1 market insights - first citizens · 2016. 5. 5. · national commercial bank jamaica limited...

BANKING EXPECTATION

SCOTIABANK TRINIDAD & TOBAGO LIMITED (SBTT) Analyst: Ravi KurjahScotiabank Trinidad and Tobago Ltd (Scotiabank) reported net income of TTD157 million for the three months ended 31 January 2016, anincrease of TTD22 million or 17% over the comparative period in 2015. Total assets as at 31 January 2016 was TTD22.3 billion,representing growth of TTD664 million or 3% when compared to last year. Earnings per share (EPS) increased to 89.1 cents whilst returnon equity (ROE) and return on assets (ROA) improved to 17.12% and 2.81% respectively when compared to same period 2015. Non-accrual loans to total loans decreased from 1.96% to 1.63% and loan loss expense declined by TTD8 million or 53% over the prior year.SBTT is trading at P/E 17.88x, P/B 2.71, D/Y 5.23%.

RATIONALENet interest income increases. Market Price: TTD57.40

Operating margin improvements Intrinsic Price: TTD58.01

Significant increase in dividend payment MARKET

MarketInsightsEQUITY RESEARCHApril 2016

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FIRSTCARIBBEAN INTERNATIONAL BANK LIMITED (FCI) Analyst: Ravi Kurjah

For the three months ended January 31, 2016, FCI recorded net income of USD38.7 million; a significant improvement when comparedwith net income of USD26.6 million for the corresponding period 2014. Total revenue generated was USD138.2 million, growing by USD8.3 million or 6% compared with the same period last year, primarily due to lower funding costs, higher loan earnings and higher operating income. Despite economies being slow to recover and sustained credit demand, not yet returning to the region there is evidence of productive loan growth. Loan loss impairment expenses was significantly down by USD11.6 million or 74% compared with the same period in the prior year due to an improving loss experience and loan recovery activity. Additionally, non-productive loan balances continue to decline as significant focus is placed on further strengthening the quality of loan portfolio. P/E 14.7x, P/B 1.22, D/Y 9.95%.

RATIONALE

First positive earnings in three years. Market Price: TTD6.50

Improvement in dividend payout ratio Intrinsic Price: TTD7.21

Restructuring initiatives stimulates growth but sustainability uncertain MARKET

REPUBLIC FINANCIAL HOLDINGS LIMITED (RFHL) Analyst : Ravi Kurjah

RFHL recorded profit attributable to shareholders of TTD306.4 million for the quarter ending December 31, 2015, an increase of 3.1% overthe corresponding period in 2014. Total assets stood at TTD65.7 billion at December 31, 2015, an increase of 9.4% over December 2014.Excluding contributions of the Suriname and Ghana operations which were not subsidiaries in the comparative period, net interestincome grew by TTD97 million or 13%, driven by an 11% increase in the loan portfolio. However, this result was offset by increasedoperating expenses of TTD25 million and higher loan impairment expenses of TTD70 million. In personnel changes David Dulal-Whitewayretired in February 2016 making way for Nigel M. Baptiste who has been with Republic for twenty-five years and served as an ExecutiveDirector for the past ten years. P/E 14.7x, P/B 2.01, D/Y 3.90%

RATIONALE Market Price: TTD110.00Y-o-y return on common equity, return on assets and ret. on capital fell Intrinsic Price: TTD104.66Larger loan impairment and operating expense due to acquisitions OVERVALUED

NATIONAL COMMERCIAL BANK JAMAICA LIMITED (NCBJ) Analyst : Ravi KurjahFor the three months ended December 31, 2015, NCB reported net profit of JMD2.4 billion or TTD0.97 per stock unit. The cost to incomeratio increased to 72.7% from 71.4%. Results reflected continued improvement in operating revenue, arising from sales focus and newprocesses to enhance customer experience. Net interest income increased by 8.2% or JMD530, due to a reduction in interest expenses,driven by the decline in the repurchase agreements portfolio. Premium income grew by JMD511 million or 33.1%. This was because ofreduced activity in the securities market in the December 2015 quarter compared to the December 2014 quarter. NCBJ is trading at P/E8.82x, D/Y 4.91%, P/B 1.27

RATIONALE Market Price: TTD2.40

Consistent attractive dividend yield

Robust customer deposits growing 17.4% y-o-yLoans and advance grew 9.2%

Intrinsic Price: TTD4.91UNDERVALUED

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NON-BANKING FINANCE EXPECTATION

GUARDIAN HOLDINGS LIMITED (GHL) Analyst : Yuri Seedial

As at December 31 2015, GHL delivered a commendable 12.7% growth in the group’s Profit before tax (2015:TTD448.7Million VS 2014:TTD398.14Million) driven by a 35% top line advancement in Net income from Insurance Underwriting Activities (NIUA). Investors shouldnote that the company benefited from a one-off, favorable reserve release in relation to changes in the Jamaican tax legislation, offsetsomewhat by increased Jamaican annuity reserving, the net effect being inflationary pressures on NIUA for the reporting period. Thecompany’s efficiency drive resulted in cost-cutting measures which modestly increased adjusted operating expenses by 1.6% toTTD872Million. Looking ahead to Y.E. 2016, the company is aiming to automate many high volume processes and improve their data-analytics capabilities in order to benefit from the creation of cost saving synergies across the groups geographical offices. The persistentvolatility of GHL’s investment performance continues to negatively affect the company as during the period investment performance wasnegatively impacted by a TTD94 Million swing in fair values, resulting in a 9.4% decline in Net income from investing activities. Net Incomefrom all activities increased by 8.6%to TTD1.5 Billion while operating profit margin increased from 7.4% in 2014 to 8.3% as at December2015. GHL’s Profit attributable to equity holders of the parent declined by 1.7% (2015: TTD334.7 Million vs. 2014: TTD340.74 Million) mainlydue to smaller gains on discontinued operations, and a TTD1.5 Million loss due to non-controlling interests. During the year NCBJ, throughan agreement with the major individual shareholders of GHL, bought approximately 29.9% of the company. We view this deal as anopportunity for GHL, in the medium term, to capture an increased customer base especially in Jamaica’s non-life insurance segment.Additionally, in 2015 the company adopted a new policy in dealing with actuarial reserves and as a result 2014 financial statements wererestated to reflect the change. The end result of the methodology change for 2014 was a downward bottom-line revision to TTD340Millionfrom TTD400.5Million as previously reported. Over 50% of GHL’s Revenue stems from Trinidad and Tobago, which may limit the potentialfor top line growth in 2016 given that the country is currently experiencing an economic downturn with lay-offs occurring in multiple sectors.We believe that 2016 will be a difficult year for GHL given the countries which contribute to Group Revenue are projected to have minimaleconomic growth (Excluding Jamaica). However, if GHL is able to outpace the growth of the countries it operates in we may see an upwardadjustment in price as most of the structural issues affecting the company have been addressed. GHL is trading at P/E 8.55x, P/B 1.18, D/Y4.15%.


Positive top line growth.All residual European exposure has been disposed off and should not materially impact FY 2016.Revenue generated by Pointe Simon should be an added boost to GHL’s top line in 2016.Opportunities for product and geographic expansion through partnership with NCBJ.Slowing of the Trinidad and Tobago economy may impact new business generation.

