5% YoY).
• Trading Revenue: PHP1.187b (up 4% YoY).
• Revised TP: PHP19.72.
• 2014E Net Income: PHP3.444b (down 24% YoY).
• 2015E Net Income: PHP5.067b (down 10% YoY).

PBB

• 1Q14 Net Income to Common: PHP113m (down 81% YoY).
• Revised FY14E Net Income: PHP687m.
• Revised FY15E Net Income: PHP838m.
• Revised TP: PHP27.
• ROE: 10% in FY14 and 10.8% in FY15.

The Week Ahead

• Several companies are set to hold Annual Stockholder's Meetings on 23–28 May 2014, including:
  • Union Bank of the Philippines
  • Pacific Online Systems Corporation
  • Splash Corporation
  • The Philippine Stock Exchange, Inc.
  • First Philippine Holdings Corporation
  • Anchor Land Holdings, Inc.
  • Philippine National Bank
  • Citystate Savings Bank, Inc.
  • Manila Electric Company
  • Premiere Horizon Alliance Corporation
  • Liberty Flour Mills, Inc.
  • Rockwell Land Corporation
  • Benguet Corporation
  • Keppel Philippine Holdings, Inc.

Conclusion

The report highlights the challenges faced by several sectors in Q1 2014, including the impact of lower metal prices, FX losses, and market volatility. However, it also underscores the potential for recovery and growth in the coming quarters, particularly for TA and AT, due to the completion of key projects and the expected improvement in operational efficiency. The BUY ratings are maintained for TA and AT, with revised target prices and upside potential, while PBB retains its BUY rating despite the earnings downturn. The market is expected to see continued activity with several stockholder meetings scheduled in the coming week.