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Daily Edge Summary - 6 May 2014

Core Content

This document provides a financial update and analysis for various companies in the Philippine market, focusing on key performance indicators, analyst views, and investment recommendations.

Main Points

Market Overview

• PSEi: Rose by 0.35% to 6,766.46, with a turnover of PHP4,802.13, down by 26.60%.
• PLDT ADR (USD): Declined by 0.29% to 64.56.
• PLDT ADR (PHP): Fell by 0.52% to 2,866.46.
• PHP/USD rate: Increased by 0.26% to 44.41.

Analysts

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

Top Idea

Property MEG (PHP5.29): More land assets for future use

• Rating: Upgrade to BUY from HOLD.
• Target Price (TP): Revised to PHP5.29 from PHP4.20.
• Key Reason: MEG is acquiring a 49.2% stake in GERI, increasing its land bank to over 3,000 hectares.
• Growth Projections:
  • Real estate sales to increase by 50% to PHP32b from 2013's PHP21b.
  • Recurring income to rise by 40% from PHP6b.
• Financials:
  • Net cash estimated at PHP10b.
  • Core FDEPS growth expected to reach 32.8% in 2015F.
  • Core FD P/E is projected to decrease from 17.1 in 2012 to 7.8 in 2016F.
  • P/BV is expected to decrease from 1.6 in 2012 to 1.0 in 2016F.
  • ROAE is projected to increase from 9.8% in 2012 to 12.1% in 2016F.

Market Talk

Construction: EEI's FY13 income down, recovery in FY14

• Rating: Maintain BUY.
• Target Price: PHP14, equivalent to 14.1x 2014F PER.
• FY13 Performance:
  • Net income fell 6.4% YoY to PHP915.7m.
  • Revenue declined 23% due to weak service and construction revenues.
• Reasons for Decline:
  • Delays in production due to adverse weather conditions.
• FY14 Outlook:
  • Anticipated improvements in construction activities.
  • New projects amounting to PHP4.8b estimated as of end-March 2014.
  • Potential PHP10b contract for Filinvest Development Corp's power plant project in Mindanao.
  • Expected earnings increase of 12% to PHP1b.
  • Earnings growth from infrastructure-related projects and electromechanical works.

Media: GMA net income falls 46% in 1Q14

• Rating: SELL.
• Reason:
  • GMA Network Inc's 1Q14 net income before preferreds fell 46% YoY to PHP325m.
  • Net revenues declined 12% to PHP2.85b.
  • Airtime revenues dropped 13.8% due to absence of election-related ads and reduced regular advertiser placements.
• Valuation:
  • GMAP has a hefty valuation of 21x PER.
  • Potential 10% downside to target price.

Banks: Robust 20% lending growth notched in March

• Lending Growth: Net lending growth of 20% YoY to PHP3.9t in March 2014.
• Sector Growth:
  • Production sector: 18.1% growth to PHP3.5t.
  • Construction: 46.4% growth.
  • Electricity, gas, and water: 34.9% growth.
  • Trade: 22.1% growth.
  • Real estate and business services: 19.7% growth.
  • Manufacturing: 14.1% growth.
  • Financial intermediation: 10.5% growth.
• Consumer Lending: Increased by 11.7%.
• Central Bank Note: Sustained lending growth reflects strong domestic demand.

Property Sector: Megaworld Corporation (MEG)

Key Information

• Analyst: Rommel Rodrigo.
• Acquisition: MEG will acquire 49.2% stake in GERI by H214.
• Land Bank Expansion:
  • Expected to increase land bank from 285 to over 3,000 hectares.
  • More provincial land compared to current Metro Manila-centric land bank.
• Growth Guidance:
  • Residential sales of PHP70b annually.
  • Rental income expected to reach PHP10b by 2017-2018.
• Financials:
  • Core net profit is projected to increase from PHP9,014m in 2013 to PHP10,164m in 2014F.
  • Net dividend yield remains at 0.5%.
  • ROAE is expected to rise from 9.8% in 2013 to 9.5% in 2014F.
  • ROAA is projected to increase from 5.7% in 2013 to 5.6% in 2014F.
  • EV/EBITDA is expected to increase from 7.5 in 2013 to 9.2 in 2014F.

The Week Ahead

• 6 May:
  • Energy Development Corporation: Annual Stockholder's Meeting.
  • Crown Equities, Inc.: Annual Stockholder's Meeting.
  • Philippine Long Distance Telephone Company: Analysts' and Investors' Briefing.
  • Ayala Land, Inc.: Analysts' and Investors' Briefing.
  • Manila Water Corporation: Analysts' and Investors' Briefing.
• 7 May:
  • Sun Life Financial, Inc.: Annual Stockholder's Meeting.
  • Aboitiz Power Corporation: Analysts' and Investors' Briefing.
  • Metro Pacific Investments Corporation: Analysts' and Investors' Briefing.
  • Aboitiz Equity Ventures, Inc.: Analysts' and Investors' Briefing.
• 8 May:
  • Ginebra San Miguel, Inc.: Annual Stockholder's Meeting.
  • China Banking Corporation: Annual Stockholder's Meeting.

Earnings and Valuations Table (as of 5 May 2014)

Key Highlights

• MEG is expected to significantly expand its land bank through the acquisition of GERI, which will allow for more ambitious real estate projects.
• EEI is expected to recover in FY14 due to anticipated improvements in construction and infrastructure activities.
• GMA Network Inc's net income fell sharply in 1Q14, leading to a SELL rating due to its high valuation and potential downside.
• Banks in the Philippines showed robust lending growth in March, indicating strong domestic demand.
• The document outlines the upcoming events for various companies, including annual stockholder meetings and investor briefings.