BAIPHIL Market Watch – 12 May 2016

Page 1 of 14

BAIPHIL

MARKETWATCH

12 May

2016 Legend Improvement / Up Deterioration / Down No Movement

FINANCIAL MARKETS AT A GLANCE

PHILIPPINES

Financial Rates Current Previous

USD/PHP 46.5500 46.7500

30-D PDST-R1 1.7750% 1.8933%

91-D PDST-R1 1.9017% 1.9050%

180-D PDST-R1 2.1300% 2.1150%

1-Y PDST-R1 2.4717% 2.3417%

10-Y PDST-R1 4.7433% 4.7217%

30-D PDST-R2 1.7736% 1.7491%

91-D PDST-R2 1.6496% 1.6200%

180-D PDST-R2 2.1300% 2.1150%

1-Y PDST-R2 2.3883% 2.3417%

10-Y PDST-R2 4.7133% 4.7217%

Stock Index Current Previous

PSEi 7,396.52 7,174.88

Market Cap (Php Trillion) 12.039 11.765

Total Value (Php Billion) 12.863 8.785

PSEi Performers Closing % Change

Top Gainers

MJC Investments Corp 3.49 21.18%

Now Corp. 3.00 16.73%

Philex Petroleum Corp 2.75 16.53%

Top Losers Jolliville Holdings Corp. 4.00 -16.67%

Chemical Industries 120.00 -7.69%

Vivant Corp. 33.00 -5.71%

ASIA-PACIFIC

Stock Index Current Previous

NIKKEI 16,579.01 16,565.19

HANG SENG 20,055.29 20,242.68

SHANGHAI 2,837.04 2,832.59

STRAITS 2,732.87 2,741.15

SET 1,382.41 1,390.13

JAKARTA 4,799.96 4,763.12

Currency Exchange Current Previous

USD/JPY 108.4200 109.0900

USD/HKD 7.7605 7.7615

USD/CNY 6.4985 6.5208

USD/SGD 1.3670 1.3675

USD/THB 35.2520 35.2100

USD/IDR 13,309.00 13,286.00

REST OF THE WORLD

Stock Index Current Previous

FTSEuro First 300 1,315.20 1,321.14

FTSE 100 6,162.49 6,156.65

DAX 9,975.32 10,045.44

CAC 40 4,316.67 4,338.21

DOW JONES 17,711.12 17,928.35

S&P 500 2,064.46 2,084.39

NASDAQ 4,760.69 4,809.88

Various Current Previous

EUR/USD 1.1422 1.1371

GBP/USD 1.4436 1.4446

Gold Spot (USD/oz) 1,272.40 1,266.90

Brent Crude(USD/bbl) 47.40 45.44

3-M US Treasury Yield 0.25% 0.24%

10-Y US Treasury Yield 1.74% 1.76%

30-Y US Treasury Yield 2.58% 2.61%

PHILIPPINES

Local equities soared 3%, as market players continued to cheer on the conclusion of a relatively peaceful presidential elections. The PSEi

gained 221.69 points, or 3.09%, to close at the 7,396.52 level. All sectoral indices ended in the green led by the property sector (+3.65% day-on-day). Market breadth was positive with 160 advances outnumbering 50 declines while 34 names were unchanged. Total value

turnover stood at Php 12.86 billion. Foreigners were net buyers at Php1.88 billion.

In the local fixed income space, prices of government securities fell, as risk-on sentiment ensued in the domestic capital market.

Average yields rose by 5.47 basis points, led by the belly which rose 10.1 basis points, followed by the short-end and long-end of the curve which jumped 2.9 and 1.1 basis points, respectively.

The Philippine peso continued to strengthen given strong net foreign inflows in the equity market, totaling Php1.88 billion. The PHP gained

20 centavos, as the USD/PHP closed at 46.550.

Loans secured under the central bank’s rediscount window saw a slight rise in April, the Bangko Sentral ng Pilipinas (BSP) said,

noting increases in both the peso and dollar credit windows amid stronger demand for credit. Total loans availed under its peso rediscount facility rose to P10.424 billion for the month, rising by more than a tenth from the P8.995 billion seen at end-March and the P80

million secured by thrift and rural banks in the same period in 2015. Dollar-denominated loans booked through the central bank’s Exporters Dollar and Yen Rediscount Facility (EDYRF) also rose to $10 million in April, coming from $7.8 million availed as of March and rising from

BAIPHIL Market Watch – 12 May 2016

Page 2 of 14

the $0.7 million from the comparable year-ago period. Meanwhile, the yen facility remained untouched so far in the year. The rediscount window allows banks to secure debt from the central bank to meet short-term liquidity needs by using promissory notes as their collateral.

For the first four months of the year, bulk of the rediscount loans availed by banks went to capital expenditures, permanent working capital, and other service activities with a 76.5% share. About a fourth went to commercial credits while less than 0.1% was set aside for production credits. The BSP also published the rediscount rates for May on Tuesday. Rates under the Rediscount Window I for universal

and commercial banks remained at 6.125% for 30-day loans, 6.1875% for 90-day loans, and 6.25% for 180-day loans. Rates for thrift, rural, and cooperative banks under the Rediscount Window II stood at 4% for 30- and 90-day loans, 4.0625% for 180-day loans, and 4.125% for 360-day loans. Meanwhile, rates for the dollar rediscount window have been hiked to 2.6366% for loans with a tenor of one to

90 days; 2.6991% for 91- to 180-day loans; and 2.7616% for 181- to 360-day loans. Yields from the yen rediscount facility, meanwhile, went down to 1.97743% for one to 90-day loans, 2.03993% for 91- to 180-day loans, and 2.10243% for 181- to 360-day loans.

Governments must ramp up public spending to stimulate further growth, Bangko Sentral ng Pilipinas (BSP) Gov. Amando M. Tetangco, Jr. said, as supported by monetary policy and sound regulations across economies to ensure stability. Addressing

fellow central bankers at the Joint Meeting of the ASEAN+3 and Eurosystem Central Bank Governors in Frankfurt, Germany, Mr. T etangco appealed to fiscal authorities to “ramp up spending to help prop up economic activity,” as the BSP also reported in a statement yesterday. The Philippine economy grew by 5.8% in 2015, deemed one of the fastest in Southeast Asia though far off the government’s 7%-8% target.

Consumption spending drove nearly 70% of the expansion, coupled with a surge in public spending during the second half of the year.The country posted a P121.7-billion budget gap for the year, barely half of the P283.69 billion ceiling set by economic managers after government spending fell 13% short of a P2.559-trillion program. Mr. Tetangco also stressed the need for central banks to keep a close

watch of global developments alongside monitoring domestic trends to identify “monetary, macroprudential, and microprudential” policy actions that would best ensure stability in one economy and across the region. Citing the experience of Southeast Asian economies during the 2008 Global Financial Crisis, the BSP official stressed the need to employ a “menu of tools” to address concerns to put in place price

and financial stability. Back home, the BSP has kept monetary policy steady amid buoyant domestic demand, robust economic growth, and manageable inflation as of its March 23 meeting. An upcoming review is set on Thursday. Mr. Tetangco also batted for a sustained regional policy dialogue among ASEAN member-economies, as well as tapping the surveillance of the ASEAN+3 Macroeconomic Regional Office.

“While each jurisdiction focuses on keeping ‘its own house in order,’ it is equally important that each looks out for his neighbors, or to practice what the Bank for International Settlements calls ‘enlightened self-interest,’” Mr. Tetangco was quoted as saying in the statement. The meeting of the central bank officials was on the sidelines of the Asian Development Bank’s Annual Governors’ Meeting from May 2-5.

Joining the dialogue were central bank governors of the 10 ASEAN economies, as well as officials from Japan, Korea, China, and countries in the Eurozone. The discussions came amid a divergence in monetary policy across key economies, with the European Union and Japan taking interest rates to negative territory in their bid to stimulate their economies on the backdrop of paling global trade and commodity

demand.

The Philippine Competition Commission (PCC) is ready to come out with the draft implementing rules and regulations (IRR) for the Philippine Competition Act this week. In line with the release of the draft IRR, the PCC said in a statement yesterday it is set to

consult business groups and stakeholders in Manila, Cebu, and Davao from May 16 to 24. PCC chairman Arsenio Balisacan said the inputs of businessmen and other stakeholders during the consultations would be taken into account in the fine-tuning of the IRR. Balisacan said the public consultations would be a healthy exercise for ensuring sound implementation of the law and effective operation of the PCC,

which will have jurisdiction over all industries in matters related to competition. “On one hand, the consultations will help educate Filipinos on the provisions of the Philippine Competition Act, as well as on the vital role of the country’s newly created anti-trust authority – the PCC – in pursuing consumer protection and in opening various industries to more investments,” Balisacan said. “On the other hand, the

consultations will also help the PCC get valuable inputs from our stakeholders,” he added. Balisacan said the final and approved version of the IRR, which is scheduled to be released next month, would allow the PCC to fully implement the Philippine Competition Act. The Philippine Competition Act was enacted last year and is seen as a game-changing legislation expected to help boost investment generation

and job creation across industries by putting in place a regulatory environment conducive for fair market competition. By promoting fair market competition in various industries and penalizing anti-competitive practices, the law complements the aim of sustaining robust economic growth in the Philippines and of making the economic gains of the country benefit a bigger proportion of the population,

Balisacan said.

Graphic health warnings on cigarettes pulled down excise tax collections on "sin" products in March, but revenues remained up

to beat its first quarter target, the Bureau of Internal Revenue (BIR) reported on Wednesday. A total of P8.09 billion in sin taxes were raised that month, down 1.73 percent from P8.24 billion a year ago. Nonetheless, collections from January to March were still up 22.78

percent to P26.62 billion, also beating the P24.73-billion goal. "Our landmark sin tax reform continues to deliver positive health outcomes for the Filipino people," Finance Secretary Cesar Purisima said in a statement. Jo-ann Diosana, senior economist at think tank Action for Economic Reforms, agreed. "There is no doubt the reform is bringing in more much-needed revenues," she said by phone. Enacted in

2012, Republic Act (RA) 10351 prescribed for yearly specific adjustments in tobacco and alcohol excise tax rates. The law, which was meant to deter smoking and excessive drinking, allocates around 80 percent of incremental revenues to universal health care program and 15 percent to tobacco farmer support. In March though, the drop in collections was led by a 16.12-percent decrease in tobacco revenues

to P4.04 billion. Those from distilled spirits and compounded liquors also decreased 9.11 percent to P970 million, data showed. Fermented liquors surged 31.02 percent to P3.09 billion. For the first quarter, collections remained up 23.05 percent, 3.75 percent and 30.72 percent, respectively. "Companies are still disposing off their stocks which do not have graphic health warnings so there were less withdrawals," BIR

commissioner Kim Henares said in a separate phone interview. Withdrawals pertain to stocks released from factories to the market. BIR data showed tobacco volumes went down by more than a quarter to 148.62 million packs in March. RA 10643 took effect in March and required cigarette packs to contain photographs of health repercussions of smoking. "The gauge is based on withdrawals, not consumption.

