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Daily Edge Summary - 25 June 2014

Core Content

The Daily Edge report for 25 June 2014 provides an overview of key stock performance, analyst views, and market insights for various companies in the Philippines. It highlights the following main areas:

• Market Indicators: Includes the PSEi index, turnover, and currency rates.
• Analyst Insights: Covers the views of several analysts from Maybank ATR Kim Eng.
• Top Ideas: Focuses on investment opportunities in the Oil & Gas and Telecom sectors.
• Market Talks: Discusses recent corporate transactions and M&A activities.
• The Week Ahead: Lists upcoming company events and earnings reports.

Key Market Indicators

Top Ideas

Oil & Gas: PCOR (PHP12.18)

• RMP-2 Progress: The project is expected to be completed by the end of the month and reach full commercial operations by December 2014.
• Share Price Performance: PCOR has underperformed the PSEi by 28 ppts YTD, but the analysts believe it is a good buying opportunity.
• Target Price (TP): Revised to PHP16.80 from PHP15.90, with a potential upside of 38%.
• Earnings Forecast: Revised net profit to common is PHP3.22b in 2014 and PHP10.33b in 2015, implying 23% YoY growth in 2014 and 221% in 2015.
• Valuation: DCF-based fair value increased to PHP23.97, with a 6% rise due to rolling over valuations to mid-2015.
• Risks: Execution risks are mitigated due to the use of proven technology and experienced foreign contractors. Additionally, there is a USD200m penalty if the project is delayed.

Telecom: TEL (PHP2,868.00)

• Beacon's Sale: Beacon will sell 56.35m shares of MER to MPI, representing approximately 5% of MER’s total outstanding shares.
• Impact on PCEV: PCEV’s effective interest in MER drops from 24.98% to 22.48%.
• Equity Earnings: Expected to decline by 7.5% in 2014, but offset by a one-time gain of PHP1.8b.
• MPI's Stake: Increases from 25% to 27%, with a net profit boost of 6.6%.
• TP for MPI: Revised to PHP6.20, with a slight upward adjustment in NAV.

Banks: PBB (PHP28.40)

• M&A Speculation: Market speculation on a potential partnership with an ASEAN bank led to a 16.6% surge in share price.
• Valuation: TP set at PHP27, with a potential deal closing at IPO price of PHP31.50 (1.5x 2014F PBV).
• Capital and Branches: PBB has 121 branches nationwide and can be upgraded to a universal bank easily.
• Capital Requirements: Already meets Basel III requirements, with a Tier 1 ratio of about 15%.
• Niche Strength: Strong in SME loans with a 68% share of its loan portfolio, and a NIM of 4% (higher than the banking universe average).

Analysts

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

Market Talk Highlights

• Beacon to MPI: Beacon sells 5% of MER shares to MPI for PHP13.24b, with PHP1.5b upfront.
• PBB M&A Play: PBB's share price surged due to speculation on M&A with an ASEAN bank.
• RMP-2: PCOR's major project is nearing completion, with minimal changes in profit forecasts but a revised TP.

Key Figures and Forecasts

PCOR Forecast Changes

TEL Key Data

Risks and Mitigations

• PCOR: Risks are well-mitigated due to the proven technology used in RMP-2 and the experience of foreign contractors. The company also has a penalty clause for delays.
• TEL: The sale of Meralco shares may not be the last, but it is not a strategic asset for PLDT. The TP is adjusted based on the transaction.
• PBB: The TP is set at PHP27, and the deal should be valued below recent M&A multiples for thrift banks.

The Week Ahead

• 25 June: Robinsons Retail Holdings, Inc., Philex Mining Corporation, Oriental Petroleum and Minerals Corporation, Jolliville Holdings Corporation, Supercity Realty Development Corporation
• 26 June: Global-Estate Resorts, Inc., Lorenzo Shipping Corporation, Cebu Air, Inc., Anchor Land Holdings, Inc., JG Summit Holdings, Inc., Solid Group, Inc.
• 27 June: Arthaland Corporation, Primex Corporation, AG Finance, Inc., Vivant Corporation, Macay Holdings, Inc., Jolibee Foods Corporation, MJCI Investments, Inc., Cosco Capital, Inc., Marcventures Holdings, Inc.
• 30 June: Philippine Realty & Holdings Corporation, Rizal Commercial Banking Corporation, Manila Jockey Club, Inc., Starmalls, Inc.

Conclusion

The report highlights several investment opportunities in the Oil & Gas and Telecom sectors, with a focus on PCOR and TEL. Analysts suggest that PCOR is a good buy due to its strong earnings growth potential and mitigated risks, while TEL's transaction with MPI is seen as a strategic move. PBB's M&A speculation also boosts its share price and investment appeal. The report provides a detailed analysis of financial forecasts and market dynamics for these stocks.