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Daily Edge Summary - 1 July 2014

Core Content

This report provides an overview of the financial market and economic conditions in the Philippines on 1 July 2014. It includes updates on stock market indices, bank activities, and inflation trends, along with analysis from analysts at Maybank ATR Kim Eng.

Main Points

Market Overview

• PSEi: Closed at 6,844.31, with a marginal increase of 0.03%.
• Turnover: Increased by 24.73% to PHP8,614.32 million.
• PLDT ADR (USD): Closed at 67.38 with a 0.30% increase.
• PLDT ADR (PHP): Closed at 2,941.14 with a 0.07% increase.
• Ave interbank rate: 2.28% with an increase of 3.13 bps.
• PHP/USD rate: 43.65 with a 0.30% increase.

Analysts

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

Top Idea: Economics

• Short-term price pressure remains: June inflation is estimated at 4.6% YoY, up from 4.5% in May, due to rising food prices.
• Inflation outlook: The central bank forecasts inflation at 4.4% for the year, with a possible target range of 2-4% for 2015-2017. This is expected to be a temporary spike, driven by supply shocks, with long-term inflation likely to decline due to ongoing infrastructure investments.

Market Talk

• BDO Acquires Real Bank: BDO has agreed to acquire Real Bank, which has 24 branches and assets of PHP8.5 billion. This acquisition is expected to expand BDO's branch network and bring it closer to Metrobank's position.
• EW Raises Tier 2 Notes: East West Banking Corp issued PHP5 billion in Tier 2 notes at a coupon rate of 5.50%, which will mature in January 2025. This is expected to increase its capital adequacy ratio by 1ppt.
• Bank Branching Restrictions Lifted: The BSP has lifted the branch-banking moratorium, allowing banks to expand in restricted zones in Metro Manila. This is part of a liberalization scheme to promote competition and growth in the banking sector.
• Lending Growth: Lending grew 21.1% in May YoY, slightly faster than April. Loan growth has been around 20% since March, with strong growth in sectors such as construction, electricity, and financial intermediation.

Key Information

Inflation Drivers

• Food Prices: Continued increases in basic food prices, particularly rice and sugar, have driven inflation higher.
• Supply Shocks: Government measures to increase food supply and improve logistics are being taken to address the issue.

Government Actions

• Rice Imports: The NFA is allowed to import an additional 200,000 tonnes of rice from Vietnam, and NEDA is considering allowing a free market for rice imports.
• Sugar Imports: The Sugar Regulatory Administration has ordered the release of sugar for the domestic market.
• Logistics Improvements: Government agencies are working to alleviate port congestion and improve the logistics gridlock.

Long-term Inflation Outlook

• The central bank's investment in major infrastructure projects is expected to reduce inflation over the long term by lowering the cost of doing business and improving supply chains.

Market Highlights

• BDO (PHP93.50): Target price of PHP96.00, with an upside of 3%. Recommendation remains HOLD.
• BPI (PHP91.00): Target price of PHP93.50, with an upside of 3%. Recommendation is HOLD.
• CHIB (PHP55.10): Target price of PHP60.00, with an upside of 9%. Recommendation is HOLD.
• EW (PHP30.15): Target price of PHP31.80, with an upside of 5%. Recommendation is HOLD.
• MBT (PHP87.40): Target price of PHP92.00, with an upside of 5%. Recommendation is HOLD.
• PBB (PHP28.90): Target price of PHP31.00, with an upside of 15%. Recommendation is BUY.
• RCB (PHP154.30): Target price of PHP176.00, with an upside of 14%. Recommendation is BUY.
• PF (PHP231.20): Target price of PHP310.00, with an upside of 34%. Recommendation is BUY.
• RRHI (PHP72.95): Target price of PHP77.50, with an upside of 6%. Recommendation is BUY.
• CIC (PHP43.00): Target price of PHP50.00, with an upside of 16%. Recommendation is BUY.
• PGOLD (PHP43.40): Target price of PHP50.00, with an upside of 15%. Recommendation is BUY.

The Week Ahead

• Philippine Realty & Holdings Corporation
• Rizal Commercial Banking Corporation
• Manila Jockey Club, Inc.
• Starmalls, Inc.
• Annual Stockholder's Meetings for all the above companies.

Earnings and Valuations

Key Insights

• Inflation: Short-term inflation pressure is expected to remain due to food price increases, but the long-term outlook is more benign due to infrastructure investments.
• Banking Sector: BDO continues its expansion strategy through acquisitions, and the lifting of branching restrictions is expected to enhance competition and growth.
• Lending Growth: Sectors like construction and electricity have shown strong growth, while transport and communications remain subdued.
• Capital Adequacy: Banks are strengthening their capital positions through various measures, including Tier 2 note issuances.
• Investment Outlook: The report highlights a mix of HOLD and BUY recommendations, with a focus on long-term growth potential in the banking and consumer sectors.