So basically, you have those in the market, but possibly they are not being consumed that much," Henares said. "Besides, logically, why would you even add heat to your body if it is already too hot these days?" she added. Diosana, for her part, said she is satisfied with how the law is increasing state revenues. "They are also being allocated to the right program. But in terms of actual use of revenues, we have to

monitor the implementing agencies like the Department of Health," she said.

Investments in major mining projects last year totaled $924.94 million, down by 22.5% from the total investments of $1.193 billion

in 2014, the Mines and Geosciences Bureau (MGB) said in a statement. Investments in new mineral exploration projects posted $78.97 million, also down by 44.23% from last year’s investment of $141.6 million, the MGB also noted. The bureau attributed this decrease

“mainly to the continuing expansion of four operating mining projects and one new mining project in construction stage.” These projects are as follows: Philex Mining Corporation’s Sto. Tomas Copper Project in Tuba, Benguet ($44.98 million); Taganito HPAL Nickel Corporation’s Surigao Sumitomo HPAL Project in Claver, Surigao del Norte ($180 million); CTP Construction and Mining Corporation’s SIRC Nickel

BAIPHIL Market Watch – 12 May 2016

Page 3 of 14

Project, also in Claver ($47.30 million); and FCF Minerals Corporation’s Runruno Gold Project in Quezon, Nueva Vizcaya ($41.40 million). The MGB also cited the Runruno Gold Project as being “in the construction stage, which is expected to commence commercial operation”

during this semester. Other new mining projects began to infuse substantial investments, the MGB said. These are: Hallmark Mining Corporation and Austral-Asia Mining Link Mining Corporation’s Pujada Nickel Project in Davao Oriental ($20.5 million); Nationwide Development Corporation’s King-king Copper-Gold Project in Compostela Valley ($145.00 million); and Silangan Mindanao Mining

Company, Incorporated’s Silangan Copper-Gold Project in Surigao del Norte ($32.00 million).

Philippine exports dropped for the 12th straight month in March on weak demand in key markets such as the United States and

China. Shipments fell 15.1 percent from a year earlier to $4.61 billion, the biggest drop in six months, with seven of the country's top 10 exports posting declines, the statistics agency said on Wednesday. However, a bump-up in government spending particularly on

infrastructure projects ahead of last weekend's presidential election and still robust domestic demand should offset any weakness in trade, economists said. "The latest exports numbers reflect the weak economic outlook for the world economy," said Nicholas Antonio Mapa, economist at Bank of the Philippine Islands. "But the weakness in the trade sector will be offset by some compensation in government

spending and the solid consumption story of the Philippines." Electronics exports, which accounted for 51.1 percent of total exports in March, rose a mere 1 percent, with semiconductors, which usually have the biggest share among electronics products, down 0.4 percent. Total exports in the first quarter were down 8.4 percent from a year earlier to $13.1 billion. Mapa expects the Philippine economy grew 6.2

or 6.3 percent in the first quarter from a year ago. The government will release the GDP data on May 19. Exports to top destination Japan dropped 13.6 percent, while shipments to the United States, the second biggest market, were down 23.6 percent. Exports to the third biggest market Hong Kong rose 11.6 percent, while shipments to China, the fourth biggest market, fell 23.4 percent. After ris ing 7.9 percent

in 2015, shipments of electronic products this year may rise just 2 percent to 5 percent, reflecting weak demand from key market China, industry group Semiconductor and Electronics Industries in the Philippines Inc said.

The country’s exports growth is expected to accelerate to a double-digit 10.6 percent to $104 billion in 2017, the updated

Philippine Exports Development Plan (PEDP) showed. Senen Perlada, director of the Bureau of Export Management Bureau of the Department of Trade and Industry, told reporters this is an acceleration from the target of 8-9 percent growth for 2016 or projected exports of $92.2 billion and $94 billion only. This means total exports in 2017 could hit a low of $99 billion to a high of $104 bill ion. The new

updated 2015-2017 PEDP has been approved by the Export Development Council, which is composed of representatives from both the private and public sector. For 2016, the services are expected to contribute a low of $29.8 billion and a high of $30.2 billi on. The merchandize goods could reach a low of $62.3 billion to a high of $63.8 billion. For 2017, contribution from the services sector may hit

$32.8 billion to a high of $33.8 billion while the goods at a low of $66.4 billion and high of $70.2 billion. Perlada said there was no budget allocation for the 14 government agencies to help support the growth targets, but the approved PEDP could be its basis to seek for additional budget in the 2017 General Appropriations Act. “In addition of what they have already submitted within their own respective

budget, they can get additional budget based on the PEDP plan,” he explained. There are 14 government agencies that are working to ensure the PEDP goals are achieved. These agencies led by the DTI have already submitted their projects, activities and programs aligned with their PEDP commitments under government Memorandum Circular 91, which highlights 8 strategies to attain the exports growth. The

EDC has already endorsed the plan to the office of the President.

Industrial production grew for the ninth straight month in March as 10 out of the 20 major sectors posted double-digit growth, the

Philippine Statistics Authority (PSA) reported Wednesday morning. Preliminary results of the Monthly Integrated Survey of Selected Industries for March showed that factory output, as measured by the volume of production index (VoPI) , grew 7.8% year-on-year. This

was, however, slower than the 14.9% recorded in the same month last year and the 11.2% posted in February. “Of the 12 major s ectors that reflected increases in VoPI, 10 sectors exhibited two-digit growth led by tobacco products with 82.6% growth,” the PSA said in a statement. “Other major sectors that recorded two-digit growth were non-metallic mineral products (28.5%), machinery except electrical

(27.8%), wood and wood products (24.5%), fabricated metal products (18.7%), basic metals (17.3%), paper and paper products (15.7%), food manufacturing (15.3%), rubber and plastic products (14.5%), and electrical machinery (13.0%),” it added. On the other hand, sectors that posted declines were leather products (-83.9%), petroleum products (-30.8%), textiles (-13.5%), miscellaneous manufactures (-13.3%),

footwear and wearing apparel (-11.8%), transport equipment (-7.9%), printing (-1.4%), and beverages (-1.3%). Capacity utilization -- the extent by which industry resources are used in the production of goods -- averaged 83.4% for March, with 55% or 11 of the 20 major industries operating at capacities 80% and above.

The Philippines has requested a consultation with Thailand on the latter’s measures in relation to a 2011 case favoring Philippine

tobacco products, the World Trade Organization (WTO) said. Lawyer Jemy I. Gatdula of the University of Asia and the Pacific School of Law and Governance, who helped in the initiation of the dispute, said the Philippines has a “strong” position on this matter. “This is a necessary process for the Philippines to be able to enforce its rights. Unfortunately, despite all the developments in international law, there

is still need for state sovereignty to be given primacy,” Mr. Gatdula said in a phone interview. Should it be decided that Thailand didn’t comply with the ruling, the Philippines would be allowed to engage in a withdrawal of concessions. “In other words, it would be allowed to legally retaliate,” Mr. Gatdula said, explaining further the country could “discriminate” against Thai exports. In 2006, the Philippine

government filed a complaint on behalf of Philip Morris Philippines Manufacturing, Inc., claiming bias against imported cigarette brands in Thailand. In 2011, the WTO ruled in favor of the Philippines. However, complications arose as Thailand’s prosecutor charged the Thai unit of Philip Morris International of underreporting the value of cigarettes from the Philippines between 2003 and 2007, according to a report

from Reuters. In April, the tobacco company pleaded not guilty. The next hearing is scheduled in October.

The outcome of the national and local elections on Monday will not immediately affect the country’s minimum investment grade

credit rating and stable outlook, an official of debt watcher Fitch Ratings said. Sagarika Chandra, an associate director in Fitch Ratings’ Sovereigns team, said that while the agency does not expect the outcome of the polls "to have any immediate impact" on the

Philippines' rating or outlook, it will monitor developments closely. Chandra said Fitch had pointed out that it would wait and see whether the improvement in governance standards achieved under the Aquino administration could be sustained after the 2016 elections, in line with its rating sensitivities. "If that were to occur it could be positive for ratings," she said. Fitch re-affirmed the country’s rating at "BBB-"

with a positive outlook in April. Davao City Mayor Rodrigo Duterte is leading the presidential race by more than six million votes. Administration bet Leni Robredo and Senator Bongbong Marcos, on the other hand, are in a tight race for vice president.

The camp of presumptive President Rodrigo Duterte has created its own “transition team” in preparation for the incoming

administration. This was after Christopher Go, Duterte’s executive secretary, said that President Benigno Aquino III called him Tuesday to say that an excutive order will be released for the transition team’s operation. The members of the transition team include Go, Leoncio Evasco, Duterte’s national campaign manager; Peter Laviña, Duterte’s spokesperson; businessman Carlos Dominguez, the campaign

BAIPHIL Market Watch – 12 May 2016

Page 4 of 14

finance chief; and lawyers Salvador Medialdea and Lorieto Ata, who served as legal team head and deputy, respectively. The team met at the Marco Polo hotel here Wednesday.

The Philippine economy likely grew by 6.6% in the first quarter, an economist at ING Bank N.V. Manila said, which would allow

the central bank to keep monetary policy steady while financial markets also await more guidance on the policy track of the next president. In a market report, ING Bank senior economist Jose Mario I. Cuyegkeng said he expects a robust economic growth to log at

6.6% on the back of strong public spending and election-related effects during the first three months of 2016. “Growth indicators show strong economic activity in 1Q. Manufacturing indicators exhibit buoyant industrial activity while government spending is outstripping spending growth in 1Q 2015. Election spending is also a boost to the economy,” Mr. Cuyegkeng said. Latest data from the Finance department showed a 22% surge in spending in February from the previous year, rising from a 7% uptick posted in January. The bank

analyst also noted that private sector investments are also seen remaining strong from January to March, which covers the ear ly months ahead of the May 9 general elections. Altogether, these push factors are seen to offset declines in agricultural production given the drag caused by the prolonged El Niño phenomenon. If realized, Mr. Cuyegkeng’s forecast picks up from the fourth quarter’s 6.3% and the 5%

pace tallied a year ago. Such expansion would likewise allow the Bangko Sentral ng Pilipinas (BSP) to stand pat on policy rates, coupled with benign inflation seen from January to April. “BSP is likely to keep policy settings steady at this week’s policy rate meeting since economic activity remains strong,” Mr. Cuyegkeng said ahead of a policy review set today. The BSP’s policy-setting Monetary Board is set

to meet on Thursday to reassess current interest rates. Analysts widely expect no change in the BSP’s policy stance, though s ome were of the view that operational tweaks to narrow the current 350-basis-point spread of the rates may be put in place ahead of the launch of the interest rate corridor system by end-June. Joseph F. Incalcaterra, senior economist at the Hongkong and Shanghai Banking Corp. Ltd.,

said separately that the procedural changes may be introduced to policy settings: “We expect the Bangko Sentral ng Pilipinas to keep policy on hold this week; but it may announce plans to narrow the policy corridor by cutting the policy and lending rates.” “These are operational changes in anticipation of the introduction of an ‘interest rate corridor’ on June 3, and are meant to be policy-neutral,” Mr.

