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Daily Edge Summary - 7 April 2014

Core Content

This document provides a summary of market activities and analysis for April 7, 2014, with a focus on the performance of key stocks, economic indicators, and sector-specific insights. It includes information on the PSEi, currency exchange rates, and company results, as well as analyst ratings and forecasts for various sectors.

Key Financial Indicators

Analysts

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

Top Idea: Mining Sector

• NIKL (PHP20.45): 2013 dip eased, 2014 looking good
  • Rating: BUY (Unchanged)
  • Target Price (TP): PHP20.35
  • Key Points:
    • 2013 results showed the impact of low nickel prices.
    • Gross revenues fell by 4% to PHP11.11b, net profit by 7% to PHP2.05b.
    • Average nickel prices dropped by 14.7% to USD6.91/lb for 40% of sales and negotiated prices by 17.9% to USD20.03/WMT for 60% of sales.
    • Production increased by 19.6% to 14m WMT, while costs and expenses dropped by 15.2% to PHP548/WMT.
    • Expected production increase to 16.0m WMT, or a 14% rise in 2014.
    • Contract prices for exports are at USD53/WMT for 1.8% nickel saprolite, USD30/WMT for 1.5% nickel saprolite/limonite, and USD23/WMT for high-iron limonite.
    • Analysts maintain a BUY rating and TP of PHP20.35 due to an upward bias on contract prices.

Market Talk

• Conglomerates:

  • FPH: Reported net income of PHP2.4b in 2013, significantly lower than PHP9.55b in 2012 due to the exclusion of one-off gains.
  • LPZ: Net income reached PHP1.95b in 2013, down 54% from PHP4.29b in 2012.
    • FPH: Estimated to have a reported loss of PHP1b in 4Q13.
    • ABS-CBN Corp (ABSP): Lower reported profits of PHP109m, down 29%.

• Ayala Corp (AC): Planning to start construction of a 405 MW coal-fired plant in Northern Mindanao by 2H14 in partnership with Power Partners Ltd Co.

• Property:

  • MEG: Allocating PHP5b to build 10 office towers in Iloilo Business Park by 2021.
    • Three towers (One Global Center, Two Global Center, and Richmond Tower) are operational in 2014.
    • Expected to contribute 1% to the forecasted rental income this year.
    • Total rental income forecast for MEG this year is PHP5.4b.

• Economy:

  • Mactan Cebu International Airport PPP: Awarded to GMR-Megawide consortium.
    • Project value: PHP17.52b.
    • Expected to increase capacity to 25m passengers.
  • March Headline Inflation: Slowed to 3.9% YoY, down from 4.1% in February.
    • Analysts expect the downtrend to continue, with a forecast of 3.7% for the year.
    • Central bank forecast is 4.2%, but analysts believe it may be revised downward.

Sensitivity Analysis

*Note: Higher nickel price assumptions for 2014-2015 only.

The Week Ahead

• 7 April 2014:
  • Ayala Land, Inc.
  • ISM Communications Corporation
  • Philippine Bank of Communications
  • Century Properties Group, Inc.
• 8 April 2014:
  • Globe Telecom Inc.
  • Cebu Holdings, Inc.
  • Cebu Property Venture and Development
  • Filinvest Land, Inc.

Earnings and Valuations Table

Banks

| Stock | Share Price (PHP) | Target Price (PHP) | Upside (%) | Rating | 2012 Net Profit (PHPm) | 2013F Net Profit (PHPm) | 2014F Net Profit (PHPm) | EPS Growth (%) | PE (x) | DPS (PHP) | Yield (%) | BV/share (PHP) | P/BV (x) | Net Gearing (%) | ROA (%) | ROE (%) |
|-------|------------------|-------------------|------------|--------|------------------------|--------------------------|--------------------------|----------------|--------|-----------|-----------|-----------|--------------|----------|------------------|--------|--------|
| BDO | 85.75 | 88.00 | 3 | BUY | 13,953 | 20,956 | 19,780 | 5.6 | 17.4 | 19.2 | - | - | 42.29 | 2.0 | 1.2 | 11.5 |
| BPI | 88.05 | 93.50 | 6 | HOLD | 16,352 | 18,811 | 20,765 | 15.0 | 26.8 | 19.1 | 2.30 | 2.6 | 27.19 | 3.2 | 1.8 | 17.8 |
| CHIB | 59.00 | 57.75 | -2 | HOLD | 5,049 | 5,456 | 5,910 | 8.3 | 0.8 | 16.7 | 1.20 | 2.0 | 29.46 | 2.0 | 1.4 | 12.5 |
| EW | 29.15 | 31.80 | 9 | BUY | 1,750 | 2,277 | 2,784 | 30.1 | 5.85 | 14.7 | 1.80 | 3.5 | 15.34 | 2.4 | 1.2 | 13.5 |
| MBT | 79.00 | 88.00 | 11 | HOLD | 11,520 | 11,185 | 15,218 | 36.1 | 12.6 | 18.8 | 0.77 | 1.0 | 38.24 | 2.1 | 1.1 | 11.5 |
| PBB | 23.25 | 29.00 | 25 | BUY | 5,54 | 1,049 | 876 | 20.2 | 12.1 | 14.5 | 0.30 | 0.7 | 12.93 | 2.4 | 1.2 | 13.5 |
| PNB | 31.50 | 36.50 | 16 | BUY | 426 | 492 | 592 | 27.9 | 10.3 | 12.1 | 0.14 | 0.3 | 9.94 | 4.6 | 1.5 | 14.8 |

