company reports: indices chib (hold) · 2012-11-23 · mang inasal representing bulk of the growth....

HEAD OF RESEARCHApril Lynn Tan, CFA

RESEARCH TEAMGeorge Ching

Richard Lañeda, CFACharles Will iam Ang

Edmund LeeKervin Sisayan

Company Reports:Close Points W/W YTD %

PSEi 5,210.89 -3.63 -0.07 19.19All Shares 3,459.02 -9.31 -0.27 13.60Financials 1,304.87 15.02 1.16 34.67Holding Firms 4,369.45 -57.29 -1.29 24.71Industrial 7,907.14 36.21 0.46 11.77Mining & Oil 23,177.28 -899.78 -3.74 -1.39Property 1,908.65 -1.25 -0.07 28.85Services 1,783.59 9.30 0.52 10.35

INDICES

Ticker Company Price W/WMER Manila Electric Co 265.00 5.41BDO BDO Unibank, Inc 63.85 2.74AP Aboitiz Power Corp 34.55 1.77JFC Jollibee Foods Corp 105.80 1.73SMPH SM Prime Hldgs 13.60 1.64

INDEX GAINERS

Ticker Company Price W/WPX Philex Mining Corp 21.40 -7.56AC Ayala Corporation 429.80 -5.54LCB Lepanto Cons 'B' 1.33 -4.32URC Universal Robina Corp 59.45 -4.11MEG Megaworld Corporation 2.15 -3.15

INDEX LOSERS

Ticker Company TurnoverAC Ayala Corporation 488,910,940TEL Phil Long Distance Co 333,189,940ALI Ayala Land Inc 233,018,740MBT Metrobank 209,708,708DMC DMCI Hldgs, Inc 195,728,932

TOP 5 MOST ACTIVE STOCKS

JFC (HOLD): Reducing estimates on weaker international business, slower than expected improvement in margins

EDC (HOLD): Raising estimates as Bacman rehabilitation nears completion

PNB (BUY): Earnings surge on strong trading gains, ahead of forecasts

EW (HOLD): 9M12 earnings grow 12% to Php1.36Bil, on track to meet estimates

CHIB (HOLD): Earnings trail estimates on lower margins and higher expenses

MWC (HOLD): Downgrade to HOLD due to valuations

ABS (N/A): 3Q12 net profits climb 11.7% to Php628Mil

AT (HOLD): Net profits decline 30.8% to Php424Mil; lower than consensus estimates

GMA7 (N/A): Net profit jumps 9.1% to Php573Mil

SMC (N/A): 3Q12 profits rise to Php5.12Bil

Property Sector: Residential business mixed while rental business remained strong

Power Sector: Power firms deliver mostly in line results

NIKL (HOLD): Reducing FV estimate to Php16.40/sh on higher project cost

BPI (BUY): BPI and PNB confirm talks of merger

FRIDAY, 23 NOVEMBER 2012

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INDICES

INDEX GAINERS

INDEX LOSERS

TOP 5 MOST ACTIVE STOCKS

Close Points W/W YTD %PSEi 5,552.34 113.06 2.08 27.00All Shares 3,609.26 31.10 0.87 18.53Financials 1,480.57 71.55 5.08 52.81Holding Firms 4,890.74 178.16 3.78 39.59Industrial 8,734.96 51.95 0.60 23.47Mining & Oil 18,721.51 -77.41 -0.41 -20.35Property 2,095.35 16.72 0.80 41.46Services 1,693.22 0.78 0.05 4.76

Ticker Company Price W/WJGS JG Summit Hldgs 37.00 8.82BPI Bank of Phil Islands 92.80 8.67AC Ayala Corp 486.60 8.18AGI Alliance Global Inc 16.00 6.10DMC DMCI Hldgs Inc 55.75 5.19

Ticker Company Price W/WPX Philex Mining Corp 13.10 -2.96LCB Lepanto Cons 'B' 1.05 -2.78LC Lepanto Cons 'A' 0.99 -1.98RLC Robinsons Land Corp 18.44 -1.39GLO Globe Telecom Inc 1,135.00 -1.30

Ticker Company TurnoverBDO BDO Unibank Inc 488,808,660AC Ayala Corp 313,634,100MBT Metrobank 248,684,064SMPH SM Prime Hldgs 223,239,660SM SM Investments Corp 218,860,526

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Company News:

RLC: Bullish on Ortigas Center, unveils Sapphire Bloc (click here)

TEL, GLO: NTC orders telcos to refund excess charges on SMS (click here)

APM: Lucio Co to invest up to Php60Bil in assets (click here)