Incalcaterra added. “After all, current policy is adequate: growth likely accelerated in 1Q on the back of strong consumption and investment; while inflation remained subdued at 1.1% year-on-year in April.” The BSP is slated to adopt a corridor-type system of setting interest rates through the auction of term deposits before end-June, with the goal of steering market rates closer to the policy rate while also mopping up

excess liquidity in the system. The central bank kept monetary policy settings unchanged during its March 23 meeting for the 12th time in a row, citing buoyant domestic demand and rosy prospects for economic growth. Looking ahead, ING’s Mr. Cuyegkeng said both public spending and private investments are poised to remain buoyant in the coming months, but pointed out the key role of the incoming

administration in sustaining this momentum. “Except for a weak agriculture output, other drivers of growth look quite strong. These are domestic consumption spending, investments, government spending, and structural inflows. Election spending would benefit 1H economic activity,” Mr. Cuyegkeng said. Growth for the first semester is seen clocking in at 6.2% average. “Philippine local fundamentals are

favorable although we are closely monitoring economic policy statements of [presumptive] president-elect [Rodrigo R.] Duterte,” he added, referring to the results of the unofficial vote tally showing a landslide win for the Davao City mayor. “We do not expect the new government to program a deficit that could lead to difficulties in the future. A 2%-3% deficit to GDP (gross domestic product) ratio for 2017 is possible.

But again, execution is the key -- a promise that Duterte has made by promising faster implementation of government programs including infrastructure projects,” Mr. Cuyegkeng added, as he pointed out a regained strength in the local financial markets following the May 9 vote. “Markets would now focus on the new government’s economic policies. We have had snippets of the economic/business policies of

president-elect Duterte...Recent economic and business-related statements of Duterte are encouraging but there are portions that require some vigilance.”

The Philippine central bank is widely expected to leave its interest rate where it has been for 20 months on Thursday as

economic activity remains strong and inflation not a worry. Ten of 11 economists surveyed by Reuters said the central bank will leave the overnight borrowing rate at 4 percent as it also prepares to introduce an "interest rate corridor" next month to make pol icy transmission more effective. One economist expects the central bank to set the corridor on Thursday by reducing the main rate to 3.5 percent and the lending rate to 4.5 percent from 6 percent, but to leave the special deposit accounts rate at 2.5 percent. Thursday's meeting comes three

days after Filipinos chose as president Davao Mayor Rodrigo Duterte to succeed Benigno Aquino, whose non-renewable six-year term ends in June. Duterte has yet to detail his economic agenda but has said he had no qualms about using some of Aquino's polici es, which have focused on infrastructure and improved fiscal efficiency. During Aquino's term, average annual economic growth has topped 6

percent. First-quarter gross domestic product data is due on May 19. The governor of the Philippine central bank, which by law is independent, is a presidential appointee. Duterte will name a governor when incumbent Amando Tetangco, who is not eligible for reappointment, in July 2017 completes his second six-year term. ING Bank economist Jose Mario Cuyegkeng said there was no

compelling reason for the central bank to alter its policy settings with growth indicators pointing to strong economic activity, buoyed in part by a burst of campaign spending. "Philippine local fundamentals are favourable," Cuyegkeng said. Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco has repeatedly said there was no need to change policy settings given the subdued inflation outlook. Inflation

has stayed below the central bank's 2-4 percent annual target since May 2015. It has averaged 1.1 percent in the four months to April this year. The interest corridor system, or IRC, is an operational adjustment and is not meant to reflect a change in the country's monetary policy stance, the central bank has said. The IRC will be accompanied by a term auction facility that will allow banks to deposit money with

the monetary authority to guide market interest rates towards the central bank's main policy rate.

The lack of an operational credit bureau, low incomes, and a weak payment culture in the Philippines stand as risks for local

banks looking to pursue consumer loans, S&P Global Ratings said, but noted that the lenders will still stand resilient against

global headwinds armed with sufficient capital. In a report, the debt watcher said it expects Philippine banks and other Southeast Asian lenders to weather external volatilities that may shock financial systems as the entities are found to remain well-capitalized against declining asset quality. “The majority of the ASEAN (Association of Southeast Asian Nations) banks we rate have stable outlooks, reflecting

our expectations that these banks have built sufficient buffers over the years to absorb the difficulties,” S&P said in a report titled Sector Review: ASEAN Banks Can Withstand Asset-Quality Pain In 2016. “We stand by our stable outlook on regional banking systems. We expect most banks in ASEAN to maintain their credit profiles in 2016.” Specifically for the Philippines, local lenders are expected to

shoulder rising credit costs given sound funding profiles, coupled with a deep well of liquid assets such as cash and government bonds. “Liquidity levels remained stable throughout the global financial crisis in 2008-2009, demonstrating the Philippine banking system’s considerable resilience to external shocks,” the debt watcher added. Domestic liquidity or M3, which stands as the broadest measure of

money in an economy, clocked in an 11.7% growth in March from a year ago to P8.5 trillion, the fastest pace seen in over a year according to central bank data. However, S&P flagged a sizable risk facing Philippine lenders as they seek to increase consumer credit, pointing out chances of loan default among individual borrowers as seen in the share of non-performing loans (NPLs). “The ratio of nonperforming

consumer loans to total consumer loans has consistently been double that of total NPLs to total loans, although both the ratios have been improving,” the credit rater said. “The country lacks a comprehensive credit bureau, has a weak payment culture, low income levels, and

BAIPHIL Market Watch – 12 May 2016

Page 5 of 14

heightening consumer asset-quality risks.” Soured debts within the entire Philippine banking system improved to just 2.15% of total loans at end-2015 from 2.4% previously, which S&P said fared better than the trend across the region. Putting up a national credit scoring system

would likewise aid banks in profiling potential borrowers to step up better monitor credit risks. “The establishment of the government-led Credit Information Corp. (CIC) and completion of substantial data collection by early 2017 will l ikely improve transparency and availability of credit in the consumer loans segment,” the report also pointed out. In March, the CIC said it has authorized six companies to offer rating

services for clients as it seeks to put up a national registry of credit profiles by yearend. Those accredited were the Credit Information Bureau, Inc., Credit Bureau Singapore, South Africa’s Compuscan, Italy’s CRIF S.p.A., Dubai’s Dun & Bradstreet South Asia Middle East Ltd. and the US TransUnion as special accessing entities for the planned national credit information system. Overall, S&P expects loan

growth to log between 8-12% in 2016, slower than the 11.9% seen at end-2015 and down from the record-high 19% in 2014, when the government stepped up regulations covering real estate lending to cool the property sector. “Loan growth, particularly to the corporate sector, will likely keep moderating as well unless public infrastructure and development projects kick in under the governmen t’s public-

private partnership scheme,” the credit rater said.

The Land Bank of the Philippines said its net income grew 15 percent in the first quarter of 2016, citing higher loan portfol io amid

conservative growth in income from investments. In a statement, the Landbank said its net income expanded to P4.14 billion in the first three months, which is on track towards steady growth this year. This is also 23 percent higher than the year-to-date target of P3.38 billion.

Landbank president and CEO Gilda E. Pico said that interest income on loans jumped 20 percent as the bank’s gross loan portfolio grew to P464.8 billion in the first quarter this year from P398 billion in March 2015. “We are well-positioned for sustained growth this year as we continue to boost revenue and manage expenses in order to further drive support to our priority sectors, foremost to farmers and fishers,

microenterprises and SMEs, agribusiness and other development players,” Pico said. Return on equity for the first quarter was at a high 17.03 percent while net interest margin stood at 3.14 percent. The bank’s total assets also expanded significantly by 22 percent to P1.28 trillion from P1.05 trillion in March 2015. Total deposits rose 25 percent to P1.14 trillion while capital expanded by a heft y 24 percent to

P90.12 billion. Landbank has a nationwide network of 361 branches and 1,526 ATMs as of March 2016. It also remains the biggest credit provider to small farmers and fishers, local government units, and is the biggest lender to microenterprises and SMEs among government financial institutions.

Two thrift banks reported last Tuesday higher earnings in the first quarter of the year attributed to the sustained growth in each

of the lenders’ core businesses. Net income of Philippine National Bank’s (PNB) thrift banking arm grew by 29% in the January to March period to P91 million from the P70 million earned in the previous year , it told the Philippine Stock Exchange. PNB Savings

Bank (PNB Savings) -- which was built via the merger of PNB and its fellow Lucio C. Tan-owned Allied Banking Corp. in 2013 -- said the “strong performance” was driven by the sustained growth in its core business as net interest income increased by 46% year on year. Its loan portfolio stood at P20.24 billion, more than double the P9.99 billion logged in the same period last year, while total deposits with the

bank stood at P14.12 billion, up 64% year on year, primarily fueled by short-term and long-term deposits. Despite the growth in its lending portfolio, PNB Savings’ asset quality steadily improved as its gross non-performing loans (NPL) ratio declined further to 2.95% from 4.62% a year ago. Total capital base of the country’s third largest thrift bank stood at P11.32 billion, up by 2% at end-March. The bank’s total

capital adequacy ratio stood at 50.02%, well above the central bank’s 10% minimum requirement. For this year, the thrift lender plans to expand its network of branches to 60 in 2016 to cater to more clients nationwide. For its part, listed thrift lender Philippine Business Bank (PBB) reported a 15% rise in its net income to P162 million through the end of the first quarter from the P140.9-million

earnings seen during the same period last year. In a separate disclosure yesterday, the Yao-led bank said its net interest income stood at P589.4 million, while service charges, fees, and commissions reached P23.9 million during the period, increasing by 11.3% year-on-year. Miscellaneous income grew 12.8% to P18.8 million, it added. The listed thrift bank’s pro-forma recurring net income was up 12.3% to

P176.2 million, while pro-forma recurring pre-tax pre-provision profit was at P235.4 million. Its core income stood at P158.4 million for the first quarter, it said in its regulatory filing. PBB’s loans and receivables reached P40.8 billion and total deposits with the bank totaled P51.2 billion. “At the end of the first quarter, total resources stood at P61.9 billion ... shareholders’ equity was at P8.8 billion, up 4.3% or by P360.9 million year on year,” it added. The bank said during the first three months of 2016, PBB reorganized its lending groups to allow it to

provide more efficient services and customized solutions for the bank’s clients. The newly formed institutional banking group houses the commercial banking, corporate banking, and consumer banking units, it said. PBB President and Chief Executive Officer Roland R. Avante was quoted as saying: “With the recent internal realignments, we believe the bank is now better positioned towards future str ategic

initiatives. Also, we remain opportunistic in potential acquisitions to accelerate the growth of our balance sheet and expand our branch network and distribution platforms.” PBB has a total of 138 branches. Including its acquisitions, PBB has a total of 149 branches, of which eight are from Insular Savers Bank (ISB) and three are from Bataan Savings and Loan Bank. Without the boost from its recently acquired

ISB, PBB’s net income reached P502.1 million in 2015.