Intrinsic Price: TTD12.94 MARKET

JAMAICA MONEY MARKET BROKERS GROUP LIMITED LIMITED (JMMBGL) Analyst : Yuri Seedial

The Group’s Net Interest Income (NII) registered positive growth of 3.1% for the 9 month 2016 period (March 31st 2015-December 31st

2015). Operating revenues net of interest expense increased by approximately 9.1% on account of improved contributions from thesecurities trading, foreign exchange and cambio trading business lines. JMMBGL’s efficiency ratio (operating expenses/net operatingrevenue) stood at 74% for the period versus 71.1% in the comparable period a year prior. A slight uptick in the ratio occurred due to a 13.6%increase in operating expenses which moved from JMD5.4 Billion to JMD6.3 Billion. This increase was mainly attributable to increase in assettax of JMD23.4 million and buildout of new business lines in Dominican Republic and Trinidad & Tobago. Excluding the impact of these costs, increase in operating expenseswould be approximately 8.4%. Profit for the period stood at JMD1.7Billion, representative of a 7% decline in the bottom line for Q3 2016,mainly as a result of the increase in operating expenses. Consequently, EPS for the period ending December 31 2015 was recorded atJMD1.04 versus JMD1.08 in Q2 2015. We expect going forward that JMMBGL should see further growth in revenues stemming from Jamaica,however a slowdown in Trinidad and Tobago should have some negative impact on the company’s bottom line. We do not project JMMBGLto improve on its 2015 bottom line results for the current FY, however, the growth strategies employed and in the absence of sharpincreases in operating expenses in the 2017 FY, notable growth for the company should be realized. JMMBGL is trading at P/E 6.50x, P/B0.71, D/Y 3.16% , 1TTD=18.40 JMD as at valuation

RATIONALENotable increase in profitability from recent acquisitions , especially in the DominicanRepublic.

Market Price :TTD0.59

Geographic Diversification, although Group still heavily exposed to Jamaica. Intrinsic Price: TTD0.61Strong margins despite increased operating expenses MARKET


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NON-BANKING FINANCE EXPECTATION

SAGICOR FINANCIAL CORPORATION (SFC) Analyst : Yuri Seedial

Total Revenue saw a 5.6% increase as at the end of December 2015, climbing to USD1.1Billion as compared to the USD1.04 Billion reported inthe comparable period a year prior. A 5% increase in Investment income and other income to USD322.2million coupled with a 7.7%appreciation in Net Premium Revenue to USD673.9million, aided top line growth. Quite notably, the group experienced premium growth in allbusiness segments. Investors should note that SFC’s top line includes the positive impact of the acquisition of RBC Jamaica, offset partially bythe expenses incurred with the integration on the bank into SFC’s processes. Sagicor Bank (RBC Jamaica and Sagicor Investments JamaicaLimited) is fully owned by SFC Jamaica which in turn is approximately 49% owned by the SFC Group. A closer look at SFC Bank operations andthe asset quality reveal that the impairment of Loans, Leases and Mortgage loans declined by 32% when compared to YE 2014. Additionally,the number of Loans and Leases past due but not impaired declined by 20%. On the other hand Mortgage loans past due but not impairedincreased by 15% over 2014. The net position on asset quality is that SFC Bank’s asset quality is strong however given the susceptibility of theJamaican economy to external shocks, inherent risks still remain. During 2015, SFC underwent a debt restructuring exercise which saw theredemption of outstanding debt and the issuance of a 7-Year senior note due 2022. The net effect of the exercise resulted in a 14% increase infinance costs and an increase in the debt to capital ratio to 39.2% from 27.9% in 2014. We do project that this ratio should decline in 2016with the redemption of the other outstanding debt as outlined by the company. Net Income from Continuing Operation attributable toshareholders declined to USD98.4million representative of a 2% downturn from Q4 2015, caused mainly by an increase in taxation in theJamaican business line. A decline in losses from discontinued operations saw Net Income for the Year increase by 3.9% . The company hasstated that they have provided for all remaining exposure from discontinued operations , as a result we do not project this line item to be ofsignificant importance in 2016. A steadily improving Jamaican economy and growth in the company’s U.S. business lines would be the growthpoles for SFC in 2016. We do expect that operations in Trinidad would slow for the FY 2016, however, in the absence of losses fromdiscontinued operations coupled with the aforementioned growth projections we expect SFC to deliver a much improved performance. SFCis trading at P/E 10.6x, P/B 0.79 D/Y 3.64%

RATIONALEImproved growth in core revenue.Growing and profitable U.S business line.Strengthening Jamaica economy and opportunities for expansion in non-Life insurance segment.Signs of sustainable bottom line growth.

Market Price: TTD7.25Intrinsic Price:TTD8.00UNDERVALUED

NATIONAL ENTERPRISES LIMITED (NEL) Analyst : Yuri Seedial

For the period ended December 31 2015 (Q3), NEL recorded a 38% decline in EPS to TTD0.41 from TTD0.66 registered at the end of thecomparable period a year prior. Although Revenues increased 7% to TTD358 million on account of a much improved NFM performance, thedecline in NEL’s bottom line was driven by a 40% contraction in receipts from the company's equity accounted investees which stood atTTD220 million at the end of Q3 2015. This decline is attributable to the continued, negative impact of low energy prices as well as natural gascurtailment to downstream users. Tringen, one of the main contributor of dividends to NEL has been negatively impacted, by a reduction indemand for fertilizer and Ammonia due to a harsher than projected winter season in North America. Analysts project, at least for 2016, energyprices would continue to be depressed which when coupled with an estimated minor uptick in the prices of Ammonia and fertilizers, NEL’searnings growth may be severely impacted. The Holding company has made a diversification thrust in acquiring shares in FIRST, CIF,Powergen, NGL and CALYP however the projections are for NEL’s bottom line to be severely lower than the 2015 FY despite a reasonabledividend yield. NEL is trading at P/E 19.74x, P/B 2.1, D/Y 5.51%

RATIONALE

Volatile profitability of investee companies Market Price: TTD11.28Lower dividend receipts from Tringen , which contribute over 50% of NEL’s dividends. Intrinsic Price: TTD8.35Depressed energy sector prices OVERVALUED


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CONGLOMERATE, TRADING & PROPERTY EXPECTATION

AGOSTINI’S LIMITED (AGL) Analyst: Yuri Seedial

Agostini Limited reported TTD697.8 million (↑70%) in revenue and TTD32.2 million (↑20%) in profits for the first quarter of the 2016 fiscalyear compared to the TTD408.2 million and TTD26.9 million in the prior period, respectively. Although the company saw growth in Revenuesfor the period, Operating Profit margin declined, approximately 3%, to 6.9% on account of lower contributions by the Rosco Petrovancebusiness unit and a slowdown in the Pharmaceutical and Personal Care business segments. The extensive growth in the company’s revenuewas a result of the joint venture with the Goddard Enterprises Ltd of Barbados whereby both companies owned 50% of the newly formedCaribbean Distribution Partners Limited (CDP). The new company operates within six countries in the Caribbean (St. Lucia, St. Vincent,Grenada, Barbados, Trinidad and Tobago and Guyana) and is essentially a fast moving consumer goods (FMCG) distribution company.However, since AGL owns 50% of the company and by extension 50% of the PAT of CDP, that dollar amount of PAT would have beenreclassified to Profit attributable to non controlling interest. PAT attributable to Owners of AGL declined by 5% while EPS fell by a similaramount for Q1 2016. Despite the Group’s diversification strategy and given the headwinds to growth faced by the local economy, a directeffect on some of Agostini’s business lines is expected. AGL is trading at P/E 12.42x, P/B 1.27, D/Y 3.23%


Steady growth in dividend payments Intrinsic Price: TTD17.07Potential growth in Group’s industrial and construction segments due to stated GOTT policies MARKETJoint Venture delivering positive resultsSlowdown in consumer goods segments


SCOTIA INVESTMENTS JAMAICA LIMITED (SIJL) Analyst : Yuri Seedial

Net interest income after impairment for the first quarter ending January 31 2016 was down to JMD375.7 million (↓20%) due to a 10%contraction in Total Revenues. Other Revenue, which include fee income, securities trading gains and net foreign exchange trading income,was JMD353.79 million or 3% above the corresponding period a year prior or 11% below the previous quarter. Despite the decline in OtherRevenue, fees attributable to SIJL’s Asset Management business recorded 27% growth in fee and commission income over the year priorprimarily due to net positive inflows, in line with the Group’s strategy to move away from Interest Income. A top line reduction, offsetpartially by a 8% decline in expenses, resulted in a 14% decline in profit for the period which stood at JMD117million compared to JMD136million in the comparable period in 2015. SIJL has a ROE of 3.33% down from the 7.08% in January 2016 and an average dividend payoutratio over the past 5 years of 45%. YTD SIJL has appreciated 8.0%. While the strategy of focusing on Fee income has brought favorableresults to the company SIJL key ratios are as follows P/E 10.8x, P/B 0.66 D/Y 6.00% 1TTD=18.40 JMD as at valuation.

