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Daily Edge Summary - July 10, 2015

Core Content

The Daily Edge report from July 10, 2015, provides a summary of key financial data and market insights for the Philippine stock market. It includes the performance of the PSEi index, stock turnover, and specific stock highlights, particularly focusing on Ayala Corp (AC), consumer durables, and conglomerates.

Key Financial Data

• PSEi: 7,377.69 (up 0.19%)
• Turnover (PHPm): 8,451.46 (up 5.89%)
• PLDT ADR (USD): 61.47 (down 0.32%)
• PLDT ADR (PHP): 2,779.06 (down 0.21%)
• Ave interbank rate: 2.50 (no change)
• PHP/USD rate: 45.17 (up 0.14%)

Analysts

• Luz Lorenzo – Head of Research / Economist
• Ramon Adviento, Michael Bengson, Rommel Rodrigo, Lovell Sarreal, Katherine Tan

Top Idea: Ayala Corp (AC)

• Target Price: PHP923.00
• NAV Upgrade: Target NAV increased by 6% to PHP975/sh due to the inclusion of new projects from Ayala Land Inc (ALI), including Aseana City, Alviera, Makati CBD redevelopment, Cloverleaf, and Capitol Centre/Northpoint.
• Core Earnings Growth: Expected to deliver 18-19% growth in 2015 and 2016.
• Upside Risk: If Globe Telecom (GLO) sustains strong growth, there is an upside to forecasts and target price.
• Unlisted Investments: AC Energy is expected to positively contribute to earnings due to the resumption of operations of GNPower Mariveles and the commercial operation of South Luzon Thermal Energy Corp. The company is also interested in participating in potential government bids for infrastructure projects.

Market Talk

Consumer Durables

• Car Sales: Expanded 23% YoY in June, reaching 24,185 units.
  • Passenger Cars: Up 18.9% to 9,4840 units.
  • Commercial Vehicles: Up 26.5% to 14,345 units.
• 1H15 Auto Sales: Reached 131,465 units, up 20.7% YoY.
• Toyota Philippines: Maintained 43.9% market share in June, with a dominant position for 12 years.
• CAMPI Forecast: Expected vehicle sales to reach 310,000 units this year.

Conglomerates

• SMC Group: Plans to invest USD800m to build two new cement plants in Luzon with a combined annual production capacity of 2m tons, expected to be completed by 2017.
• Top Frontier: Plans to build a USD1.5b nickel processing plant near its Nonoc mining site in Surigao, with an annual output of 200k tons, using HPAL technology.
  • The Nonoc site has resources estimated to last 40 years and covers 24k hectares.
  • 30% of the project cost will be funded by equity, 70% by debt.

Utilities

• Shell: Exits Pandacan oil depot and completes refinery upgrade by yearend, expected to meet Euro IV-grade diesel and gasoline requirements.
• ERC: Initiates review of lower FiT rate for wind projects, from PHP8.53/kWh to PHP7.93/kWh, accommodating increased wind capacity to 400MW.
  • NREB submitted a letter explaining assumptions used in the proposal, including debt interest rate, local inflation rate, escalation adjustment period, and exchange rate.

Earnings and Valuations Table (Summary)