Consumer

| Stock | Share Price (PHP) | Target Price (PHP) | Upside (%) | Rating | 2012 Net Profit (PHPm) | 2013F Net Profit (PHPm) | 2014F Net Profit (PHPm) | EPS Growth (%) | PE (x) | DPS (PHP) | Yield (%) | BV/share (PHP) | P/BV (x) | Net Gearing (%) | ROA (%) | ROE (%) |
|-------|------------------|-------------------|------------|--------|------------------------|--------------------------|--------------------------|----------------|--------|-----------|-----------|-----------|--------------|----------|------------------|--------|--------|
| JFC | 171.00 | 191.00 | 12 | BUY | 3,698 | 3,103 | 3,125 | 22.5 | 13.6 | 14.2 | 0.22 | 0.7 | 9.94 | 4.6 | 1.5 | 13.3 |
| PIP | 31.50 | 36.50 | 16 | BUY | 2,718 | 3,726 | 4,563 | 27.6 | 10.3 | 46.4 | 0.14 | 0.3 | 12.50 | 3.6 | 1.3 | 14.0 |

Property

| Stock | Share Price (PHP) | Target Price (PHP) | Upside (%) | Rating | 2012 Net Profit (PHPm) | 2013F Net Profit (PHPm) | 2014F Net Profit (PHPm) | EPS Growth (%) | PE (x) | DPS (PHP) | Yield (%) | BV/share (PHP) | P/BV (x) | Net Gearing (%) | ROA (%) | ROE (%) |
|-------|------------------|-------------------|------------|--------|------------------------|--------------------------|--------------------------|----------------|--------|-----------|-----------|-----------|--------------|----------|------------------|--------|--------|
| ALI | 31.40 | 37.80 | 20 | BUY | 9,038 | 12,203 | 15,139 | 24.1 | 26.5 | 45.3 | 0.22 | 0.7 | 6.31 | 5.0 | 12.5 | 10.0 |
| FLI | 1.54 | 2.20 | 43 | BUY | 3,431 | 3,984 | 4,616 | 15.9 | 16.6 | 10.9 | 0.05 | 3.1 | 1.89 | 1.6 | 15.4 | 10.0 |
| MEG | 4.41 | 4.20 | -5 | HOLD | 7,294 | 8,324 | 9,382 | 14.0 | 4.3 | 18.0 | 0.02 | 0.5 | 2.73 | 3.5 | 1.2 | 10.0 |
| RLC | 22.50 | 25.66 | 14 | BUY | 4,239 | 4,470 | 5,701 | 27.5 | -10.5 | 21.7 | 0.36 | 1.6 | 11.32 | 2.0 | 16.2 | 10.0 |
| VLL | 5.99 | 6.70 | 12 | BUY | 4,376 | 5,167 | 6,241 | 20.8 | -22.3 | 11.7 | 0.12 | 2.0 | 5.11 | 1.2 | 17.2 | 10.4 |

Utilities

| Stock | Share Price (PHP) | Target Price (PHP) | Upside (%) | Rating | 2012 Net Profit (PHPm) | 2013F Net Profit (PHPm) | 2014F Net Profit (PHPm) | EPS Growth (%) | PE (x) | DPS (PHP) | Yield (%) | BV/share (PHP) | P/BV (x) | Net Gearing (%) | ROA (%) | ROE (%) |
|-------|------------------|-------------------|------------|--------|------------------------|--------------------------|--------------------------|----------------|--------|-----------|-----------|-----------|--------------|----------|------------------|--------|--------|
| AP | 37.65 | 37.75 | 0 | HOLD | 23,702 | 19,720 | 17,601 | -10.7 | 12.3 | 11.7 | 1.32 | 3.5 | 11.04 | 3.4 | 4.7 | 9.4 |
| EDC | 5.64 | 6.90 | 22 | BUY | 8,522 | 6,565 | 7,959 | 21.2 | 91.5 | 12.4 | 0.14 | 2.5 | 1.74 | 4.4 | 13.3 | 6.6 |
| FGEN | 19.98 | 20.35 | 2 | BUY | 23,702 | 19,720 | 17,601 | -10.7 | 12.3 | 11.7 | 1.32 | 3.5 | 11.04 | 3.4 | 4.7 | 9.4 |

Summary of Key Points

• Mining Sector: NIKL's 2013 results were affected by low nickel prices, but production increased and costs dropped. Analysts maintain a BUY rating and target price due to potential price increases.
• Conglomerates: FPH and LPZ reported lower net incomes in 2013, primarily due to one-off gains and losses. EDC, a subsidiary of FPH, also reported a loss in 4Q13 but had a recurring net income.
• Property: MEG is investing PHP5b in office towers in Iloilo Business Park, which is expected to generate 30,000 jobs.
• Economy: The Mactan Cebu International airport PPP was awarded to GMR-Megawide, and March inflation slowed to 3.9%, with a forecast of 3.7% for the year.
• Analysts: The report includes insights from multiple analysts, providing forecasts and valuations for various sectors and companies.