RATIONALE

Declining ROE Market Price: TTD1.62Challenging operating environment. Intrinsic Price: TTD1.38Consistent and stable dividend payments MARKET

5


ANSA MCAL LIMITED (AMCL) Analyst: Ravi Kurjah

The ANSA McAL Group recorded a 9.12% increase in profit before tax for 2015. The group’s earnings per share (EPS) improved by 12% toTTD4.45, from TTDD3.97 in 2014 and revenues stood at TTD6.2 billion which is 2% higher than the prior year mark of TTD6.1 billion. Thegroup’s directors have approved a final dividend of TTD1.10 per share, which will be paid on June 8. This is 10% more than the final dividend in2014 and took the group’s total dividend for 2015 to TTD1.40 per share. On February 1 2016, a subsidiary ANSA Motors opened its multi-product showroom in Chaguanas with an opportunity to create additional revenue. The Automotive, Trading & Distribution segmentcontributed 43.5% of total ANSA revenue, while the Insurance & Financial Services sector accounted for 78% of total liabilities. The Trinidadand Tobago market is responsible for 76.6% of total company revenue. AMCL 52 week high was TTD67.50 and its equivalent low wasTTD62.50. AMCL is trading at a P/B 1.84, P/E 14.97x, D/Y 1.95%

RATIONALEFalling insurance & financial services sector revenue Market Price: TTD62.98

Failing y-o-y PE and cash generated from operations. Intrinsic Price: TTD64.37

UNDERVALUED

MASSY HOLDINGS LIMITED (MASSY) Analyst: Ravi Kurjah

For the first quarter of 2016, the group third party revenue decreased by 1.6% to TTD3.1 billion versus prior year and group profit before taxdeclined by 3.6% to TTD211 million for the same period. Due to higher taxes in overseas jurisdiction, the group’s effective tax rate increased to31% from 29% for the same period 2015 and as a result group profit after tax for Q1 2016 declined by 6% to TTD146 million. On March 17,Massy Stores opened its first supermarket in Guyana. Construction of a second store is already in progress at the East Coast MovieTowneComplex and is scheduled to open in 2017. In February, CariCRIS assigned credit ratings of CariAA+ (Foreign and Local Currency) on its regionalscale, and ttAA+ on the T&T national scale to Massy Holdings Limited. These ratings indicate that the level of creditworthiness in the region isadjudged to be high. The ratings agency also cited Massy strong revenue generating potential, derived from its substantial shares of several ofits markets, particularly in the retail and distribution automotive and energy segments, which together accounted for over 88% of totalrevenue in 2015. MASSY is trading at P/B 1.14, P/E 9.54, D/Y 3.96%.

RATIONALE

Strong growth potential from aggressive M&A strategy Market Price: TTD52.94

Well diversified business operationsProfit margin fell from previous quarter to 4.36% from 8.47%

Intrinsic Price: TTD81.11UNDERVALUED

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CONGLOMERATE, TRADING & PROPERTY EXPECTATION

PLIPDECO (PLD) Analyst : Ravi Kurjah

PLIPDECO’s group profit before tax, decreased by 25.2% from TTD116.5 million in 2014 to TTD88.5 million. Earnings per share stood atTTD2.11, a 27.5% decrease over the prior year. Group revenue grew by 6.1% for the year ended December 2015 when compared to 2014.This was mainly due to a 8.6% increase in port and related activities. Further analysis showed a 2% increase in imports, a 4% increase inexports and an 18% increase in transshipment. PLIPDECO stands to lose revenue from ArcelorMittal’s withdrawal from Trinidad but theinstitution can eventually seek replacement tenant/s. In 2015 PLD held 18.6% more cash than 2014 and reduced debt by 46.2%. P/E 1.8x,P/B 0.08, D/Y 3.8%

RATIONALEImplementation of cost-cutting strategies Market Price: TTD3.94Comfortable debt levels. Intrinsic Price: TTD3.01High exposure to revenue from the energy sector MARKET

GRACEKENNEDY LIMITED (GKC) Analyst: Ravi Kurjah

Group revenue for 2015 was JMD79.74 billion, representing an increase of 12.6% or JMD8.90 billion over 2014 (JMD70.84 billion). Net profitattributable to the shareholders of the Company was JMD2.76 billion for 2015 compared with JMD3.29 billion for 2014. Earnings per sharewas JMD8.35 in 2015 compared with JMD9.90 in 2014. Performance was impacted by costs associated with the integration of the US foodsoperations through GraceKennedy Foods USA LLC, lower foreign exchange gains, additional finance costs and an increase in the taxationcharge. The major areas of focus for the Group during 2015 was the continued integration and optimization of the US foods operations,strengthening Jamaican businesses, growing international presence, specifically in Western Africa, Continental Europe and on both the Eastand West Coasts of North America. GKC is trading at P/E 10.26X, P/B 0.71, D/Y 4.31%

RATIONALE

Reduced diversification/heavy dependence on food trading

Expanding food division in the U.S Market Price: TTD5.15

Cash reserves available for banking business and regional expansion Intrinsic Price: TTD2.78

Improved payout ratio OVERVALUED

PRESTIGE HOLDINGS LIMITED (PHL) Analyst: Yuri Seedial

For the first three months of fiscal 2016 PHL’s revenue increased by 2% to TTD238.5 million from the TTD238 million recorded in the priorperiod for 2015. This uptick was driven primarily by an improved performance in the KFC and Pizza Hut brands as the company saw decliningcontributions from the Subway and TGI brands. Following growth in PHL’s top line, operating profit improved by 2.4% while in the samevane, operating profit margin remained fairly constant at 8%, as operating expenses decreased by 1.4% to TTD48.9 million. It may beimportant to note that the company has made headway in addressing the labor issues which plagued operation in previous periods. Areduction in Finance costs(↓16%) drove the Group’s Profit after tax to TTD12.3 million (↑5%). The Group’s recent thrust to diversify earningsaw them investing approximately USD35 million to develop a cinema complex in Barbados late last year in addition to becoming thelicensee of Starbucks Coffee Company in January 2016. PHL plan to open the first Starbucks store in 2016 which would represent the 16th

market in the Latin America and Caribbean region for the coffee giant. We believe however, given the muted economic outlook for Trinidadand Tobago, PHL may see a further slowdown in restaurant sales, especially in their higher end brands offset by lowering operational costsand new product introduction. Year to date PHL’s share price has appreciated by 11.9%. PHL is trading at P/E 12.8x, P/B 2.56, D/Y 2.92%

RATIONALESteady growth in revenues from its core brands and increased locations Market Price: TTD11.30Growth potential through horizontal integration Intrinsic Price: TTD12.06Projected slowdown in sales due to current economic environmentA successful introduction of Starbucks could have a notable impact on profitabilityApproximately 98% of Revenue stems from Trinidad which may limit growth in 2016

MARKET

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MANUFACTURING I EXPECTATION

NATIONAL FLOUR MILLS LIMITED (NFM) Analyst: Yuri Seedial

For the nine month period (Q3) ended September 30 2015, NFM recorded a much improved performance, driven by a 7% increase in revenueswhich stood at TTD359 million versus TTD335 million in the comparable period for 2014. Gross profit margin at the end of September 2015stood at 23%, up 6% from a year earlier indicating better management of NFM’s direct cost of production while Operating profit margin forthe same period jumped from 35% to 45% . According to the chairman, the company’s performance has been the result of hard budgeting,increase in sales, a new grain procurement strategy, working capital management and a more productive plant. For the year thus far, the priceof wheat rallied on a report by the Department of Agriculture which indicated that domestic plantings of winter wheat last year declined 7% to36.6m acres, the smallest area since 2010. Despite a reduced winter harvest, its is projected that grain prices may remain depressed onaccount of a strengthening U.S. dollar and a continued oversupplied market. Therefore there is the possibility for reduced input cost for NFMduring the remainder of 2016. The current cost management strategies coupled with favorable wheat prices for the remainder of 2016should bring an added boost to NFM’s bottom line despite a slowdown in the local economy. Recent news have indicated NFM’s intention tobecome more export driven and tap into opportunities in Cuba and Latin America. We believe that NFM could experience significant bottomline growth in 2016 despite the economic headwinds faced locally. NFM is trading at P/E 8.6x, P/B 1.77, D/Y 2.3%