| Stock | Share Price (PHP) | Target Price (PHP) | Upside (%) | Recommendation | 2014 Net Profit (PHPm) | 2015F EPS (PHP) | 2015F EPS Growth (%) | 2015F PE (x) | 2015F DPS (PHP) | 2015F DPS Yield (%) | 2015F BV/share (PHP) | 2015F P/BV (x) | 2015F Gearing (%) | 2015F ROA (%) | 2015F ROE (%) |
|-------|------------------|-------------------|-----------|----------------|------------------------|----------------|----------------------|-------------|----------------|---------------------|---------------------|------------------|------------------|------------------|--------------|--------------|
| BDO | 104.00 | 123.00 | 18 | BUY | 22,466 | 6.27 | 0.9 | 16.6 | 2.10 | 2.0 | 48.56 | 2.1 | 97.9 | 1.3 | 13.5 |
| BPI | 91.60 | 101.00 | 10 | HOLD | 18,039 | 4.62 | (10.9) | 19.8 | 0.91 | 1.0 | 36.64 | 2.5 | 97.6 | 1.4 | 14.0 |
| CHIB | 45.30 | 51.00 | 13 | HOLD | 5,116 | 3.08 | (5.9) | 14.7 | 1.00 | 2.2 | 32.09 | 2.5 | 90.5 | 1.3 | 13.5 |
| EW | 20.05 | 29.00 | 45 | BUY | 2,073 | 1.84 | 0.9 | 10.9 | - | - | 19.01 | 4.6 | 1.4 | 13.0 |
| MBT | 90.00 | 105.00 | 17 | BUY | 19,614 | 7.15 | (10.9) | 12.6 | 1.00 | 1.4 | 50.49 | 1.8 | 85.0 | 1.3 | 13.8 |
| PBB | 18.00 | 18.00 | - | HOLD | 4,75 | 1.11 | (6.1) | 16.3 | 0.15 | 1.7 | 2.70 | 3.3 | 1.4 | 13.0 |
| EMP | 8.90 | 13.00 | 46 | BUY | 6,204 | 0.36 | (6.1) | 24.4 | 0.15 | 1.7 | 2.70 | 3.3 | 1.0 | 12.5 |
| ALI | 36.55 | 48.60 | 33 | BUY | 14,803 | 1.04 | 24.5 | 35.0 | 0.29 | 0.8 | 7.04 | 4.8 | 89.8 | 4.1 | 14.4 |
| FLI | 1.83 | 2.40 | 31 | BUY | 4,602 | 0.19 | 15.8 | 9.6 | 0.05 | 2.7 | 2.02 | 0.9 | 23.6 | 4.5 | 9.1 |
| MEG | 4.63 | 7.10 | 53 | BUY | 9,399 | 0.29 | 17.1 | 15.8 | 0.02 | 0.5 | 3.17 | 1.2 | 6.3 | 4.8 | 8.1 |
| RLC | 27.00 | 31.00 | 15 | HOLD | 4,735 | 1.16 | 1.8 | 23.3 | 0.36 | 1.3 | 12.03 | 2.1 | 0.3 | 5.9 | 9.3 |
| VLL | 6.65 | 8.40 | 26 | BUY | 5,710 | 0.67 | 12.7 | 9.9 | 0.10 | 1.8 | 5.68 | 1.1 | 66.9 | 6.0 | 11.2 |
| SMPH | 20.20 | 22.00 | 9 | BUY | 19,035 | 0.69 | 8.5 | 29.5 | 0.18 | 1.0 | 5.88 | 2.8 | 41.7 | 5.3 | 10.5 |
| AP | 42.55 | 46.60 | 10 | HOLD | 16,705 | 2.27 | (10.1) | 18.7 | 1.66 | 3.9 | 12.50 | 3.4 | 2.9 | 8.1 | 18.6 |
| EDC | 7.29 | 9.20 | 26 | BUY | 9,197 | 0.49 | 40.1 | 14.9 | 1.66 | 3.9 | 2.25 | 3.2 | 109.0 | 8.0 | 24.1 |
| FGEN | 24.75 | 31.30 | 26 | BUY | 4,717 | 1.39 | (2.9) | 17.7 | 0.50 | 2.0 | 19.18 | 1.3 | 166.4 | 2.1 | 8.1 |
| MER | 294.20 | 306.00 | 4 | HOLD | 18,128 | 16.08 | 6.5 | 18.3 | 11.95 | 4.1 | 70.22 | 4.2 | (0.1) | 6.8 | 23.5 |

The Week Ahead

Several companies are set to hold annual stockholders' meetings in the coming days, including:

• July 10: Steniel Manufacturing Corporation, 2GO Group, Inc.
• July 13: National Reinsurance Corporation of The Philippines
• July 14: Coal Asia Holdings, Inc.
• July 15: Easycall Communications Phils., Inc.
• July 16: Concepcion Industrial Corporation, Robinsons’ Retail Holdings, Inc., RFM Corporation, Petroenergy Resources Corporation, Island Information and Technology, Inc.
• July 17: Iripple, Inc., Macroasia Corporation

Summary

The report highlights the performance of the PSEi index and key market developments, including strong consumer durables sales, conglomerate expansions, and utility sector updates. Ayala Corp is noted for its NAV upgrade and potential for growth, while other stocks like BDO, EDC, and FGEN are recommended for purchase based on their projected earnings and valuations. The report also outlines upcoming shareholder meetings and provides detailed financial metrics for various stocks.