20140401-Maybank_KERPL-Daily_Edge_12页_331kb

Daily Edge Summary - 1 April 2014

Core Content

The document provides an overview of the Philippine stock market and analysis of key sectors, including Banks, Utilities, Consumer, and Cement, with a focus on Security Bank Corp (SECB). It highlights financial metrics, market trends, and analyst views on the performance and outlook of various companies.

Main Points

Financial Highlights

• PSEi Index: Closed at 6,428.71 with a 1.09% increase.
• Turnover: Increased to PHP9,983.29, a 7.28% rise.
• PLDT ADR (USD): Closed at 61.02, with a -0.05% change.
• PLDT ADR (PHP): Closed at 2,734.61, with a -0.19% change.
• PHP/USD Rate: Increased to 44.81, up by 0.42%.

Analysts

• The analysts involved include Luz Lorenzo, Laura Dy-Liacco, Rommel Rodrigo, Lovell Sarreal, Katherine Tan, and Ramon Adviento from Maybank ATR Kim Eng Research.

Top Idea

• SECB (PHP106.50): Maintained a BUY rating with an unchanged target price of PHP122.50.
• Earnings estimate cut by 3% for FY14 and 2% for FY15 due to the planned PHP10b Tier 2 notes.
• Management aims for an ROE of 12% in FY14, suggesting earnings of PHP5.2b, a 4% YoY increase.

Market Talk

Banks

• Lending Growth: Sustained at 19.4% in February, up from 17.1% in January, totaling PHP3.8t.
• Sector Growth:
  • Real estate and business services: 18.5%, up 20.2% from 17.3%.
  • Electricity, gas, and water: 34.8%, up from 29.6%.
  • Manufacturing: 11.3%, down from 12.7%.
  • Construction, trade, and financial intermediation: All showed double-digit growth.
• Consumer Loans: Increased by 9.2%, with credit card receivables slowing to 5.3% and auto loans rising to 12.1%.
• Central Bank Outlook: A 1 ppt increase in reserve requirements is expected to bring lending growth back to its long-run trend.

Utilities

• AP's Bid: Aboitiz Power Corp (AP) submitted the highest bid for the Naga power plant at PHP1.09b, outperforming SPC Power Corp's PHP859m bid.
• Bid Status: Official declaration is pending, with SPC having the right to match the bid.

Consumer

• URC-Calbee JV: A 50-50 joint venture formed for snack production, expected to start operations in 2015.
• Capital and Sales: Initial paid-in capital of PHP654m, target annual net sales of PHP2b by 2020.
• Approval Status: Subject to board approvals and related-party agreements.

Cement

• LRI's Earnings: Grew by 30% to PHP3.7b in 2013, slightly below the PHP3.9b estimate.
• Net Sales: Grew by 16% to PHP23b, slightly under the PHP24.5b forecast.
• Costs: Increased due to higher power, raw materials, and logistics expenses, but partially offset by local coal and alternative fuel use.

SECB Analysis

Key Information

• Capital Boost: Plans to issue PHP10b of Tier 2 notes, higher than the PHP3b issued in December 2013.
• ROE Target: Set at 12% for FY14, suggesting PHP5.2b in earnings.
• Marketing Plan: A five-year plan to boost retail banking operations, aiming to increase consumer loans to 30% of total loans.
• Branch Expansion: Slower than previous years, with 6 new branches in restricted areas and 10 in Bonifacio Global City, totaling 260 branches.
• Cost-to-Income Ratio: Targeted to stay in the 50% range for FY14.

Earnings and Valuation

• EPS Growth: Expected to grow from PHP8.31 in 2013 to PHP8.68 in 2014 and PHP10.53 in 2015.
• Net Profit: Projected at PHP5.2b for 2014 and PHP6.3b for 2015.
• PER and P/BV: Target prices at PHP122.50 with a 14.1x PER and 1.6x P/BV.
• Dividend Yield: Expected to remain around 1.88-1.9%.
• Capital Adequacy: CET1 ratio estimated at 13.5% for FY14, with a capital adequacy ratio of 15.2%. The Tier 2 ratio will increase by more than 300bps with the new notes.

Additional Notes

• Preferred Shares: A PHP60.3m issuance planned in 2Q14, which may reduce foreign ownership from 38.14% to 19.6%.
• Trading Gains: Expected to fall, with no disposals of HTC portfolio in the next two years.
• Bancassurance: A joint venture to offer insurance products, expected to be completed in 2Q14, boosting fee-based earnings to 40% of total trading income in five years.

The Week Ahead

• Key Dates:
  • 4 Apr: Integrated Micro-Electronics, Inc. and Manila Water Corporation, Inc.
  • 7 Apr: Ayala Land, Inc.
• Annual Stockholders' Meeting for several companies is highlighted.

Earnings and Valuations Table

Conclusion

The document outlines the positive outlook for the banking sector, particularly for SECB, with a BUY rating and a target price of PHP122.50. The bank is focusing on boosting capital and expanding its retail operations, with branch expansion and bancassurance as key strategies. Despite margin compression, the strong balance sheet and improving growth prospects support the BUY rating. The consumer and utilities sectors also show positive developments, with joint ventures and bid outcomes indicating potential growth.