MER: Meralco earmarks Php11Bil capex for 2013 (click here)

MPI: MPI and Citra agrees to talks over common segment of connector road by December

(click here)

•••••

Economy:

BSP registers net loss of Php68.3Bil in 3Q12 (click here)

BIR hits October collection target of Php86.1Bil (click here)

Sin taxes approved in the Senate (click here)

•••

https://beta4.colfinancial.com/ape/Final2/research/downloads/2012-11-21-PH-D.pdf








P H I L I P P I N E E Q U I T Y R E S E A R C H

Friday, 23 November 2012 page 2

EVENTS CALENDARDATE TICKER COMPANY EVENTS6-Nov-12 CIP Chemical Industry Philippines Ex-date Php2.39 Cash Dividend7-Nov-12 OV Philodrill Corporation Ex-date Php0.0003 Cash Dividend7-Nov-12 MJC Manila Jockey Club Inc Ex-date Php0.08 Cash Dividend12-Nov-12 ABS ABS-CBN Corporation Annual Shareholdings Meeting14-Nov-12 PF San Miguel Pure Foods Co Inc Ex-date Php1.20 Cash Dividend14-Nov-12 TBGI Transpacific Broadband Group Int'l Inc Annual Shareholdings Meeting15-Nov-12 ABS ABS-CBN Corporation Annual Shareholdings Meeting20-Nov-12 RLT Philippine Realty & Holdings Corp Annual Shareholdings Meeting20-Nov-12 ZHI Zeus Holdings Inc Annual Shareholdings Meeting21-Nov-12 ARA Araneta Properties Inc Annual Shareholdings Meeting22-Nov-12 PGOLD Puregold Price Club Inc Annual Shareholdings Meeting22-Nov-12 ATN ATN Holdings Annual Shareholdings Meeting23-Nov-12 PRC Philippine Racing Club Ex-date Php0.05 Cash Dividend27-Nov-12 EEI EEI Corporation Ex-date Php0.025 Cash Dividend29-Nov-12 DFNN DFNN Inc Annual Shareholdings Meeting



Jollibee Foods CorporationReducing estimates on weaker international business, slower than expected improvement in margins

Net profits climb 18.9% to Php882Mil. Jollibee reported net profits of Php882Mil in 3Q12, 18.9% higher than the previous year. This brought 9M12 net profits to Php2.47Bil, representing only 65.5% and 69.6% of COL and consensus forecast. Revenues in the period rose by 13.8% to Php17.3Bil, largely driven by higher sales volume in all regions. Margins improved significantly in the 3Q12 due to a decrease in input costs and improvements in cost management in its Philippine operations.

Domestic sales grow faster than expected. Philippine sales rose by 11.4% in 3Q12, faster than our forecast of 6.0%. This was largely driven by an increase in store rollout, higher same store sales growth, royalty, and franchise fees. Total number of stores grew by 4.9% to 2,040 restaurants with Jollibee and Mang Inasal representing bulk of the growth. Same store sales in the period likely exceeded our estimate of 2.0% for FY12.

International sales registering slower growth. On the other hand, Jollibee’s international sales grew by 23.5% in the 3Q12, slower than the 31.0% and 31.1% posted in the first and second quarter of FY12. 9M12 sales grew 28.2%, slightly lower than our forecast of 29.8% for FY12. Although growth remained robust, our major concern is that growth was largely driven by the roll out of new stores. The total number of new stores for JFC’s international business rose by 26.7% to 541 stores as of the end-3Q12. Same-store sales growth was flat based on our estimates.

Lower than expected improvement in margins. Gross margins in 3Q12 rose to 17.9%, its highest level since 4Q10. The said level is also much higher than the 1H12 average of 16.4%. Meanwhile, operating margin increased to 6.2%, up by 1.2 percentage points. This is larger than the 0.5 percentage point improvement in gross margin. According to JFC, gross margin improved as prices of raw materials declined. Moreover, JFC benefited from economies of scale due to the rapid growth of sales. JFC also benefited from better cost management in its Philippine operations. Overall operating expenses rose by just 7.6% to Php2.03Bil.

Please see COL WEBSITEfor full report

GEORGE [email protected]

EDMUND [email protected]

https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-19-PH-E-JFC.pdf



EDC, FGEN, FPHRaising estimates as Bacman rehabilitation nears completion

The rehabilitation of the Bacman is nearly complete. With the trial run for the plants scheduled for December, there is a strong likelihood that the 110MW Bacman unit 1 and 2 can begin commercial operations in January 2013. Due to the earlier than expected start of commercial operations and the increase in capacity factor of Bacman, we increased our FY13E earnings forecast for EDC by 11.9% to Php10.1Bil. This led to a 6.8% increase in our FV estimate to Php7.4/sh. Our new FV estimate for FGEN increased by 4.2% to Php24.90/sh, while our new FV estimate for FPH increased by 3.7% to Php114.7/sh.