RATIONALEBoard of Directors and Executive Management aggressively perusing growth strategies. Market Price: TTD2.30Revenue dependent on international cost of grain Intrinsic Price: TTD2.64Cost management strategies beginning to produce results

MARKET

ONE CARIBBEAN MEDIA LIMITED (OCM) Analyst : Yuri Seedial

The OCM Group recorded a 4.3% decline in revenue for the 9 month period (Q3) ending September 30 2015 which moved from TTD401.9million in Q3 2014 to TTD384.7 million. However, for the three-month period, OCM’s investment in new media and technology was successfulas revenue for the period June to September, increased by 10%. Operating profit margin registered an increase for the 9 month period,moving to 39% from 35% in the comparable period a year prior indicative of some measure of cost control implemented by OCM. DespiteOCM’s subsidiaries in Trinidad, Barbados and Eastern Caribbean posting contracted revenues, they continue to hold dominant market share intheir respective territories. In the face of declining revenues, OCM was able to record an 11.5% increase in Profit after tax to TTD64.4 millionon account of improved cost controls and the success of recent investments. Looking ahead, OCM expects that the sluggishness in Barbadosand the Eastern Caribbean would continue to persist. For the period Trinidad and Tobago offered a bright shoot to bottom line growth fromthe recently concluded 2015 General Elections. Similarly, the 2016 Summer Olympics may bring a much needed boost for OCM’s bottom linein the face of a slowdown in the local economy. OCM is trading at P/E 15.6x, P/B 2.12, D/Y 3.36%

RATIONALEDiversified media company within the regionConsistent dividend growth over past 4years.Contracting revenues in the face of economic slowdownRecent investments delivering results

Market Price: TTD21.49Intrinsic Price: TTD23.43UNDERVALUED

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THE WEST INDIAN TOBACCO COMPANY LIMITED (WCO) Analyst: Yuri Seedial

For the 2015 FY, WCO registered a 3.4% increase in Revenues to TTD1.05 Billion up from the TTD1.01 Billion recorded in the comparable perioda year prior. However, on a 3 month basis, revenue saw a 2.3% contraction to TTD303 Million when compared to Q4 2014. The company hasstated its intentions to implement continuous improvement in expense management control with emphasis on factories efficiencies andtargeted consumer focus. These cost management strategies have begun to materialize as WCO registered a 1.4% increase in operating profitmargin to 65.8%. For FY 2016, WCO delivered a 5.3% growth in PAT which climbed to TTD521.332 million. WCO's dividend payout ratio hasclimbed to above 90% with a dividend yield of 4.36%, making it in the top 10 highest dividend yielding local stock on the market. Looking aheadto 2016 we project that WCO, despite the turbulent economic challenges projected, would be able to sustain bottom line growth due to thenature of its products and favorable company strategies that have begun to show material impact. This growth would face headwinds such asthe increasing size of the black market for cigarettes in Trinidad as well as the possibility of increased taxes paid by the company. The latterwas suggested by the Minister of Finance in his latest mid-year budget speech. WCO is trading at P/E 20.67x, P/B 27.4, D/Y 4.36%

RATIONALESingle product company Market Price: TTD126.27Projected increase in Tobacco prices for 2016. Intrinsic Price: TTD125.29Attractive dividend payout and yields but relatively illiquid stockSustained Revenue growth and notable cost control

MARKET

GUARDIAN MEDIA LIMITED (GML) Analyst: Yuri Seedial

GML’s revenue stood at TTD209.85 million as at the end of December 2015 (Q4 2015), a 7.5% increase from the 2014 revenue levels ofTTD195.1 million. Driving this increase was GML’s investments in the rights for the CPL cricket, and the 2015 General Elections. Additionally, thecompany’s investments in electronic Billboard advertising represented a new revenue stream for the company. GML’s Multi Media segmentregistered a top line increase, however an increase in media cost for the Print Segment which when coupled with contracting revenues for thatline resulted in a reduction in margins. The multi media segment saw a 19% increase in revenues and was the main driving force behind thegroup’s positive financial performance. It should be noted than on a three month basis (Q4 2015), GML’s top line actually contracted by 6.2%on account of slowing revenue growth from the Print Segment. Profit after tax for the period increased by 6.5% to TTD36.0 million due toimproved cost controls and a better than project performance in the multi media segment. In forecasting the 2016 performance of GML, weexpect the company to record a top line contraction despite the upcoming summer Olympics and the new radio broadcasting acquisition inGuyana. The company’s recent investments, in our view, may not be sufficient to withstand the constrained economic environment in Trinidadand Tobago. GML is trading at P/E 18.12x, P/B 2.45, D/Y 3.29%

RATIONALEProjected anemic top line despite diversification thrust.Persistent high operating costsIlliquidity of GML shares on the market could artificially inflate price

Market Price :TTD19.75Intrinsic Price: TTD17.16OVERVALUED


UNILEVER CARIBBEAN LIMITED (UCL) Analyst: Yuri Seedial

For the YE 2016 UCL reported a substantial decline (↓32%) in Profit after tax to TTD44.5million from TTD66.1million on account of majordelays in goods being delivered to customers due to issues in implementing a new IT platform in Q1 2015 and also the slowing of regionaleconomies, namely Trinidad and Tobago, during the year. UCL’s outlook for the remainder of 2016 remains cautious and the company is notexpected to realize significant bottom line growth when compared to 2015. Despite the company’s stated intentions of taking cost controlmeasures, operating margins declined, led by a 7.4% increase in Selling and Distribution costs to TTD124.7Million. We project that for 2016,UCL may see a slight reversal in the downward trend in both their top and bottom line as their operational issues are resolved howeverslowdown in the Trinidad and Tobago economy and rising operating costs may act as a counter balance. UCL is trading at P/E 38.24x, P/B8.1, D/Y 2.54%

RATIONALEIncreased operating costs and declining margins Market Price: TTD65.00Increased competition from imported goods adversely affecting profits Intrinsic Price: TTD52.76Sluggish consumer demand in relatively stable trading environment OVERVALUED

MANUFACTURING II EXPECTATION

Trinidad Cement Limited (TCL) Analyst: Yuri Seedial

For the first quarter ended March 31 2016, TCL recorded a contraction in Group Revenue of 7%, mainly due to a 10% fall in domesticcement prices. Additionally, a 15.7% decline in local volumes sold, partially offset by increased cement sales volumes in Jamaica andGuyana, compounded the issue. Overall Group volume was 7% higher when compared to Q1 2014. The removal of underperforming assetsfrom TCL’s balance sheet coupled with cost containment resulted in EBITDA posting a 11.2% increase to TTD153.7million while OperatingProfit advanced 13% to TTD125.2Million. During Q2 2015, TCL was able to conduct a debt restructuring exercise which resulted in Financecost being TTD15.3million (↓27%) lower than the comparable period in 2015. TCL’s profit after tax for the period increased to TTD67.1million from TTD46.6 million (↑43%) in March 2015. As a direct result of the rights issue that occurred in 2015, TCL’s EPS declined by 11% toTTD0.15 although the Group’s PAT increased. In 2016 we project a slowdown in revenue that TCL generates from Trinidad and Tobago giventhat for the Q1 2016, cement sales and production were down by 15% and 12% respectively when compared to the same period a yearprior. However the company’s revenue, having approximately 36% exposure to Jamaica, should benefit from an increase in economicactivity for that country. TCL , through its subsidiary Caribbean Cement Company (CCCL) signed a deal with Venezuela to supply that countrywith 240,000 tonnes of clinker which may provide some diversification of revenue away from Trinidad and Tobago. Additionally, theJamaican CCL has plans to increase cement capacity by 33% as domestic demand increases. We see the adjusted PAT growth of TCL for 2016in the range of 1.5%-2% , which is premised on the absence of further one-off items and negative surprises. TCL is trading at P/E 2.93x, P/B1.34