Philippine Savings Bank, the Metropolitan Bank and Trust Co. (Metrobank) group’s thrift banking arm, also posted a 12 percent

growth in first quarter net profit to P434.8 million with the continued expansion of its core businesses. For PSBank, loan portfolio

expanded by 12 percent year-on-year to P118 billion in the first quarter, mainly driven by auto and mortgage loans. On the funding side, PSBank’s deposit base rose by 24 percent year-on-year to P136.6 billion, with low cost funds increasing by 21 percent. Meanwhile, core revenues, composed of net interest margin and fee income, went up by 11 percent year-on-year. “As early as the first quarter of the year,

we provided the necessary boost in growing our core retail businesses. And we plan to further grow by offering new products t hat cater to our customers’ banking needs through targeted cross-selling campaigns throughout the year,” PSBank president Vicente Cuna Jr. said. “The bank also remained steadfast in providing excellent customer experience to our clients because we believe that banking entails more

than just lending and deposit-taking. We know that understanding our clients well has a long-term positive effect to the Bank,” Cuna added. PSBank’s NPL ratio was kept at 1.1 percent. Its CAR stood at 15 percent, well above the Bangko Sentral ng Pilipinas’ 10 percent minimum requirement. Its tier 1 ratio was at 11.9 percent.

The country’s oldest business house Ayala Corp. is seeking approval from the Securities and Exchange Commission to raise up

to P20 billion from a bond offering under a shelf registration program. The first tranche of the offering is an issuance of P10 billion in bonds due 2023, based on AC’s preliminary prospectus dated May 11. BDO Capital & Investment Corp. was mandated as the issue manager while joint lead underwriters include BPI Capital Corp., China Bank Capital Corp. and First Metro Investment Corp. After the initial

P10 billion offering, the succeeding tranches of the bond program are proposed to be issued under a shelf registration program, whereby securities to be issued in tranches may be registered for an offering to be made on a continuous or delayed basis for a period not exceeding three years. The issuer is allowed to use the same prospectus for various tranches of securities offering under such mechanism.

Ayala Land Inc. (ALI), the listed property and mall developer of the Ayala Group, is looking to issue another round of its

pioneering Homestarter bonds worth P2-to P3-billion, a ranking official said. In an interview, ALI chief financial officer Jaime Ysmael

BAIPHIL Market Watch – 12 May 2016

Page 6 of 14

said the company is planning to do that this year. The instrument enables bondholders to build up full or partial downpayment to buy a residential unit in the future. “We’re looking at (another round) possibly this year,” he said. With a total amount of P2-to P3-billion, ALI is

looking at issuing a three-year offer. “It’s not a fund raising activity,” Ysmael said, adding it’s more to help prospective home buyers raise funds for a seed money that would help them acquire a residential unit in the future. The coupon rate may be 3.5 percent to four percent, same as in previous offerings of Homestarter bonds. “The rate and terms will be almost the same,” he said. For a three-year instrument,

Ysmael said a 3.5 to four percent rate is attractive enough. ALI first launched the innovative instrument in 2006, making it the first property company to issue such types of bonds. It has been issuing the bonds regularly, saying that it has been an effective savings instrument for many bondholders. In the past, eligible investors including the targeted retail investors can buy a minimum of P50,000 worth of the bonds

and in multiples of P5,000 or P10,000 thereafter. ALI has an approved shelf registration for up to P50 billion granted by the Securities and Exchange Commission (SEC), the corporate regulator. In industry parlance, shelf registration is an option for issuers to register and sell under the same regulatory documents securities which they do not intend to sell right away. The SEC allows for a three-year window.

Under Section 8.1.2 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code, securities to be issued in tranches may be registered for an offering to be made on a continuous or delayed basis for a period not exceeding three years. This affords the issuer companies the flexibility when to offer and sell securities within the three-year period, the SEC said. The SEC provided this leeway

because sometimes current market conditions are not favorable for certain firms to issue public offering. By using shelf registration, the issuer companies can fulfill all registration-related procedures beforehand and go to market quickly when conditions become more favorable. ALI’s shelf registration is for future debt securities in the form of commercial paper, Homestarter bonds and fixed-rate bonds. Of

the shelf registration of P50 billion, an initial tranche of P8 billion in fixed rate bonds will be due 2026.

Megaworld group’s tourism estate arm Global Estate Resorts Inc. (GERI) boosted its first quarter net profit by 50.84 percent year-

on-year to P209 million, driven by earnings from residential development and hotel operations. Consolidated revenues for the first three months of 2016 amounted to P1.46-billion, up by 65.23 percent from the previous year, GERI disclosed to the Philippine Stock

Exchange on Wednesday. “The start of the year has been impressive thus far and we look forward to the rest of 2016 as we see a continuing momentum in our growth until year-end,” said GERI president Monica Salomon. Real estate sales rose by 102.79 percent year-on-year to P1.12-billion. This was attributed to strong residential sales in various residential projects, particularly in Boracay Newcoast in

Aklan, Sta. Barbara Heights in Iloilo, Twin Lakes in Tagaytay, Southwoods City in Cavite-Laguna, and Alabang West in Las Pinas City. “Our goal is to expand to other key growth areas around the country, capitalizing on our strategic and scalable land bank all over the Philippines,” said Salomon. GERI is developing five integrated leisure and tourism estate developments across the country covering around

2,146 hectares of land. These are Boracay Newcoast in Boracay Island, Aklan (150 hectares); Twin Lakes in Laurel, Batangas near Tagaytay (1,200 hectares); Southwoods City on the boundaries of Carmona, Cavite, and Biñan, Laguna (561 hectares); Sta. Barbara Heights in Sta. Barbara, Iloilo (173 hectares); and Alabang West in Las Piñas (62 hectares). Megaworld, which owns 82.3-percent of GERI,

has taken an aggressive role in transforming the latter’s vast land bank into integrated urban townships, a concept that Megaworld pioneered in the Philippines.

Gokongwei-led property developer Robinsons Land Corp. (RLC) maintained the top rating for its outstanding debt, a local credit

watcher said in a statement. Philippine Rating Services Corp. (PhilRatings) kept its “PRS Aaa” score for the outstanding P12 billion bond issue of Robinsons Land. The debt has a stable outlook. “Obligations rated ‘PRS Aaa’ are of the highest quality with minimal credit risk. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong,” PhilRatings said. “PRS Aaa” is the highest

rating assigned by the debt watcher. The score reflects Robinsons Land’s “solid market position; its sound growth strategy, backed by quality management; its strong liquidity; and sound capitalization structure,” it added. The rat ing also took into account “the favorable industry outlook for its businesses, supported by expectations of continued growth for the domestic economy.” RLC grew its bo ttom line by

nearly a fifth to P1.65 billion in the October to December period, driven by new mall openings and the record expansion of its office leasing business. The company’s fiscal year ends in September.

Gokongwei-led industrial powerhouse Universal Robina Corp. grew its net profit by 28.8 percent year-on-year to P8.27 billion in

the six-month period ending March, buoyed by higher sales of branded consumer food business. This refers to net profit

attributable to equity holders of the parent firm, excluding the share in the net income attributable to the non- controlling interest of Nissin-URC, URC’s 51 percent-owned subsidiary. Cash flow as measured by earnings before interest, taxes, depreciation and amortization (EBITDA) rose by 10 percent year-on-year during the first six months of its fiscal year to P11.98 billion, URC disclosed to the Philippine

Stock Exchange on Wednesday. Apart from the higher operating income, URC benefited from higher market valuation gain on financial assets and net foreign exchange gains. URC generated a consolidated sale of goods and services of P58.538 billion for the six months ended March, marking a 5.2 percent sales growth over the same period last year.

Philippine Long Distance Telephone Co.’s enterprise group saw a 10 percent increase in revenues in the first quarter amid strong

usage of data and other digital services by businesses. In a statement, PLDT said its enterprise group generated P7.55 billion in revenues, higher than the P6.84 billion a year earlier. Of the total enterprise revenues, fixed line and information and communications technology (ICT) service revenues accounted for the largest share amounting to P6.44 billion, up 10 percent year-on-year. Data and ICT

services including co-location, business continuity, disaster recovery, hardware and software implementation, big data and analytics services, cloud services, as well as professionally managed ICT end-to-end services, have contributed to the growth in ICT revenues. The enterprise group’s revenues from the wireless business meanwhile, rose 15 percent to P1.11 billion. Fixed line enterprise revenues, which

were driven by data services, climbed 15 percent while revenues from the corporate data and data center increased 24 percent year-on-year. “Our services in the digital and IT solutions have shown steady growth, clearly underscoring the PLDT Group’s efforts in this digital transformation for our enterprise market. We expect to give this a further boost as the new data centers we are building come online very

soon,” said Eric Alberto, executive vice president and head of enterprise, international, and carrier business at PLDT. PLDT Group, which currently has the largest data center footprint through its six data centers in the country, is opening two more to be located in Makati and Clark in Pampanga by the middle of the year. With the additional data centers, PLDT Group will have unmatched rack capacity at over

8,300, making it the best go-to for enterprises’ digital and ICT needs. “Digital enablement allows large enterprises to off -load their IT needs and focus on their core business, while SMEs (small and medium enterprises) acquire the ability to reach out and expand their market beyond the traditional geographic limitations using e-commerce solutions,” Alberto said. Over the past 10 years, the group has spent over

P300 billion worth of capital expenditures to support the growth of data-heavy industries. The investments included preparing for the heavy local and international bandwidth requirements of the business process outsourcing sector. PLDT has likewise partnered with leading global ICT service providers to introduce digital enterprise solutions in the country as well as developed home-grown innovations through

its digital unit Voyager Innovations.