Raising forecasts on earlier than expected completion of Bacman rehabilitation and higher capacity factor assumption. The rehabilitation of the Bacman is nearly complete. The generator rotors of Bacman unit 1 and 2 that were sent to U.K. for repair have already arrived, while the repair of the turbines is expected to be completed by November. With the trial run for the plants scheduled for December, there is a strong likelihood that the 110MW Bacman unit 1 and 2 can begin commercial operations in January 2013. This is earlier than our previous forecast that the plants would only begin commercial operations by 2Q13.

We are also increasing our assumption on the long term capacity factor for the Bacman plants. Management indicated that the rehabilitation of the rotors practically restored the condition of the Bacman unit 1 and 2 plants back to its original condition. As such, we are raising our capacity factor forecast from 75% to 80%. Due to the earlier than expected start of commercial operations and the increase in capacity factor of Bacman, we increased our FY13E earnings forecast for EDC by 11.9% to Php10.1Bil. This led to a 6.8% increase in our FV estimate to Php7.4/sh.

Given that FGEN owns 49% of EDC, our FY13E earnings estimate for FGEN increased by 10.1% to US$127Mil following EDC’s earnings upgrade. Meanwhile, our earnings estimate for FPH, which indirectly owns 32.4% of EDC, increased by 6.0%. Our new FV estimate for FGEN increased by 4.2% to Php24.90/sh, while our new FV estimate for FPH increased by 3.7% to Php114.7/sh.



https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-19-PH-S-EDC.pdf



Philippine National BankEarnings surge on strong trading gains, ahead of forecasts

Profits rise on strong trading gains, above estimates. PNB reported Php1.7Bil in profits in 3Q12, up 67% from the restated net income in 3Q11. This brought PNB’s 9M12 total earnings to Php3.45Bil, 77% higher year-on-year and representing 91% and 75% of COL and consensus full-year forecast respectively. Earnings were ahead of our estimates as trading gains surged during the quarter. Meanwhile, net interest income fell on lower margins. The 9M12 figure translates to an annualized ROE of 14.0%. (see exhibit 1)

Trading gains drive income. PNB’s non-interest income rose 94% to Php3.23Bil as strong trading gains more than made up for the slight decline in fee-based income. Trading gains was at Php1.48Bil during the quarter, almost 8 times as high as the Php185Mil gain in 3Q11. This offset the 2.5% decline in fee-based income to Php461Mil. According to the bank, trading gains surged as PNB sold a portion of its available-for-sale (AFS) investments, prices of which have significantly increased with the decline in interest rates. Recall that PNB also booked Php1.76Bil in trading income during the first quarter as it also unloaded some its AFS securities. For 9M12, non-interest income is up 66% year-on-year to Php8.65Bil, already hitting our full-year target of Php8.8Bil.

Net interest income declines on lower margins. Meanwhile, PNB’s net interest income fell 7% to Php1.74Bil in 3Q12, bringing its 9M12 total to Php5.43Bil, at par with last year’s level. The decline was due to lower net interest margin, which fell by 10 basis points to 2.6% in 3Q12 based on our calculations. PNB’s flat asset base failed to offset the narrower margins. As of end September, PNB’s interest earning asset base increased by only 3% year-on-year, with its loan portfolio remaining flat at Php130Bil. The 9M12 total represents 74% of our 2012 forecast.

Write-down of unamortized SPV losses to improve profitability. PNB’s ROE of 14.0% for 9M12 benefited from the full write-down of the remaining unamortized SPV losses as permitted by the central bank last July. Recall that PNB’s net income has been dragged down by amortizations of deferred charges amounting to Php475Mil in 1H12 and Php860Mil in 2011. While this reduced its equity base by Php4.4Bil (the remaining unamortized amount), the write-off should result in an improved profitability going forward. Following the write-off, PNB’s tier 1 and total capital adequacy ratio as of end September dropped to 11% (based on our estimates) and 18% respectively.

Reiterating BUY rating with FV estimate of Php87. We reiterate our BUY rating on PNB with an FV estimate of Php87.00/sh based on 1.4X 2013E P/BV. We like PNB as a turnaround play given its efforts to improve profitability coupled with revenue and cost synergies that are expected to result following its upcoming merger with Allied Bank. In addition, valuation are attractive. At its current price of Php71.95/sh, PNB is trading at only 1.2X 2013E P/BV, well below the industry average of 1.8X.