RATIONALERestructured company with a more stable outlookCost containment strategy showing resultsRevenues heavily dependent on the slowed Trinidad and Tobago economy.Declining finance costDividend of TTD0.04 announced at 2015 AGM, giving a 2015 yield of 1.18%

Market Price: TTD3.45

Intrinsic Price: TTD3.53MARKET

9


10

ENERGY EXPECTATION


Trinidad and Tobago NGL Limited (NGL) Analyst: Yuri Seedial

For the year ended December 2015 NGL’s share of profit from investment and joint ventures declined by 60% to TTD136.3million fromTTD345.3 million in 2014. The share of profit from investments and joint ventures represent NGL’s proportionate share of Phoenix Park GasProcessors (PPGPL) profit after tax. As at December 2015, PPGPL’s profit after tax tumbled 67%, reaching TTD349.4Million. Furthercompounding the issue of declining profitability is the latest data from the Ministry of Energy, which indicate that NGLs production, for the fisttwo months of 2016, declined by approximately 14% when compared to the first two months of 2015. Additionally, when compared to the firsttwo months in Q4 2015 NGLs production declined by approximately 1%. The products that PPGPL sell has been found to be strongly correlatedto crude prices and as such we expect the year end profit after tax for PPGPL to be severely hampered, given the projections for energy pricesin 2016, and this should be reflected on NGL’s top line. The amount of cash that NGL has available to pay shareholders stand at approximatelyTTD440million or TTD2.85 per share of NGL. NGL’s PAT showed a significant reversal in fortunes and stood at TTD 370 Million versus the loss ofTTD 753 Million in 2014. However, investors should note that these results were positively influenced by a pure impairment accountingreversal and not by any core revenue drivers. We expect NGL to be able to maintain a dividend yield of approximately 5%-6% on the IPO price,which may be necessary to avoid downward pressure on share price due to the loss of value of its PPGPL shareholding.NGL is trading at a P/B 0.93, D/Y 7.68%

RATIONALEFalling energy prices which is expected to be depressed for the remainder of 2016. Market Price: TTD19.52Strong operating margins of PPGPL.Drier gas supply resulting in less output from PPGPL.Increasing contaminants in PPGPL output which may affect company’s market share.

Intrinsic Price: TTD17.51OVERVALUED

MUTUAL FUNDS EXPECTATION

CLICO INVESTMENT FUND (CIF) Analyst: Ravi Kurjah

Since the fund’s inception, CIF’s share price is down 9.60%. The Net Asset Value (NAV) as at 28 April 2016 stands at TTD24.86 but the currentmarket price is TTD22.60. This means that CIF is trading at an 10.01% discount. CIF currently holds 40,072,229 RBL shares, resulting in revenuefrom dividends in excess of TTD50 million. RBL paid an interim dividend on 01 December 2015 of TTD3.10 per share. CIF remains a noticeableinvestment with an attractive dividend yield. D/Y 4.29%, YTD share price is down 0.66%.

RATIONALEExposure to Republic Bank Limited shares Market Price: TTD22.5595% dividend payout policy Intrinsic Price: TTD24.86Consistent high dividend yield above 4% UNDERVALUED

BARBADOS BB+ / Negative (S&P) Analyst: Ravi Kurjah

Economic growth in Barbados during the first half of 2015 was estimated at 0.5%, following a contraction of 0.1% in the first half of 2014.Tourism receipts experienced an expansion of 5% during the 2015 period. Performance was muted in other key sectors such as Finance andother services (0.76%) and Distribution (0.48%). Foreign reserves were estimated at USD926.8 million at the end of December 2015, providing13.8 weeks of import cover (goods & services). Net public sector debt (as a percentage of GDP) was reported at 69.7% in December 2015, downslightly from 71.1% in the same period of 2014.

RATIONALE

Barbados yields remain higher than similarly rated countries. Yields: 10 yr will increase to 8.00% by Q2 2016

Import cover and reserve levels to remain under strong downward pressure.

COLOMBIA BBB / Negative (S&P) Analyst: Ravi Kurjah

Colombian real GDP growth is expected to remain relatively subdued in the years ahead; as a low oil price environment weighs on fixedinvestment. According to S&P real GDP growth is forecasted to ease to 2.6% from 3.1% in 2015 and possibly pick up to 3.3% in 2017 to ease to2.6%. Investment attractiveness will deteriorate, as the attractiveness of Colombia’s hydrocarbons sector remains weak in an environment ofstructurally low oil prices. Real private consumption growth will also ease as the unemployment rate rises and as persistent exchange rateweakness and high inflation erode consumers’ purchasing power.

RATIONALE

Yields now generally higher than the average BBB yield curve. Higher yields than similarly ratedPhilippines.

5 yr CDS at 138 bps presently. Heavy dependence on oil will lead to volatile CDS level. CDS: To stay above 170 bps to Q3 2016.

COUNTRY EXPECTATION

FIXED INCOME RESEARCH

11

MarketInsightsApril 2016

JAMAICA B/ Stable (S&P) Analyst: Yuri Seedial

In the December 2015 quarter, real GDP is estimated to have increased within the range of 1% to 2%, following three consecutive quarters of expansion. The estimated performance of the quarter in review mainly reflected expansion of the goods producing industries, in particular Manufacturing and Food & Beverages as well as an increase in Electricity and Water supply. In addition, Hotels & Restaurants is assessed to have been the driver for growth within the services industry. Real GDP growth for FY2015/16 is projected to remain in the range of 1.0% to 2.0%, with the pace of expansion increasing over the medium-term. This projection is predicated on the continued recovery in the economies of Jamaica’s major trading partners, expected improvements in business and consumer confidence as well as further gains in external competitiveness, which is expected to stimulate net external demand. The co-existence of a low nominal interest rate environment and real rates of return to creditors offer opportunities for new investments and further private capital inflows.

RATIONALE

Declining annual inflation rate of 3.7% in December versus 6.4% a year earlier. Terms of Trade : ↑22%

Import cover and reserve levels to remain under strong downward pressure.Private Sector credit trending upwards .

Yields: The current spread of Jamaican 2019 and 2046 bonds over the US 3YR and 30 YR treasuries stands at 6.7%and 8.2% respectively. Expected rate hikes in the US as well as the improving Jamaican economy should cause acontraction in these spreads in 2016.

Jamaica’s C-Efficiency : 76.8%

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CHILE AA- / Stable (S&P) Analyst: Yuri Seedial

Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation for strong financial institutions and soundpolicy, making it the highest rated sovereign in South America. Exports of goods and services account for approximately one-third of GDP, withcommodities making up some 60% of total exports. Copper alone provides 20% of government revenue (2015). Chile will remain among LatinAmerica's most advanced economies over the coming decade, supported by its strong fundamentals. Manufacturing and services willincreasingly drive economic expansion, as the end of the commodity boom dims the copper sector's outlook, which is projected to grow by 2%in 2016 and then gradually slow in the years after. From 2003 through 2013, real growth averaged almost 5% per year, despite the slightcontraction in 2009 that resulted from the global financial crisis. Growth slowed to an estimated 2.3% in 2015. A continued drop in copperprices prompted Chile to experience its second consecutive year of slow growth, elevated inflation and a depreciating currency. Real GDPgrowth in 2016 is estimated at 2.1% (2015:2.3%) driven by an expansion in the manufacturing and non-mineral exports.

RATIONALE

Country risk metrics superior to similarly rated peers

5 yr CDS currently at 95.2bps (high of 174.1 bps ; low 59.2 bps) with volatility expected tocontinue due to a slowdown in the mining sector and anemic growth in major trading partners,

CDS: To average 100 bps to Q2 2016.