PAL Holdings, Inc., the listed operator of Philippine Airlines, saw its 2015 profit surge after a one-time gain on the sale of an

BAIPHIL Market Watch – 12 May 2016

Page 7 of 14

investment and strong growth in passenger volume. The company’s net profit rose to P5.87 billion in 2015 from the P129.74 million booked a year earlier, according to a regulatory filing on Thursday. “The Company generated other income’ of P1,112.5 million versus

‘other charges’ of P693.3 million recognized in 2014,” PAL Holdings explained. “The significant amount of ‘other income’ consisted mainly of the gain recognized on the sale of its investment in Abacus International Holdings Limited to a third party.” Total revenue improved by 7% year-on-year to P108.06 billion, propelled by passenger volume growth to 11.9 million from 9.6 million in 2014. On average, the group

carried 32,685 passengers and 487 tons of cargo daily. Broken down, 17,467 were domestic passengers including codeshares with PAL Express, and 15,218 are international; for cargos local operations accounted for 275 tons and international 212 tons. “During the year, PAL introduced new flights to various destinations such as New York, Dubai, New Zealand, Port Moresby and other domestic stations such as

Tablas from Manila and other points originating Cebu.” Meanwhile, total operating expenses inched up by 3.27% to P101.8 billion. “This was primarily due to higher expenses for maintenance, general and administrative expenses, passenger service, aircraft and tr affic servicing expenses, offset in part by the decrease in flying operations expenses.” Maintenance expense, one of PAL’s biggest costs,

jumped by 32.2% due to the delivery of additional five A321 aircraft in 2015. General and administrative expenses increased by 44.7%. “Higher costs incurred for various consultancy, legal and professional/technical services as well as adjustment in salaries contributed mainly to the increase in these expenses,” the company said. Passenger service expenses rose 12.7% alongside the increase in

passenger volume, while other direct operating expenses incurred in the transport of passengers and cargo inched up by 7.7% due to more flights operated during the period. “Flying operations expenses include jet fuel costs which represent PAL’s biggest expense. The decrease in jet fuel prices from an average of $127.92 per barrel in 2014 to $ 83.64 per barrel in 2015 was the main driver in the reduction of flying

operations expenses by P2,832.5 million.” As of Dec. 31, 2015, PAL’s international route network covered 38 cities in 16 coun tries. Shares in the company were unchanged on Wednesday at P5.09.

The Court of Tax Appeals (CTA) has granted Philippine Airlines, Inc. an P88.54-million refund on the taxes it paid for the importation of Jet A-1 aviation fuel for the second quarter of 2005. In a 29-page decision dated May 3, the CTA Second Division said

PAL was able to comply with the requisites to avail of the tax exemption on imported fuels provided by its franchise charter, Presidential Decree No. 1590. Under Section 13 of the Marcosian law, PAL has the option of paying a basic corporate income tax “in lieu of all other taxes.” This was subject to certain conditions: the supplies should be used for its own operations, and these “should not be locally available

in reasonable quantity, quality or price.” The court said that PAL was able to prove its compliance, as a Department of Energy science research specialist testified that from April to June 2005, domestic and international demand for jet fuel was greater than local refinery production. An independent certified public accountant said that sourcing from the local refineries, instead of importing the fuel, would have

cost PAL an additional P891.1 million. “The Court is convinced that at the time of the importations subject of this case, there was lack of locally available Jet A-1 fuel in reasonable quantity, quality or price,” read the decision penned by Associate Justice Amelia R. Cotangco -Manalastas. But, the court only ordered the refund or issuance of a tax credit certificate of P88.54 million, as PAL failed to substantiate its

entire claim of P258.63 million. The court said that PAL failed to submit the original documents for three of the official receipts, covering P170.09 million worth of transactions. Associate Justices Juanito C. Castañeda, Jr. and Caesar A. Casanova concurred with the decision.

DMCI Holdings Inc. posted P3 billion net income in the first quarter of 2016, same level as recorded a year earlier. "This includes

the P111 million one-time gain on the sale of DMCI's 10-percent share in Subic Water and Sewerage Co.," Isidro A. Consunji, chairman and president of DMCI Holdings, told reports in a briefing on Wednesday. Consunji added, "We expect a weak bottom line this year because of declining commodity prices, tapering electricity rates, and the termination of Maynilad's six-year tax holiday in December 2015."

DMCI's core net income decreased by 4 percent to P2.93 billion from P3.06 billion. The company noted that reduced profitability of two major income contributors accounted for its flattish growth. DMCI Homes contributed P665 million to the income, down 21 percent from P845 million. Maynilad's contribution dropped 24 percent to P403 million from P527 million. DMCI Mining Corp. contributed P100 million from P24 million a year earlier. Semirara Mining and Power Corp. contributed P1.6 billion (see related article), up 16 percent from P1.4

billion. DMCI Power Corp. delivered P98 million, up 32 percent from P74 million. Despite a 12 percent drop in revenue, construction arm D.M. Consunji Inc. contributed P197 million, up 3 percent from P191 million. "Construction is also flat. We need to see the new government's policy with infrastructure," said Jorge A. Consunji, president and COO of D.M. Consunji Inc.

D.M. Consunji Inc. intends to sell the idea of a new infrastructure technology to the incoming administration of presumptive

President Davao City Mayor Rodrigo Duterte as a way of solving the traffic problem. "In broad terms as a contractor, what will be more likely to happen is to introduce new technologies as solutions to traffic. The question is how the new government will most likely

accept the idea," Jorge A. Consunji, president and COO of the construction and engineering giant, told reporters in a press briefing in Makati City. Consunji noted the company plans to propose instant flyovers to decongest intersections. "If we are given the chance, we will be doing some recommendations." To identify locations for the instant flyovers, he said the company needs to discuss the matter with the

Metro Manila Development Authority to get a better view of the "choke points." The instant flyovers will be made of prefabric ated steel and concrete and will cost P1 billion up to P2 billion per kilometer, the construction firm's chief said. "Construction is going to be faster than conventional flyovers. It can cut construction time of at least 20 to 30 percent, he said. Consunji, however, emphasized "... the right of way

is going to be the obstruction," He added, "We have to work closer with the government to get the right of way." The utilities like water, fiber optics, and electricity lines can add to the delay of construction. "Like what happened to the NAIA Expressway. It should be finished by now, but because of the right of way and utilities underground it's still under construction," Consunji noted. "We are only hopeful to see

'yung mga programs nila on infrastructure. So the best time to discuss is probably when the new government comes in," he said.

Listed Semirara Mining and Power Corp. (SMPC) said its earnings rose 16% in the first three months of the year, despite lower

revenues from its power generation subsidiary. In a disclosure to the stock exchange, SMPC said its consolidated net income stood at P2.91 billion for the January to March period, from P2.51 billion during the same period a year ago. Gross consolidated revenues fell 8% to

P6.65 billion in the first quarter of 2016 from P7.24 billion in the same period last year, dragged by lower revenues from SEM-Calaca Power Corp. (SCPC), which owns and operates a 600-megawatt (MW) coal-fired power plant in Calaca, Batangas. Coal sales dropped to P4.64 billion, as average selling price fell 30% during the quarter. This despite higher coal production which jumped 37% year-on-year to 3.7

million metric tons (MTs), and a 21% increase in coal sales volume to 2.9 million MTs. The coal segment’s core net income after tax was up 15% to P1.8 billion. Meanwhile, revenues from SCPC declined 53% to P1.66 billion in the first quarter from P3.5 billion in the same period last year. Unit 2 of SCPC’s Calaca coal-fired power plant in Batangas was down on maintenance for the whole quarter. Total

energy sold slid 57% to 424 gigawatt hour (GWh) in the January to March period, from 982 GWh a year ago. “Unit 2 shutdown during the quarter pulled down sales volume. Impact in drop in revenues is slightly cushioned by increase in composite average pr ice/kwh (kilowatt hour). Lower generation resulted to almost zero spot sales in the current quarter,” SMPC said, adding Manila Electric Company remains

the company’s biggest customer.

Puregold Price Club, Inc., controlled by Lucio L. Co is studying takeovers of smaller supermarket operators to ramp-up the

BAIPHIL Market Watch – 12 May 2016

Page 8 of 14

expansion of its store network outside Luzon. On the sidelines of the company’s shareholder meeting in Alabang yesterday, Puregold Director Leonardo B. Dayao told reporters the country’s second-largest grocery retailer is constantly in talks with owners of supermarkets,

with offers to pay a multiple of “8-12 times of the net income we think we can make out of it.” “We’re still not well represented in the Visayas and Mindanao so if we can find an acquisition in those areas that will hasten our presence,” Mr. Dayao said. At end-2015, Puregold was only operating six stores in the Visayas and seven outlets in Mindanao out of its nationwide network of 255 stores. The retai ler was running

104 stores in Metro Manila, 64 in North Luzon and 74 in South Luzon. Mr. Dayao said there are several chains of supermarkets outside of Luzon comprising a network of as much as 10 stores “except that many of (the owners) are not yet ready to retire.” “Most of those that we bought, the owners are in an advanced age, they’d like to cash in and the children are not ready to run the business,” Mr. Dayao said.

Puregold sealed two major deals in 2015 comprising eight Budgetlane supermarkets and nine NE, Inc. supermarkets. Both acquisitions are expected to record their initial contribution to the group’s results this year. Apart from acquisitions, the company is looking at organic growth for expansion, with plans to open 25 new Puregold and two S&R Membership Shopping stores to its network to boost sales by 12%-15%.

Puregold is allocating P2.6 billion for capital expenditures comprising P1 billion for 25 new Puregold stores and another P1 billion for two S&R stores. Another P150 million will be spent to put up 10 S&R New York Style Pizza stores and P450 million to establish 75 Lawson convenience stores. Consolidated net profit climbed 10.6% to P5 billion last year. Consolidated net sales rose 14.7% to P97.17 million due

to the strong consumer demand from existing stores and newly opened stores.

Retailer Philippine Seven Corp. (PSC), the local licensee of 7-Eleven convenience stores, grew its net profit in the first quarter by

61.6 percent year-on-year to P182.4 million as election spending boosted sales. “The improved financial performance was within expectation as the company’s profitability is historically favorable during election years,” PSC reported to the Philippine Stock Exchange on

Wednesday. Retail sales of all stores gained by 33.5 percent to P7.3 billion compared with same period last year. The increase in sales was attributed to the higher number of operating stores, which expanded by 23.4 percent or by 314 stores for the period. In addition, same-store sales went up by high-single digit during the period. Operating margin as a percent of revenue from merchandise sales improved to

4.1 percent from 3.7 percent, owing to higher sales volume during the first three months of the year. PSC opened 55 new stores and closed two during the quarter, ending the period with 1,655 stores. There are now 1,421 stores in Luzon, 189 in Visayas and 45 in Mindanao. “The company is set to attain another milestone this year in terms of total number of stores and profitability. While competition is likely to be

more intense, PSC is the most capable to strengthen its position in the convenience store sector. It aims to capitalize on its first-mover advantage and intends to benefit from the capacity-building expenditures over the last three years,” the company said. For this year, PSC has set aside P3.5 billion in capital expenditures to support its store expansion strategy. Bulk of the budget is meant for new store opening,

store renovation and equipment acquisition.