APRIL LYNN TAN, [email protected]

CHARLES WILLIAM [email protected]

https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-19-PH-E-PNB.pdf



East West Banking Corporation (EW)9M12 earnings grow 12% to Php1.36Bil, on track to meet estimates

Earnings in line with estimates. East West Bank reported Php444Mil in earnings in 3Q12, up 34% from the same period last year amidst higher revenues. This brought 9M12 net income to Php1.36Bil, 12% higher year-on-year and representing 75% and 78% of COL and consensus full-year forecasts respectively. Despite the large growth in net interest and non-interest income, earnings growth was subdued given the significant increase in operating expenses as EW continues with its aggressive branch expansion program. The 9M12 profits translate to an annualized ROE of 12.3%. (see exhibit 1) Net interest income sustains growth on higher margins. EW’s net interest income for the quarter rose 29% to Php1.56Bil, driven by both a larger asset base and higher margins. As of end 3Q12, the bank’s total assets grew 8% year-on-year, with loan growth accelerating to 36%. More importantly, despite the continued pressure on lending rates, the bank was able to further improve its industry-leading net interest margin. For 9M12, margins increased 50 basis points to 7.0%, more than doubling the industry average of 3.4%.

Trading gains lift non-interest income. EW’s strong trading income also contributed to the earnings growth. During the quarter, trading gains reached Php597Mil, almost six times larger than the Php108Mil posted in 3Q11. This brought its 9M12 total to Php1.17Bil, up 410% from the same period last year. Fee-based income also increased significantly, growing by 28% to Php493Mil and by 17% to Php1.29Bil in 3Q12 and 9M12 respectively. The strong trading gains and fee-based income lifted non-interest income up 127% to Php1.21Bil in 3Q12.

Expenses rise amidst branch expansion. Nevertheless, EW’s strong revenue growth was partly offset by higher expenses. Operating expenses excluding provisions grew by 50% to Php1.79Bil during the third quarter, while 9M12 total rose by 45% to Php4.55Bil. The sharp increase in costs is mainly attributable to its aggressive branch expansion program. Note that East West Bank has opened a total of 95 branches for the year, bringing its total branch network to 217. EW plans to increase to at least 240 branches by the end of the year.

Downgrade to HOLD due to valuations. We are downgrading our rating on EW from BUY to HOLD with an FV estimate of Php26.20/sh based on 1.5X 2013E P/BV. While we continue to like East West Bank because of its above average profitability and strong growth prospects driven by its large exposure to higher yielding consumer loans and aggressive branch expansion plan, the recent increase in prices has limited the upside to our FV estimate. Nevertheless, pullbacks to below Php22.80/sh should be viewed as opportunities to BUY.




https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-19-PH-E-EW.pdf



China Banking Corporation (CHIB)Earnings trail estimates on lower margins and higher expenses

9M12 earnings down y/y, trails estimates. China Bank booked Php1.12Bil in profits during the third quarter, up 9% from the same period last year amidst higher non-interest income. Nevertheless, 9M12 income remained off of last year’s pace, declining 7% to Php3.15Bil and representing only 65% and 64% of COL and consensus full-year forecasts respectively. Earnings lagged as margins continue to decline while expense growth remained high amidst its ongoing branch expansion. The year-to-date figure translates to an annualized ROE of 10.4%.

Trading gains lift non-interest income. The increase in profits in 3Q12 was largely due to larger trading gains, which rose 38% year-on-year to Php575Mil. This pushed its total trading income for the year-to-date period to Php1.71Bil, 95% higher from the same period last year. Amidst the strong trading gains, CHIB’s non-interest income for 3Q12 and 9M12 grew 46% and 41% to Php1.29Bil and Php3.70Bil respectively, just slightly ahead of our forecasts. Meanwhile, CHIB’s fee-based income continued its steady growth, rising 23% and 11% in 3Q12 and 9M12 respectively as investment banking fees grew.

Net interest income flat on lower margins. China Bank’s net interest income for 3Q12 remained flat at Php2.07Bil despite the expanded asset base. This is primarily due to a significant drop in margins. According to our calculations, net interest margin for the quarter narrowed by 75 basis points to 2.9%. As we have noted is our previous reports, CHIB indicated that margins have been expected to decline as the remaining portion of its high yielding securities portfolio matured in 2011. This further worsened the continued pressure of lending rates amidst the ample liquidity and intense competition. The decline in margins offset the 32% increase in loans and the 30% expansion of interest earning assets as of end September. For the year-to-date period, net interest income declined 8% year-on-year to Php6.03Bil as average NIMs decline by 80 basis points to 3.0%.