COUNTRY EXPECTATION

UNITED STATES AA+/Stable (S&P) Analyst: Ravi Kurjah

U.S. data so far suggests that while showing significant weakness in some areas, including the manufacturing and oil and gas sectors, theworld's largest economy narrowly avoided contraction over Q415-Q116. The US economy is hardly out of the woods, with corporate earningsrolling over and economic momentum still weak, but the core scenario is that growth, and inflation will be strong enough for the FederalReserve to hike rates twice by the end of 2016. GDP growth is forecasted to slow from 2.4% in 2015 to 2.2% in 2016 before rebounding to 2.7%in 2017.

RATIONALE

Unemployment is expected to fall in 2016 to 4.8% from 5.3% in 2015.

Gov’t debt projected to increase to 75.5% of GDP in 2016 from 73.7% in 2015

Inflation should remain below 1% as at Q22016.

CDS: U.S. cds level higher than similarly credit rated sovereign Germany but lower than United Kingdom and Australia.U.S. CDs level above 1 year average since October 2015

Paraguay BB / Stable (S&P) Analyst: Yuri Seedial

Economic activity indicators continue to reflect moderate dynamism and as a result Paraguayan real GDP growth will slightly accelerate in 2016as private consumption ticks higher. Nonetheless, the economy will face significant headwinds from poor economic conditions affecting its keytrade and investment partners, keeping headline growth well below recent highs. In January 2016 , the Monthly Indicator of Economic Activityof Paraguay (IMAEP) registered an annual variation of 1.8%, largely explained by the positive results of electrical energy output at the bi-national hydroelectric dams, livestock production, and the construction sector. Manufacturing registered a slight increase, driven principally bymeat production, while other activities relevant to this sector registered decreases (textiles, beverages and tobacco, non-metallic minerals). Inaggregate, real GDP growth for Paraguay is estimated to be 3.1% in 2016, a slight increase from the 3% registered in 2015.

RATIONALE

Weakness of trading partners to hamper exports growth in addition to increasing competitionfrom Argentina taking away market share.

Modest growth in Private consumption

Private Consumption: 6%GDP Growth: 3.1%Export Growth: -13% y-o-y


FIXED INCOME RESEARCH

12

COUNTRY EXPECTATION

MEXICO BBB+ / Stable (S&P) Analyst: Ravi Kurjah

Mexico will benefit from stronger U.S. labor markets, bolstering manufacturing sector exports and remittance inflows. However, sharpermonetary and fiscal tightening will weigh on Mexico's economy in the years ahead, tempering private consumption and real export growth.According to BMI forecast, real GDP growth will remain relatively flat between 2015 (2.5%) and 2016 (2.8%), accelerating only gradually in2017(3.1%). Lay-offs by the federal government and more significant rate hiking cycle will weigh on private consumption. Pemex has recentlyannounced plans to cut back capital spending, softening crude production and exports.

RATIONALE

Yields are generally slightly higher than its peers, namely Peru

5yr CDS is currently at 159 bps. Growth in the US economy should support CDS levels.CDS: Not expected to fall below 150bps in Q2 2016

PANAMA BBB / Stable (S&P) Analyst: Rajesh Ramroop

The Panamanian economy expanded by an estimated 5.8% in 2015. Growth in 2015 was seen in financial intermediation, construction industry,supply of electricity, mining and quarrying, transport and communications, real estate and business services , private health and governmentservices. Construction activity will slow from the double digit figures seen previously as the Canal expansion nears completion. The Canalaccounts for 10% of GDP. Once completed, the IMF expects that the expanded Canal and the new copper mine (Minera Panama, in 2018) willhelp maintain growth at 6% to 7% over the next five years. The expanded Canal is expected to be opened in Q216, and as a result, we expectspreads to narrow going forward.

RATIONALE

Panama 10 yr yields remain lower than its peers , namely Colombia and higher than Philippines.

5yr CDS is currently at 160 bps. CDS: To not exceed 155bps to Q2 2016.

FIXED INCOME RESEARCH (AMERICAS)

13


PERU BBB+ / Stable (S&P) Analyst: Rajesh Ramroop

The Peruvian economy grew by 3.26% in 2015. An unexpected surge in copper and anchovy production drove GDP to 6.39% in Decemberbolstering growth to the government’s revised target of 3%. The agriculture sector grew 2.8%, driven by strong growth in grapes, corn, rice,coffee, avocado and cacao production. The unexpected surge in December, beat expectations, which had been repeatedly revised downthroughout 2015 as commodity prices slumped and early indications pointed to an extraordinary El Niño climate phenomenon. The IMF hasprojected growth of 3.7% in 2016.

RATIONALE

Short term yields are generally lower than similarly rated peers, namely Mexico

5 year CDS currently at 153 bps CDS: To average 200 bps to Q2 2016

URUGUAY BBB- / Stable (S&P) Analyst: Yuri Seedial

The Uruguayan economy is fairly diversified with manufacturing, tourism and agricultural commodities (beef, soybean) being key drivers.Uruguay's real GDP growth will slow in 2016 on the back of tempered fixed investment and a widening net export deficit as a result ofeconomic weakness in Uruguay's trading partners (Brazil, China and Argentina). Private consumption will be a bright spot in the economy, aswages continue to rise bolstering retail spending. While it is expected that the government will continue to support private consumptionthrough fiscal stimulus, this will not be sufficient to offset the impact of rising external headwinds. BMI forecasts real GDP growth of 0.8% in2016, after an estimated 4.8% in 2015 and 5.1% in the past decade.

RATIONALE Inflation: 8.6% (2015)Low Public debt (30.5% of GDP) GDP growth: 0.8%Favorable fiscal policy to encourage manufacturing industries

Fiscal deficit: 3.8% of GDP

COUNTRY EXPECTATION

EASTERN CARIBBEAN CURRENCY UNION Analyst: Rajesh Ramroop

Data released by the ECCB indicate that Real Gross Domestic Product (GDP) in the ECCU decreased from 2.91% in 2014 to 2.62% in 2015 . Growth in 2016 is projected at 2.96%. The Hotels & Restaurant sector is expected to expand 2.90% in 2016, following a 2.5% expansion in 2015.Output of agriculture, livestock and forestry is estimated to have contracted 6.2% in 2016, following a 4.1% expansion in 2014. Growth is expected in most member countries in 2016, most notably in St Kitts & Nevis (4.7%) and Antigua & Barbuda (3.23%) and Dominica (4.19%). Meanwhile, the International Monetary Fund (IMF) in its April 2016 Regional Economic Outlook, noted that economic growth in theregion was projected at 2.2% in 2015 due to stronger tourist arrivals and low oil prices. Growth in 2016 is projected at 2.6%.The region’s external current account deficit has improved and was estimated to narrow to an average of 12..2% of GDP in 2015, down from 17.2% in 2012. The IMF directors agreed that fiscal adjustment should reflect the need to scale back tax concessions, continue to restrain the wage bill, reform the social security system, and improve the performance of state owned enterprises. The current account deficit is estimated at to narrow to 11.7% of GDP in 2016.Total public debt (as a % of GDP) is expected to decline slightly from 82.3% in 2015 to 80.4% in 2016, but will then moderate further to 2019. Foreign reserves in the ECCU were previously projected at USD1,618 million for 2015, which will provide 5.9 months of import cover. This compares to USD1,125 million in 2012, which provided 4.4 months of coverage.

FIXED INCOME RESEARCH (AMERICAS)

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Projections for the ECCU

2015 2016 Direction 2015 2016 Direction 2015 2016 Direction 2015

Antigua and Barbuda 2.2 2.0 ↓-2.0 3.3 3.2 ↓-0.09 -10.0 -6.2 ↑3.8 105.5

Dominica -4.3 4.9 ↑9.2 -3.7 4.2 ↑7.87 -14.1 -16.6 ↓-2.5 77.8

Grenada 4.6 3.0 ↓-1.6 3.9 1.9 ↓-2.03 -15.1 -12.2 ↑2.9 90.3

St Kitts and Nevis 6.6 4.7 ↓-1.9 6.6 4.7 ↓-1.99 -13.0 -18.4 ↓-5.4 74.5

Saint Lucia 1.6 1.4 ↓-0.2 2.4 2.4 ↓-0.02 -7.5 -7.9 ↓-0.4 81.7

St Vincent and the Grenadines 1.6 2.2 ↑0.6 0.8 2.1 ↑1.32 -24.8 -21.3 ↑3.5 77.0

ECCU 2.2 2.6 ↑0.4 2.6 3.0 ↑0.34 -12.2 -11.7 ↑0.5 82.3

External Current Account

Balance (% of GDP)ECCB GDP Growth Est.IMF GDP Growth Est.