Alliance Select Foods International, Inc. is reallocating a portion of the proceeds from a recent fundraising exercise to beef up its

operations in southern Philippines. The fish canner secured board approval to use $2 million of the money generated from a P1-billion

stock rights offer last year to finance fish purchases and other materials of its facility in General Santos City, Alliance Select said in a disclosure to the stock exchange. The money was originally earmarked for PT Van De Zee, an Indonesia-based fishing company owned by PT International Alliance Food Indonesia, which in turn is a subsidiary of Alliance Select. PT Van De Zee had ceased operations early

this year after the Indonesian Ministry of Fisheries revoked its fishing license coupled with the “very strong sentiment” aga inst participation in the country’s fishing industry. The additional $2-million investment will increase the share of the the facility in General Santos City in the proceeds from the fundraiser to $4.9 million, according to the disclosure. Alliance Select is still setting aside $5 million of the proceeds for

the Indonesian firm. After three years of losses, Alliance Select has started to reap the benefits of a clean-up program, with its first-quarter net income surging by more than 2,000% year-on-year to $519,000 on improving margins. The firm benefited from “efforts to secure lower cost raw materials, implement cost-cutting initiatives across all areas of operations, and better customer relationship,” reducing general and

administrative expenses by 3%. The Filipino shareholders of Alliance Select and their Singaporean counterparts have been locked in a boardroom tussle since 2014, with the latter accusing the controlling local group of mismanagement and siphoning off company funds. Alliance Select, formerly Alliance Tuna International, Inc., was incorporated in 2003 and began commercial operations in General Santos City in 2004, engaging in tuna processing, canning, and the export of canned tuna products to Europe and North America.

Listed information technology (IT) firm Now Corp. said it will use a portion of its P264 million debt-to-equity conversion to payoff

loans, while the rest of the funds will go to the creation of an enterprise IT, broadband and wireless cable television (TV) network. “In its continuing efforts to achieve debt-free status for the Company, the Board... approved its shareholder Velarde, Inc.’s conversion of its outstanding advances accumulated since 2011 as well as the Company’s cash-collateralized loans into a convertible loan,” Now told the

stock exchange. “The conversion of advances/debt to equity will be used to settle outstanding loan obligations.” As of Dec. 31, 2015, Velarde, Inc. advances amounted to P220 million. The conversion price was pegged at P1.22 per share, based on the daily average of the volume-weighted average price of Now shares for a 30-day trading period ending April 14. “P44 million of that (P246 million) amount

represent the loan. They will be extinguished upon conversion,” Now President and Chief Executive Officer Mel V. Velarde added in a mobile phone reply. “The contemplated transactions are intended to raise funds for the Corporation as well as settle outstanding loan obligations which will hopefully result in a stronger balance sheet and additional investments to provide funding for the var ious company

projects aimed at expanding existing businesses and creating new ones,” the firm said. This developed after Now shareholders approved on May 2 an P880-million increase in its authorized capital stock to P3 billion, to raise more funds for its five-year plan anchored on a build-operate-transfer project for enterprises. The board of directors also approved the listing of 216 million shares that will be issued out of the

equity conversion and increase in authorized capital stock. Apart from IT, Now is also engaged in providing products and services related to media and telecommunications. Now finally posted a profit last year, with the bottom line coming in at P5.2 million, a reversal of the P38-million net loss in 2014. Revenue was P115 million, up from P73.8 million a year earlier.

Electronics manufacturing services (EMS) firm Integrated Micro-Electronics Inc. (IMI) has signed a reseller partnership with

European distribution firm Macnica Europe GmbH. With this agreement, Ayala-led IMI told the Philippine Stock Exchange that it’s able to improve its customer base for its camera platforms, especially for the European electronics manufacturers in the industrial, automotive, and other key markets. IMI camera platform is a design platform which can be customized for various automotive applications, such as for

advance driver assistance system (ADAS) and park assist system. The company said it’s currently collaborating with various tier 1 suppliers and system developers in developing their automotive cameras for ADAS. “The deal bolsters Macnica Europe’s portfolio of technical services and electronic products for the industrial and automotive sectors,” the disclosure said.

BAIPHIL Market Watch – 12 May 2016

Page 9 of 14

ASIA-PACIFIC

Japan's benchmark Nikkei share average edged up for a third straight day on Wednesday but pared earlier gains as the yen firmed

against the dollar, obscuring the profit outlook for exporters. The Nikkei share average ended up 0.1 percent at 16,579.01 points. SoftBank ended the day up 1.9 percent, after surging nearly 5 percent at one point following a strong earnings report. Semiconductor and flat panel display company Screen Holdings ended the day 4.9 percent higher after its operating profit rose 37 percent for the full-year

through March 2016. Social network operator Mixi Inc also outperformed, soaring 11.9 percent after announcing it would spend up to 10 billion yen ($92.03 million) to buy back up to 3 million of its shares, a 3.5 percent stake. The broader Topix was flat at 1,334.30 and the JPX-Nikkei Index 400 edged down 0.1 percent to 12,059.51.

China stocks closed modestly higher on Wednesday, recovering some of the heavy losses suffered in recent sessions, as buyers

snapped up consumer and healthcare stocks. The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.5 percent to 3,082.81, points, while the Shanghai Composite Index gained 0.2 percent to 2,837.04.

Hong Kong shares fell on Wednesday as investors waited for more clues on whether a recent pick-up in China's economy was just a

seasonal blip or something more sustainable. The Hang Seng index fell 0.9 percent, to 20,055.29 points, while the China Enterprises Index lost 0.5 percent to 8,443.67. Most sectors fell, but consumer and materials shares rose over 1 percent. Strong March data had raised hopes that China's economy was bottoming out from a prolonged slump -- possibly allowing the People's Bank of China (PBOC) to be

more cautious about additional policy easing this year. But mixed April data so far, weak factory surveys and surging debt levels have fueled doubts about whether the recovery has legs.

Southeast Asian stocks were trading higher on Wednesday but the broader Asian markets however gave up early gains, with the MSCI's index of Asia-Pacific shares outside Japan falling 0.1 percent, dragged down by India, South Korea and China. Singapore fell,

dragged down by financial stocks. United Overseas Bank Ltd fell as much as 1.2 percent and DBS Group Holdings was trading down 0.95 percent. Indonesia rose 0.5 percent, led by financial stocks. The Thai SET Index was up marginally, led by energy stocks, with PTT PCL and Thai Oil rising more than 1.7 percent.

Oil prices dipped on Wednesday as Canadian oil sand production was expected to gradually ramp up following forced closures

due to wildfires, and as record crude inventories especially in the United States put pressure on markets. An ongoing fight by Middle East producers for market share in Asia also weighed on prices, countering production declines and disruptions around the world. International Brent crude oil futures were trading at $45.49 per barrel at 0153 GMT, down 3 cents from their last settlement, while U.S.

West Texas Intermediate (WTI) crude futures were down 8 cent at $44.58 a barrel. ANZ bank said that recent "gains in prices were capped as concerns over further disruptions in Canada eased as producers looked to return to their operations." Oil sands companies around the Canadian energy hub of Fort McMurray began to restart operations on Tuesday after an out-of-control wildfire forced a week-long

shutdown. Provincial and industry officials said production in much of the region should ramp up soon. Facilities north of Fort McMurray that had been shuttered largely because of heavy smoke rather than fire were seen as likely to come back online in a matter of days in many cases. The fires in Canada's oil sand field region have knocked out around 1.5 million barrels of dai ly crude production, leading to a

significant tightening of global markets, supported by more production declines and disruptions in the United States, Latin America, Asia, and Africa. With Canadian oil sand production gradually coming back and U.S. crude inventories hitting record highs, some analysts say that a price rally away from decade low prices hit early this year may fizzle out. Industry group American Petroleum Institute (API) said on

Tuesday that U.S. crude inventories rose by 3.45 million barrels to a record 543.1 million barrels during the week ended May 6. In a sign of an ongoing aggressive fight for market share, Iran has set its June official selling prices (OSPs) for heavier crude grades i t sells to Asia at the biggest discounts to Saudi and Iraqi oil since 2007-2008. Iran on Tuesday set the June OSP for Iranian Heavy crude at $1.60 a barrel

below the Oman/Dubai average in the latest sign that producers especially in the Middle East are willing to accept low prices in return for market share.

Indonesia’s finance minister said S&P Global Ratings was impressed with the government’s reform efforts during a trip company

officials made to Jakarta to assess the country’s sovereign rating. S&P, which said in December it may raise Indonesia to investment grade within a year, met Indonesian President Joko Widodo and ministers on Tuesday. The government hopes the company will lif t its rating, Finance Minister Bambang Brodjonegoro said in an interview with Bloomberg News after the talks. “I think the tone is positive,”

Brodjonegoro said late on Tuesday at his office. “In general they are satisfied and excited about the commitment of the refor ms from the president and the government.” A move by S&P to raise Indonesia from BB+, the highest junk grade, could provide a filip to the country’s bonds and currency by enabling more funds to invest in Southeast Asia’s largest economy. Moody’s Investors Service and Fitch Ratings

already rank Indonesia as investment grade. Emi Nakata, a communications manager at S&P in Singapore, declined to comment on the company’s visit to Jakarta.

Thailand kept its benchmark interest rate unchanged for an eighth consecutive meeting as it bet that rising government spending will spur an economic recovery. The Bank of Thailand held its one-day bond repurchase rate at 1.5 percent, matching the forecasts of all

21 economists surveyed by Bloomberg News. The military government led by Prime Minister Prayuth Chan-Ocha has issued a series of economic stimulus measures worth more than 400 billion baht ($11 billion) since last year to help shore up local demand. Transport Minister Arkhom Termpittayapaisith said last month the government plans to use a special-powers rule to speed up the approval of big

infrastructure investments. “We don’t see any reason for the central bank to cut the rate now as government spending is on track and they are pushing hard for investments,” Usara Wilaipich, a Bangkok-based economist at Standard Chartered Plc, said before the decision. “Inflation is also picking up. The central bank may want to preserve the limited policy room available to cope with unexpected shocks, when

needed.” The economy has showed signs of improvement with customs exports returning to positive in February and March after 13 consecutive months of contraction. Consumer prices rose in April for the first time in 16 months.

