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Daily Edge Summary - 8 April 2014

Core Content

The document provides an overview of the Philippine financial markets and stock updates for various companies, including key performance metrics, analyst views, and upcoming events. It outlines the market's status, notable stock movements, and insights from Maybank ATR Kim Eng analysts on different sectors.

Main Points

• Market Closure: Philippine financial markets will be closed on Wednesday, 9 April 2014, and will resume trading on Thursday, 10 April 2014.

• Key Market Indicators:

  • PSEi closed at 6,614.40 with a 0.81% increase.
  • Turnover was 6,951.35 PHPm, down by 12.72%.
  • PLDT ADR (USD) closed at 60.85, down by 0.36%.
  • PLDT ADR (PHP) closed at 2,728.51, down by 0.58%.
  • Ave interbank rate was 2.00, down by 3.13 bps.
  • PHP/USD rate was 44.86, up by 0.32%.

• Analysts: The report is authored by Maybank ATR Kim Eng analysts, including Luz Lorenzo, Laura Dy-Liacco, Rommel Rodrigo, Lovell Sarreal, and Katherine Tan.

• Top Idea: The report highlights the potential for strong performance in the financial sector, particularly East West Banking Corp (EW), due to its strong core lending and growth prospects.

Key Sectors and Companies

Banks

• East West Banking Corp (EW):
  • Recommendation: BUY
  • Target Price: PHP31.80
  • Upside: 9%
  • Loan Growth: Increased to 22% in FY14 from 17% previously, leading to a total loan amount of PHP115b.
  • Net Interest Income (NII): Expected to rise by 20% to PHP10b in FY14.
  • NIM: Expected at 8.1%, above the industry average of 3.4%.
  • Fee Income: Projected to increase by 24% in FY14.
  • Provision Charges: Increased by 36% to PHP2.3b due to consumer lending growth.
  • Manpower Expenses: Raised by 5% due to expansion plans.
  • Earnings Estimate: FY14 profit forecast cut by 4% to PHP2.7b, but still shows 29% YoY growth.
  • ROE: Estimated at 12.9% for FY14.

Cement (Lafarge Republic Inc - LRI)

• Recommendation: BUY
• Target Price: PHP10.22
• Upside: 10.7%
• Merger Plans: LRI's major shareholder, Lafarge SA, is merging with Holcim Ltd, which could result in a 65% market share in the Philippines.
• Antitrust Concerns: The merger may face regulatory hurdles, potentially delaying its finalization.
• Fundamentals: Philippine cement demand remains strong with a 7.8% CAGR over five years.
• Dividend Yield: Attractive at over 4%.
• Valuation: EV/ton at USD170, which is lower than the USD200 replacement cost.
• Earnings Trends: Uptrend in net profit, with a projected 20.8% ROE in FY14.

Utilities

• First Gen Corp (FGEN):

  • Recommendation: BUY
  • Event: Sta. Rita natgas plant unit 40 experienced transformer damage, which could be repaired or replaced by 4Q14.
  • Spare Transformer: Already in production, could be installed by November.
  • Capacity: Total capacity of 1,000 MW, with 2013 net profits of USD75m.
  • Transformer Issues: Second incident in less than a year, with unit 60 offline from May to December 2013 due to a fire.

• Aboitiz Power Corp (AP):

  • Recommendation: HOLD
  • Capacity Expansion: Davao coal plant capacity to be increased to 645 MW from 300 MW.
  • Construction: First 300 MW ongoing, completion in 2015.
  • Expansion: First 172.5 MW in 2017, second 172.5 MW in 2018.
  • Approval: Expansion approved by Davao City Council in March 2014.

Auto

• Toyota Motor Philippines Corp (TMP):
  • Sales: Increased by 34% YoY to 22,828 units in 1Q14.
  • Segment Breakdown:
    • Passenger cars: 8,340 units
    • Commercial vehicles: 14,383 units
  • New Models: Launch of new models such as Corolla Altis, Innova, Wigo, and Yaris contributed to sales growth.
  • Contribution to Estimate: 26% of the FY14 estimate of 88,147 vehicles.

Consumer

• Jolibee Foods Corp (JFC):
  • Recommendation: BUY
  • Dividend: PHP0.75 per share, 15% higher than last year.
  • Yield: Expected to be 1% based on the closing price.
  • Dividend per Share: PHP0.75, with a yield of 1%.

Property

• Ayala Land Inc (ALI):
  • Recommendation: BUY
  • Leadership Change: Bernard Vincent "Bobby" Dy appointed as new president.
  • Strategy: Continuation of Tony Aquino's 5-10-15 strategy.
  • New Strategy: To be announced in 2H14.
  • Goals: 2-3-4 goals for doubling commercial space, tripling office space, and quadrupling hotel rooms by 2015.
  • Share Issuance: Approval for issuance of 1b common shares for equity market flexibility.

The Week Ahead

• Key Events:
  • 8 April: Globe Telecom Inc. Annual Stockholders’ Meeting, Cebu Holdings, Inc. Analysts and Investors’ Briefing, Cebu Property Venture and Development Annual Stockholders’ Meeting, Filinvest Land, Inc. Analysts and Investors’ Briefing.
  • 10 April: Bank of the Philippine Islands Annual Stockholders’ Meeting, International Container Terminal Services, Inc. Annual Stockholders’ Meeting, ABS-CBN Corporation Annual Stockholders’ Meeting.
  • 11 April: Ayala Corporation Annual Stockholders’ Meeting, Phinma Corporation Annual Stockholders’ Meeting.

Summary Table (Selected Companies)

Conclusion

The report emphasizes the resilience and growth potential of the Philippine financial markets, particularly in the banking and consumer sectors. Despite challenges such as regulatory hurdles for the Lafarge Republic and Holcim merger, and past transformer issues in utilities, the outlook remains positive for most sectors. The document also highlights upcoming shareholder meetings and events that may influence market dynamics.