Public sector Gross

Debt (% of GDP)

Sources: Research & Analytics, IMF Global Economic Outlook April 2016, ECCB

COUNTRY EXPECTATION

CHINA AA- / Negative (S&P) Analyst: Trevis Gangaya

Uncertainty continues to linger around China’s economy as despite showing an expansion of 6.7% y-o-y in the first quarter of 2016, thisrepresents the slowest since 2009. Inflation was recorded at 2.3% y-o-y in March 2016, similar to February. This pattern of inflation is expectedto remain relatively unchanged as seasonal effects due to Chinese New Year gradually fade away. Inflation is expected to average 2% in 2016.There were some signs of stabilization in March: PMI was recorded above 50 indicating expansion, exports grew by 11.5% y-o-y, the firstincrease in nine months. The improvement is largely as a result of base effect from March 2015, despite government efforts to boost exports.Total imports, however, declined by 7.6% y-o-y, compared to 13.8% in February. It is expected that the central bank will cut rates further,lowering the benchmark interest rate by 75bps to 3.60% by the end of the year according to BMI as a means to boost local consumption.

RATIONALE

China’s Manufacturing PMI recorded above 50 for March, indicating expansion PMI will likely remain below 55 by Q22016

Currently averaging roughly 99 bps, China’s 5 year CDS is expected to remain stable.Not exceeding 110bps before Q22016

INDIA BBB- / Stable (S&P) Analyst: Trevis Gangaya

The Indian government led by PM Modi has initiated various reforms in its first two years in office, and it is expected to continue enactingincremental rather than full fledged reforms over the coming years given its slim majority in the country’s parliament. India has been able towin instil confidence with the market, including the IMF who has stated that it is poised to become one of the fastest growing major economyglobally owing to the government's pro-business initiatives and accommodative monetary policy by the central bank. The country’s centralbank reduced its repo rate by 25bps to 6.50% at its April monetary policy meeting, and there is expected to be similar action within the nextfew months in a bid to provide continued support for the local economy.

RATIONALE

Anticipation of intended passage of reforms in next month’s budget can see an increase in FII FII likely to average 5-10% by June 2016

INDONESIA BB+ /Positive (S&P) Analyst: Trevis Gangaya

Indonesia's GDP growth came in at 4.7% y-o-y in Q32015, unchanged from the previous quarter. Indonesia's exports remain unimpressive asthere was decline of 16.4% y-o-y in Q32015, significantly worse than the 11.9% contraction recorded in Q22015. It is expected that weak tradeperformance will be prolonged despite a boost to export competitiveness from the weak rupiah. The 2016 proposed budget allocation,compared to the 2015 revised budget, will see an increase in infrastructure spending (8%), regional fund transfers (17.5%), and educationexpenditure (4%), as well as a decline in energy subsidies (12%).

RATIONALE

Indonesia’s CPI has seen some downward movement towards the end of 1Q2016 CPI expected to remain within 5-6% in Q22016

Currently, Indonesia’s 5 year CDS average 186bps Remaining above 170bps during Q22016

PHILIPPINES BBB / Stable (S&P) Analyst: Trevis Gangaya

Philippines appears to be at crossroads given the ongoing political and economic reforms, as well as increasing foreign investor interest thecountry has witnessed overtime. This is expected to assist in speeding up investment growth in the Philippines. This will in turn enable thecountry to sustain its strong growth over the coming years. The Philippines will hold general elections in May 2016 for both the executive andlegislative branches of the government. The country was able to record an impressive growth rate of 6.3% in Q42015 compared to the previousquarter of 6% supported by a remarkable 17.4% growth y-o-y in government consumption.

RATIONALE

Philippines’ 10 year yield remains lower than that of similarly rated Colombia 10-yr yields should not exceed 4.0 % by Q22016

Currently averaging 123 bps, Philippines ’5 year CDS is expected to remain relatively stable.CDS: Not exceeding 150bps before Q22016

MarketInsightsFIXED INCOME RESEARCH (ASIA)

April 2016

15

COUNTRY EXPECTATION

MALAYSIA A- / Stable (S&P) Analyst: Trevis Gangaya

Malaysia’s economy has been affected by various shortfalls since late 2014, including a sharp fall in commodity prices, weak external demand,political developments and capital outflows. The economy grew by roughly 5% in 2015, however it is faced with the dilemma of the spillovereffect from the weak Chinese economy. This has had negative implications for Malaysia's export-driven economy as China is one of thecountry’s largest trading partners. Recent moves by the central government to introduce the 6% goods and services tax (GST) in 2015 as well asthe government's raising of foreign worker levies have raised the cost of doing business which is expected to impact the business environmentand investor confidence. Given government’s ambitious plan of upgrades to road and rail sectors throughout the country, Malaysia'sconstruction sector is projected to grow by 7.6% in 2016, considering that an efficient public transport will be crucial in supporting the country'sgrowth. The IMF has projected a growth of 4.4% for the Malaysian economy.

RATIONALE

Industrial Production saw an increase of 3.9% y-o-y IP should average 5% towards the end of Q22016

Currently averaging roughly 124 bps, Malaysia’s 5 year CDS is expected to remain relativelyunchanged.

Not exceeding 150bps before Q22016

MarketInsightsFIXED INCOME RESEARCH (ASIA)April 2016

16

QATAR AA /Stable (S&P) Analyst: Trevis Gangaya

The Qatari economy is expected to experience turbulence in coming years, amidst the global energy slump and tightening domestic liquidity.Despite weaker activity in the oil and manufacturing sectors, the economy expanded by 4% in Q42015. Qatar’s inflation was recorded at 3.6% inFebruary, which was up from January’s 3.1%. The government expects inflation to average 2.5% in 2016. Overtime, Qatar's financial cuts havebeen extensive, affecting development projects, cultural schemes, education, transport and its 2022 football World Cup spending. Its in recenteconomic outlook update, Qatar suffered a downward growth projection from 4.9% to 3.4% growth by the IMF, but is set to remain the region’sfastest-growing economy within the Middle East.

RATIONALE

Currently averaging 88bps, Qatar’s 5 year CDS is expected to experience some volatility CDS Levels: Averaging 95bps as at Q22016

POLAND BBB+/ Negative (S&P) Analyst: Trevis Gangaya

Poland continues to exhibit strong macroeconomic fundamentals and policy frameworks. Moreover, economic growth remains relatively strongand unemployment continues to decline. In March, consumer prices rose 0.1% over the previous month, which contrasted the 0.1% droprecorded in February and marked a five-month high. Industrial production rose 6.7% y-o-y, marking an improvement compared to the 1.3%growth recorded in January. The acceleration reflected an almost across the board improvement, with manufacturing in particular recordingstrong expansion. Standard & Poor’s cut Poland’s credit rating earlier in the year over concerns that its new national ruling party could interferewith its central bank and other key government institutions. Growth for the economy is projected at 3.5% for 2016.

RATIONALE

Currently averaging 123 bps, Poland’s 5 year CDS is expected to remain stable.CDS Levels : Not exceeding 130bps by Q22016

MarketInsightsFIXED INCOME RESEARCH (EUROPE, MIDDLE EAST, AFRICA)

COUNTRY EXPECTATION

April 2016

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EUROZONE Analyst: Trevis Gangaya

The European Central Bank has taken measures to support the recovery amid worries that slowing growth in China and other large developing economies could hamper growth within the region. Among the ECB’s initiatives in March were cuts to all its interest rates, a decision to start purchasing some corporate bonds, increases in the amount of its monthly asset purchases, and the launch of a second round of loans to banks designed to encourage lending to the private sector. Eurozone’s economic recovery is expected to continue, however a number of downside risks exist, including uncertainties surrounding growth prospects in emerging markets and a June 23 referendum in the U.K. on whether to remain in the European Union.