BAIPHIL Market Watch – 12 May 2016

Page 10 of 14

Toyota Motor Corp. said annual net income will probably decline for the first time in five years, as currency swings that had

spurred record profits now pose stiff headwinds. Net income may drop 35 percent to 1.5 trillion yen ($13.8 billion) for the fiscal year

ending in March, Japan’s largest company said in a statement Wednesday. The forecast trailed the 2.19 trillion yen average of 23 analysts’ estimates compiled by Bloomberg. President Akio Toyoda has presided over three straight years of record annual profit, as a weakening yen boosted earnings from Japan-exported Corolla compacts and Lexus RX SUVs sold overseas. As the currency has strengthened more

than 10 percent versus the dollar this year and U.S. demand growth has stalled, the automaker is now racing to recover from production disruptions to keep ahead of Volkswagen AG by worldwide sales. “We have benefited from an exchange rate ta ilwind that has helped raise our earnings above the level of our true capabilities,” Toyoda, 60, said in a statement. “Although this has enabled us to take on new challenges, that set of circumstances is likely to change for the worse this year.” The automaker expects foreign exchange rate changes to

reduce operating profit by about 935 billion yen in the year started April 1. Toyota plans to buy back as much as 500 billion yen, or about 3.2 percent, of its shares and pay a dividend of 210 yen per share. Toyota has revived domestic assembly lines to make up for lost production of about 80,000 vehicles after Japan’s most devastating earthquakes since March 2011. Japan plants that accounted for about

40 percent of the cars and trucks the company produced last fiscal year also shut for one week in February, due to a steel factory fire. Recovering some of that output will be crucial to Toyota extending its reign as the world’s top -selling automaker to a fifth-straight year. The company fell behind Volkswagen during the first three months of 2016, with deliveries dropping 2.3 percent to 2.46 million units. Despite an

emissions scandal that’s escalated to the worst crisis in Volkswagen’s history, its deliveries rose 0.8 percent to 2.5 million. Challenges on the horizon were already evident before the latest disruptions to Toyota’s production in Japan. Toyoda closed negotiations with the company’s labor union in March by saying business circumstances had changed, citing currency swings and stricter environmenta l

regulations in emerging markets. Toyota raised base monthly wages by just 1,500 yen for this fiscal year, half the increase workers had requested. Toyoda has overseen a series of strategic longer-term moves that could insulate the company from the effects of foreign exchange rate changes and help meet tougher fuel economy and emissions rules. Toyota has set a target to nearly eliminate conventional

gasoline engines from its lineup by 2050 as a means to achieving a 90 percent reduction in emissions from its vehicles. The goal served as a wake-up call to Toyota group suppliers that will need to transform their businesses to make components for hybrids, fuel cell vehicles and plug-in electric autos. The automaker is scheduled to build car factories in Mexico and China before the end of the decade, ending a

suspension from adding new assembly plants since 2013. In the meantime, the company has honed an in-house global architecture system it sees cutting costs for new plants by 40 percent and product development by 20 percent. Reducing costs will be crucial to maintaining affordability of cars Toyota plans to equip with more safety-related systems. The carmaker plans to make automated

braking standard on almost all Toyota and Lexus models in the U.S. by the end of next year, four years ahead of a voluntary agreement automakers and regulators announced in March. Toyoda has laid down a $1 billion bet on artificial intelligence and robotics to further advance development of vehicles that will be more capable of driving themselves and keeping drivers from getting into collisions. The

Toyota Research Institute that started operating in January is led by Gill Pratt, the former program manager for the U.S. Def ense Advanced Research Projects Agency’s robotics efforts.

Mitsubishi Motors Corp used improper mileage tests on almost all its vehicles sold in Japan since 1991, the Asahi newspaper

reported on Tuesday, raising the possibility that the practice was widespread at the Japanese automaker. Non-compliant tests were used on dozens of Mitsubishi models sold in the past 25 years, including the Pajero SUV and the Lancer sedan, the newspaper said without identifying its sources. The company declined to comment on the report, saying investigations were ongoing. Mitsubishi last month

admitted falsifying fuel economy readings for four domestic mini-vehicle models, including two it produced for Nissan Motor Co. The automaker has also said that since 1991 it compiled data for fuel economy tests on some vehicles using standards approved in the United States, where higher-speed, highway driving is common, rather than Japanese standards, where more prevalent city driving consumes

more fuel. Mitsubishi officials have said the U.S. testing method may have been used as it is shorter and would save time. The Transport Ministry is investigating Mitsubishi Motors over the falsified mileage data and its use of non-compliant data. It has ordered Mitsubishi to submit information on the issue by Wednesday. The newspaper cited a Transport Ministry source as saying that while the different methodology was unlikely to have a big impact on fuel economy readings, it would not tolerate the use of non-compliant data.

REST OF THE WORLD

European shares slipped on Wednesday as some weak earnings reports pushed the market lower after two days of gains. The

pan-European FTSEurofirst 300 index and the European STOXX 600 index ended both down by 0.45 percent. Among the worst performers was outdoor advertising group JC Decaux. The stock slumped 10 percent after a weak second-quarter outlook led several investment banks to cut their ratings and price targets on the shares. Austria's Raiffeisen Bank also dropped by 10 percent on concerns over its plans to merge with its unlisted parent company Raiffeisen Zentralbank. However, shares in Norwegian publishing company

Schibsted surged 12.2 percent after the company reported first-quarter core earnings above expectations. Thomson Reuters StarMine data show 60 percent of companies on the STOXX 600 index have met or beaten forecasts with their quarterly earnings so far, in many cases by cutting costs to offset falling revenues. But the FTSEurofirst 300 index is down nearly 10 percent so far in 2016. "I'm st ill in the bearish

camp, and I think that any rallies on the market are for selling. Some company results have beaten expectations, but you have to remember by just how much some of these expectations had already been lowered," said Terry Torrison, managing director at Monaco-based McLaren Securities. Shares in Banco Popolare fell 9 percent to a record low. The Italian bank reported an unexpected first-quarter

loss Tuesday night because of loan writedowns, the main concern over Italian banks. Poste Italiane fell 2 percent after Itali an Economy Minister Pier Carlo Padoan said the government may sell some of its 65 percent share in the recently listed post office. A trader at an Italian bank said current market conditions mean the sale might happen in September.

U.S. stocks dropped on Wednesday and the Dow Jones industrial average suffered its worst day since February as feeble

quarterly reports from Walt Disney, Macy's and Fossil undermined confidence across the consumer sector. The consumer

BAIPHIL Market Watch – 12 May 2016

Page 11 of 14

discretionary index .SPLRCD fell 1.98 percent, notching its worst day in three months, with all but three of its 88 components losing ground. The biggest drag on the Dow, Disney dropped 4.04 percent after it posted a rare earnings miss. Department store Macy's tumbled 15.17

percent to its lowest since 2011, while watch maker Fossil sank as much as 34 percent to a 2009 low after the two companies slashed their full-year forecasts. All of the 10 major S&P sectors fell except for utilities which gained 0.24 percent. The S&P 500's decline undid gains from a rally the day before driven by Amazon.com, the online seller that has caused so much trouble for Macy's and other traditional stores

in recent years. "There is no pricing strength, there is no income growth and you have Amazon staring you in the face soaking up a lot of orders," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. "They are getting battered everywhere they look." The S&P consumer discretionary index recently traded at about 18 times expected earnings, expensive compared to the S&P 500's

PE of 16, according to Thomson Reuters data. The past two sessions' gyrations may be indicative of what is in store for the next several days as the quarterly earnings season winds down and traders focus on macroeconomic data, said Eric Wiegand, senior portfolio manager at U.S. Bank's Private Client Reserve. The Dow slumped 1.21 percent to 17,711.12 points, its biggest one-day drop since February

11. The S&P 500 lost 0.96 percent to 2,064.46.The Nasdaq Composite dropped 1.02 percent to 4,760.69. About 7.0 billion shares

changed hands on U.S. exchanges, just below the 7.2 billion daily average for the past 20 trading days, according to Thomson Reuters data.First-quarter earnings for S&P 500 companies have mostly beaten analysts' expectations, but are estimated to have fallen 5.4 percent from a year ago, according to Thomson Reuters data. Declining issues outnumbered advancing ones on the NYSE by 1,895 to 1,092. On

the Nasdaq, 1,994 issues fell and 821 advanced.

U.S. job openings increased in March to the highest level in eight months and layoffs continued to decline, indicating the labor

market remains fairly robust despite April's slowdown in employment gains. The firmer labor market tone was also evident in another

report on Tuesday, which showed small businesses increasingly having trouble finding qualified workers to fill open positions. "The data generally remain upbeat and it does not look like there has been any material weakening in the health of the labor market lat ely," said Daniel Silver, an economist at JPMorgan in New York. Job openings, a measure of labor demand, rose 149,000 to a seasonally adjusted

5.8 million, the Labor Department said in its monthly Job Openings and Labor Turnover Survey (JOLTS) report. That was the highest reading since July. The gain lifted the jobs openings rate to 3.9 percent, re-testing its post-recession high, from 3.8 percent in February. Hiring, however, fell 218,000 to 5.3 million in March, suggesting employers are probably not finding qualified workers for the open positions. The hiring rate slipped to 3.7 percent from 3.8 percent in February. The JOLTS report is one of the job market metrics on Federal Reserve

Chair Janet Yellen's so-called dashboard and continues to suggest the labor market is tightening. But labor market strength alone is insufficient to spur the Fed to raise interest rates before the end of the year, given slow economic growth and benign inflat ion. The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade. Other details of the JOLTS report were fairly

upbeat, also indicating that a deceleration in hiring last month probably did not signal a cooling in the jobs market. The government reported last Friday that nonfarm payrolls increased 160,000 in April, the smallest gain in seven months, after advancing by 208,000 jobs in March. The unemployment was unchanged at 5 percent in April. The JOLTS report showed a further decline in layoffs, while at the same

time 2.98 million Americans quit their jobs voluntarily in March, a sign of confidence in the labor market. The quits rate was unchanged at 2.1 percent. In a separate report, the National Federation of Independent Business said small businesses continued to report a shortage of qualified workers to fill job openings, with some saying they had either raised or planned to increase wages to attract and retain employees.

The share of small businesses reporting job openings they could not fill jumped in April, revisiting cycle highs. There was also an increase in the proportion of small business owners saying that the quality of labor was their biggest concern. "With labor market slack diminishing, we expect to see a marked acceleration in wage growth soon," said Steve Murphy, a U.S. economist at Capital Economics in Toronto. In

March, the number of unemployed job seekers per open job, a measure of labor market slack, was little changed at 1.38. Professional and business services job openings increased 124,000 in March. There were also gains in transportation, warehousing and utilities, and nondurable goods manufacturing. Job openings decreased 80,000 in retail trade. There were declines in educational services and

wholesale trade. At least 50,000 construction workers voluntarily quit their jobs in March. Quits decreased in arts, entertainment and recreation, which saw an increase in layoffs in March. Mining and logging layoffs slowed in March, an encouraging sign for a sector that has seen a wave of job losses since late 2014 when oil prices started their downward spiral.

America will fall $1.44 trillion short of what it needs to spend on infrastructure through the next decade, a gap that could strip 2.5

million jobs and $4 trillion of gross domestic product from the economy, a report from a society of professional engineers said on Tuesday. The American Society of Civil Engineers (ASCE) estimated that through 2025, the United States has funded only about 56

percent of its needed infrastructure spending. The nation needs to spend $3.32 trillion to keep its ports, highways, bridges, trains, water and electric facilities up to date but has funded only $1.88 trillion of that, ASCE said. The shortfall rises to $5.18 trilli on through 2040 without new funding commitments. U.S. GDP was $18 trillion in 2015, according to the International Monetary Fund. "America is currently

spending more failing to act on its infrastructure gap than it would to close it," said Greg DiLoreto, past president of ASCE and chair of the Committee for America's Infrastructure. Examples of major U.S. infrastructure failures abound, from Flint, Michigan's drinking water crisis to travel delays at New York's LaGuardia Airport and the deadly 2007 I-35W Mississippi River bridge collapse in Minneapolis. Crumbling

infrastructure "has a cascading impact on our nation's economy, impacting business productivity, gross domestic product, employment, personal income, and international competitiveness," said the ASCE report, an update to a previous report released three years ago. It also dampens families' disposable income. From 2016 through 2025, each household will lose $3,400 annually because of infrastructure

deficiencies, ASCE said. Since its last report, most areas have been stable or shown modest improvement and have been buoyed by recent federal, state and local investments. But surface transportation has worsened, with the gap increasing compared to previous studies, the group said.

British factory output recorded its biggest annual fall in nearly three years in March, as shutdowns in the steel industry due to

global overcapacity led broad-based declines, official figures showed on Wednesday. Manufacturing in March was 1.9 percent

lower than a year earlier, the steepest decline since May 2013, the Office for National Statistics said and in line with economists' predictions in a Reuters poll. In March alone, manufacturing output edged up by 0.1 percent, slightly less than forecast, after dropping by 0.9 percent in February. But the figures do not point to any revision of the estimate of overall gross domestic product released last month,

the ONS said, in part due to big upward revisions for the broader measure of industrial output for February. These reflected a recalculation of the effect of the leap year, and late data on the oil and gas industry, which recorded a 17.0 percent annual increase in production in February, and a 10.9 percent annual gain in March. Overall industrial output rose 0.3 percent on the month in March and was 0.2 percent lower than a year earlier. For the first quarter as a whole, figures were unchanged from those used in April's first-quarter GDP estimate,

with a quarterly decline of 0.4 percent. The ONS said that basic iron and steel manufacturing in March was down by 37.3 percent compared with a year earlier and contributed to a drag of 0.3 percentage points on annual industrial output. Britain's overall economy slowed in the first quarter, preliminary data has shown, with the pace of growth easing to 0.4 percent compared with 0.6 perc ent in the

previous three months. Things could get worse in the second quarter. A series of surveys of businesses published last week suggested growth was on course to slow to just 0.1 percent in the April-June period. The Bank of England has said the approach of the June 23 EU

BAIPHIL Market Watch – 12 May 2016

Page 12 of 14

referendum has caused some companies to put investment plans on hold. British manufacturers have also been hurt by the slump in global oil prices, which has hurt many of their clients in the North Sea oil industry, and by the global economic slowdown. The ONS said it had no

anecdotal evidence of the effect of the referendum on output. The BoE is expected to keep interest rates on hold when its monthly policy decision is announced on Thursday. The Bank has previously said that it will try to look beyond volatility in economic data caused by the approach of the referendum.

Saudi Arabia's state-owned oil giant Aramco is finalizing proposals for its partial privatization and will present them to its Supreme Council soon, its chief executive said about the centerpiece of the kingdom's efforts to overhaul its economy. The

company has a huge team working on the options for the initial public offering (IPO) of less than 5 percent of its value, which include a single domestic listing and a dual listing with a foreign market, CEO Amin Nasser said on Tuesday. They will be presented "soon" to Aramco's Supreme Council, headed by Deputy Crown Prince Mohammed bin Salman, who is leading an economic reform drive to address

falling oil revenue and sharp fiscal deficits by boosting the private sector, ending government waste and diversifying the economy. Nasser stressed that even after the listing, the Saudi government would retain sole control over Aramco's oil and gas output levels. "Production is sovereign," he said. Riyadh has traditionally kept an expensive "spare cushion" of excess production capacity, allowing it to raise or reduce

levels to influence prices according to the government's market strategy. Private oil companies, by contrast, do not hold back output for strategic gain. Nasser also said Aramco was seeking to expand globally via joint ventures in Asia and North America. "We are looking at the current market status that, even though challenging, is an excellent opportunity for growth," Nasser said, adding that he was looking at

opportunities in the United States, India, Indonesia, Vietnam and China. The CEO was speaking to reporters during a rare media visit to the company's extensive, well-guarded Dhahran headquarters, located near where American oilmen first struck the Arabian Peninsula's enormous crude reserves at Well Number 7 in 1938. Besides proposing to sell a stake in the company, which would require it to release

sensitive reserves data, Riyadh has asked Aramco to play a big role in developing industrial projects aimed at stimulating non-oil economic sectors. Last month, Prince Mohammed said he expected the IPO would value Aramco at at least $2 trillion, but that he thought the figure might end up being higher. Any valuation would account for both oil price expectations and the size of Saudi Arabia's proven oil reserves.

Company officials said Saudi Arabia had discovered a total of 805.6 billion barrels of oil, of which 141.5 billion had already been produced and 260 billion barrels were considered "proven", the industry term for reserves that can definitely be extracted. Aramco also had 403 billion barrels of reserves it could probably extract, they said, adding that it hoped to add another 100 billion barrels to total reserves by

2025 by increasing the recovery rate by 50-70 percent using new technology. Aramco expects global crude oil demand to grow by 1.2 million barrels per day this year, he said, and has seen increasing demand in the United States and India. "We will meet the call on Saudi Aramco," Nasser said, adding that the company will increase capacity in future if needed, but that for the time being its maximum

sustainable capacity would stay at 12 million bpd, with total capacity of 12.5 million bpd. Saudi Arabia produced an average of 10.2 million bpd of crude in 2015, he said, adding there had been a big drop in oil output among non-conventional and even other conventional producers. The expansion of the Khurais oilfield will come on stream in 2018, he said, adding that the latest stage of its expansion project

at the southeastern Shaybah oil field would be finished "in a couple of weeks". The increased capacity of 250,000 bpd, taking Shaybah's total production capacity to 1 million bpd, is aimed at rebalancing Saudi Arabia's crude oil quality and at compensating for falling output at other fields as they mature. The immense Saudi Aramco complex in Dhahran resembles a small city, with its large residential c omplex, its

own hospital, sports stadium and parks. Inside a sleek control room, technicians monitored huge screens that showed via digital graphics the core elements of the business, from the progress of oil tankers across the oceans to the available crude grades and refin ing facilities. At Aramco's research center nearby, officials showed reporters "the cave", a colorful virtual representation on wraparound screens of

drilling operations under the Shaybah oil field. Aramco's continued investment in downstream industry is seen as a crucial element of economic diversification plans. One example of this is its plans to sign an agreement soon with Saudi Basic Industries Corp (Sabic), the state-run petrochemical and metals conglomerate, to jointly develop an oil-to-chemicals project, an official said in a briefing to reporters.

The project, likely to cost up to $30 billion, would chime with efforts to better integrate the kingdom's energy and industrial sectors. On Saturday a new Energy, Industry and Mineral Resources Ministry was created in place of the old oil ministry. Another example is its huge ship repair and shipbuilding complex that it is developing at Ras al-Khair on the kingdom's east coast to be fully operational by 2021,

Nasser said. The first part of the shipbuilding complex will be ready by 2018, and it will eventually make oil rigs and tankers, Nasser said. A presentation by the company said the complex would create 80,000 jobs and allow Saudi Arabia to reduce its imports by $12 bil lion, while increasing the country's gross domestic product by $17 billion.

Supervisory Expectations on the ICAAP - 20 May

2016

Enterprise Risk Management - 28 May 2016

EQ and Leadership for Bankers - 04 June 2016

New Product Development Fundamentals - 11 June 2016

e-Commerce Law, Intellectual Property and Data

Privacy - 17 June 2016

BSP Circular No. 706, AMLA Law, RA 10365 and

the AML Risk Rating System - 17 June 2016

Asset Liability Management - 18 June 2016

Outsourcing Framework for Banks - 18 June 2016

Excel Training – 24 & 25 June 2016

ACCOUNTING STAFF

New accounting graduates or highly proficient and qualified accounting

professional

Send your resume and cover letter to the SECRETARIAT@baiphil.org or contact Tel No (632)853-4457 or (632)519-2433 or drop by at our office: Unit 66, 6/F Kanlaon Tower, Roxas Boulevard, Pasay City

BAIPHIL Market Watch – 12 May 2016

Page 13 of 14

For details, please contact BAIPHIL via telephone (853-4457/519-2433) or email training@baiphil.org.

COURSE COMMITTEE

Operations and Technology

Racqs Manago

Dennis Matutina Chairperson

Baby Banares Liza Ortiz Directors

Objective: To organize and offer sessions on:

Clearing Operations and other relevant updates

Branch Operations Certification

Business Continuity Management Enterprise Mobility HR Trends and Metrics.

MAY 1-15

03 Cynthia A. Almirez – UCPB

03 Atsushi Fukui – Sumitomo Mitsui Banking

09 Roda T. Celis –DBP

10 Jeffrey M. Rondina –CARD SME Bank

10 Amelita G. Cua – Phil Trust Co

11 Carlyn A. Pangilinan –BSP

12 Roberto P. Alingog – PR Savings

13 Glenda H. Atabay – Rizal Bank Inc

14 Bonifacio S. Santos – Mega ICBC

LARGE CAP (BIG CAP) - Large cap (Big Cap) is a term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term "large market capitalization". Market capitalization is calculated by

multiplying the number of a company's shares outstanding by its stock price per share.

“A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they

will say: we did it ourselves...”

- Lao Tzu

BAIPHIL Market Watch – 12 May 2016

Page 14 of 14

A small Austrian village in the municipality of Tarsdorf has something of an odd name (to put it mildly) from an English speaking point of view. The town is Fucking, Austria (guys, it is pronounced

FOOKING). The town is thought to have been founded around the 6th

century by a Bavarian nobleman by the name of Focko. The name evolved from there with various spellings until the 18

th

century when it became as it is today. The name essentially means “(place of) Focko’s people”.

Austrians considering renaming their village from Fucking to Fugging have been told to think again – because the name is already taken.

Look at the following sentence once and once only, how many times can you find the letter F?

Furry foxes of far origin often come of age far before scientific study forecasts.

BPI Asset Management Business World Philippine Daily Inquirer Philippine Star

GMA News ABS-CBN News Bulletin Today Reuters

Bloomberg CNN Wall Street Journal Strait Times

Investopedia Brainy Quotes Goodreads Corsinet – Trivia

Trivia Of The Day Filipi-Know Phrases.Org.UK Fun, Trivia & Humor

Compiled And Prepared By: Research Committee FY 2015-2016

Director: Maria Teresita R Dean (ChinaBank Savings) Chair: Sheryll K. San Jose (Equicom Savings Bank) Members: Rachelle A Fajatin (Equicom Savings Bank)

DISCLOSURE: The BAIPHIL Market Watch (BMW) is for informational purposes only. The content of the BMW is sourced from third party websites and may be subject to change without notice. Although the information was compiled from sources believed to be reliable, no liability for any error or omission is accepted by BAIPHIL or any of its directors, officers or employees, and BAIPHIL is not under any obligation to update or keep current this information