Sources: Research & Analytics, IMF Global Economic Outlook April 2016, ECB

NOTEThe relative value analysis contrasts similarly rated bonds of similar tenors (years remaining to maturity) so that yields can be compared. Based on values as at 22 April 2016

FIXED INCOME RELATIVE VALUE ANALYSIS

18


BOND DESCRIPTION YEARS TO MATURITY

YIELD TO MATURITY (%) S&P RATING

SPREAD OVER U.S. BENCHMARK

TREASURY (bps)

MEX 8.3 08/15/31 15.3 3.72 BBB+ 176.8

PERU 8 3/4 11/21/33 17.6 4.45 BBB+ 176.2

MEX 6.05 01/11/40 23.7 4.69 BBB+ 199.7

PERU 5 5/8 11/18/50 34.6 4.65 BBB+ 195.7

PANAMA 5.2 01/30/20 3.8 2.40 BBB 91.0

PHILIP 6 1/2 01/20/20 3.8 1.52 BBB 2.6

URUGUA 8 11/18/22 6.6 3.55 BBB 140.7

COLOM 8 1/8 05/21/24 8.1 4.27 BBB 238.2

PANAMA 9 3/8 04/01/29 13.0 4.35 BBB 239.0

PHILIP 9 1/2 02/02/30 13.8 3.02 BBB 108.8

PANAMA 6.7 01/26/36 19.8 4.51 BBB 171.2

URUGUA 7 5/8 03/21/36 19.9 5.14 BBB 234.4

PHILIP 5 01/13/37 20.8 3.16 BBB 43.8

BAHAMA 5 3/4 01/16/24 7.7 5.26 BBB- 324.3

BAHAMA 7 1/8 04/02/38 22.0 6.39 BBB- 357.2

INDON 5 7/8 03/13/20 3.9 2.77 BB+ 130.1

INDON 6 3/4 01/15/44 27.8 5.22 BB+ 249.0

JAMAN 11 5/8 01/15/22 5.7 5.72 B 417.2

JAMAN 7 5/8 07/09/25 9.2 6.07 B 393.3

POLAND 5 03/23/22 5.9 2.78 BBB+ 129.8

POLAND 5 1/4 01/20/25 8.8 1.19 BBB+ 97.4

CHILE 3 1/8 01/21/26 9.8 2.74 AA- 85.8

TERM DEFINIITION

Annualized Return The average amount of money earned by an investment each year over a given time period.

Asset Management The management of investments on behalf of a client usually by an investment bank. The companywill invest on behalf of clients giving them access to wide range of investment products that wouldnot be available to the average investor.

Book Value The value at which an asset is carried on a balance sheet. Determined as the Cost of the assetminus it’s Accumulated Depreciation.

Book Value Per Share An accounting measure of the worth of a single share of company’s stock.

Capital Base The money contributed by the shareholders who first purchased shares in a company plusretained earnings.

Capital Adequacy Ratio A measure of a bank’s capital expressed as a percentage of the bank’s risk-weighted creditexposures.

Conglomerate A corporation that is comprises a number of different, seemingly unrelated business.

Comprehensive Income An accounting measure of the total of net income plus items that affect the owner’s equity but arenot reported on the income statement.

Continuing Operations The operating activities of a company, excluding the major segments of the company that are beingdiscontinued.

Debt to Equity Ratio A measure of the proportion of a company’s assets provided by creditors versus owners. The higherthe proportion of debt to equity the more risk y the company appears to be.

Discontinued Operations Operations of a division or segment of a company that has been sold, disposed or abandoned orwhere there is a formal plan to eliminate it from the company.

Dividends Distribution of a portion of company’s earnings, decided by the board of directors to a class of itsshareholders.

Dividend Policy The approach a company uses to decide how much it will pay out to shareholders as dividends.

Dividend Yield A financial ratio that shows how much a company pays out in dividends each year relative to itsshare price. Typically denoted in the financial markets as “D/Y”.

Earnings The after tax net profit that a company produces during a specific period usually a quarter (threecalendar months) or a year.

Earnings Per Share The portion of a company’s profit allocated to each outstanding share of a common stock.

Economies of Scale The cost savings that arise with increased output of a product.

Equity Accounting An accounting technique whereby a corporation will document a portion of its undistributed profitsfrom its investment in an associate company.

Financial Leverage An indicator of the degree to which a company uses debt and preferred equity .

Horizontal Integration The acquisition of additional business activities that are at the same level of the value chain insimilar of different industries.

Impairment An accounting term associated with a long-lived asset that has a market value that is less that thecarrying value of the asset on the balance sheet.

MarketInsightsGLOSSARYApril 2016

19

TERM DEFINIITION

Intrinsic Value/Price The actual value or underlying perception of its the true value of a company based on afundamental analysis of all aspects of a the business , both tangible and intangible. The value mayor may not be same as the current market value.

Market Value/Price The current or most recently-quoted price for a market-traded security. It is also used to refer tothe most probable price an asset would fetch on the open market.

Market Share The percentage of an industry’s total sales that is earned by a particular company over a specifiedtime period.

National Debt Exchange The process by which the Government exchanges one type of debt for another.

Net Asset Value The value of an entity’s assets less the value of its liabilities , often used in relation to mutual funds.Typically denoted as the “NAV”.

Net Interest Income The excess revenue that is generated from the spread between interest paid out on a bank’sliabilities i.e. deposits and interested earned a bank’s assets i.e. . loans and mortgages.

Operating Expenses Expenses that a business incurs in carrying out daily activities but not directly associated withproduction , including selling and administration expenses.

Overvalued A stock with a current market price that is not justified by its earnings outlook and therefore isexpected to drop in price.

Profit Margin A measure of how much of every dollar of sales a company actually keeps in earnings. Calculatedas net income divided by revenues.

Price/Book Value Measures a company’s market price in relation to its book value. The ratio denotes how muchequity investors are paying for each dollar in net assets. Typically denoted as “P/B”.

Price/Earnings A valuation multiple that shows how much investors are willing to pay per dollar of earnings.Typically denoted as “P/E”. In general a high P/E suggest that investors are expecting higher growthin the future compared to companies with a lower P/E.

Shareholder’s Equity The amount by which a company is financed through common and preferred shares. Calculated asa firm’s total assets minus its total liabilities.

Undervalued A stock that is selling for a price that is presumed to be below its true intrinsic value.

Unrealized Gain Earnings on an investment that exists on paper and has not been physically obtained.

Sources: Research & Analytics, Investopedia, Bloomberg

MarketInsightsGLOSSARYApril 2016

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Trinidad and Tobago(868) 622 3247 or(868) 653 9857

Barbados(246) 417 6810

St. Lucia(758) 450 2662 or(800) 788 2662

St. Vincent & the Grenadines(784) 453 2662

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DISCLOSUREWe, First Citizens Investment Services Limited hereby state that (1) the views expressed in this Research reportreflects our personal view about any or all of the subject securities or issuers referred to in this Research report, (2)we are a beneficial owner of securities of the issuer (3) no part of our compensation was, is or will be directly orindirectly related to the specific recommendations or views expressed in this Research report (4) we have acted asunderwriter in the distribution of securities referred to in this Research report in the three years immediatelypreceding and (5) we do have a direct or indirect financial or other interest in the subject securities or issuersreferred to in this Research report.

DISCLAIMERThis report has been prepared by First Citizens Investment Services Limited, a subsidiary of First Citizens BankLimited. It is provided for informational purposes only and without any obligation, whether contractual orotherwise. All information contained herein has been obtained from sources that First Citizens Investment Servicesbelieves to be accurate and reliable. All opinions and estimates constitute the author’s judgment as at the date ofthe report. First Citizens Investment Services does not warrant the accuracy, timeliness, completeness of theinformation given or the assessments made. Opinions expressed may change without notice. This report does notconstitute an offer or solicitation to buy or sell any securities discussed herein. The securities discussed in thisreport may not be suitable to all investors, therefore Investors wishing to purchase any of the securities mentionedshould consult an investment adviser.

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