Expenses increase amidst branch expansion. Adding to the continued pressure on interest margins, the bank’s operating expenses grew sharply. During the quarter, operating expenses rose 15% to Php2.07Bil. 9M12 expenses also grew by 15% to Php5.96Bil. While China Bank attributed this to its aggressive expansion program, we think that this could be a cause for concern given that its revenue growth has been less than the increase in expenses. Indeed, total revenues for 9M12 only grew by 6%. Note that its 9M12 expenses translate to a cost-to-income ratio of 62.3%, significantly higher than the 2011 figure of 55.2% and its three-year average of 55.0%.

Reiterate HOLD rating. We reiterate our HOLD rating on China Bank and maintain our FV estimate of Php53.80/sh based on 1.5X 2013E P/BV. Although CHIB has a strong track record in profitability and asset quality, earnings are currently being pressured by lower margins and costs associated with its aggressive branch expansion program.




https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-19-PH-E-CHIB.pdf



Manila Water Company (MWC)Downgrade to HOLD due to valuations

Valuations no longer attractive. We are downgrading our recommendation on Manila Water from BUY to HOLD due to valuation. Manila Water’s stock has outperformed the market for the year to date period, increasing by 66% to Php32.20/sh, more than double than the PSEi’s increase of 25%.

Although MWC’s outperformance is warranted given its better than expected earnings performance during the past two quarters and excitement surrounding its recently won bid to acquire 51% of PALYJA (which owns a water concession in Indonesia), valuations are no longer attractive. At Php32.15/sh MWC is trading at par with our end 2013 fair value estimate. Moreover, it is currently trading at 14.80X 2013E P/E, at par with the market average. Dividend yield has also dropped to 2.1%. During the start of the year, MWC’s dividend yield was much higher at 3.5%.

Further upside dependent on favorable rate rebasing and attractiveness of Indonesian project. Further upside in MWC’s valuation is largely dependent on the attractiveness of the recently won bid for PALYJA and the outcome of the rate rebasing next year. Our current fair value estimate of Php31.95/sh still does not include the potential impact of the two developments on MWC’s long term profitability. In addition, our FV estimate also doesn’t include its bulk water partnership with Manila Pacific Water to provide bulk water in Cebu.

Since the change in our recommendation on MWC was due to valuations and not fundamentals, any pullback below Php28.00/sh should also be viewed as an opportunity to buy the stock.



KERVIN [email protected]

https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-20-PH-E-MWC.pdf



ABS-CBN Corporation (ABS)3Q12 net profits climb 11.7% to Php628Mil

3Q12 net profits climb 11.7% to Php628Mil. Net profits of ABS during 3Q12 climbed 11.7% to Php628Mil. This brought 9M12 net profits to Php1.55Bil, already representing 111.7% of consensus full year forecast. ABS’ strong performance was driven by the solid increase in revenues and improvements in cost management. Revenues during 3Q12 rose by 21.1% to Php8.76Bil on the back of higher airtime revenues and consumer sales. Meanwhile, operating margin improved by 3.1 percentage points during 3Q12 to 9.3% from 6.2% during 3Q11.

Airtime revenues rise on higher ad rates and minutes. Airtime revenues of ABS rose sharply by 15.4% in 3Q12 to Php5.32Bil as ad spending by multinationals continued to recover. Based on our estimates, ad rates rose by 7.7% to Php208,000 per minute in 3Q12. Total ad minutes increased by 7.2% in the period.

Sky Cable and film products sustain strong growth. Consumer sales rose by 30.9% to Php3.33Bil in 3Q12 as Sky Cable and ABS’ film production posted strong revenue growth. For 9M12, Sky Cable’s consolidated revenues from its cable TV and broadband services rose 29.0% y/y to Php4.12Bil. Growth was driven by the 12% increase in Sky Cable’s organic revenues and the first full period contribution of Destiny Cable which was acquired in May 2012. Revenues from ABS’ film production also rose by 68.1% to Php1.83Bil in the period due to several blockbuster hits released in 9M12.

Management improves cost controls. ABS continued to show improvements in cost controls. 3Q12 operating margins increased to 9.3% from 6.2%, bringing 9M12 operating margin to 8.1%. Production costs for the 9M12 rose by just 9.7% to Php7.62Bil while cost of services increased by 20.3% to Php6.13Bil. Growth in both expenses was slower than revenue growth, explaining the improvement in margins.




https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-20-PH-E-ABS.pdf



Atlas Consolidated Mining (AT)Net profits decline 30.8% to Php424Mil; lower than consensus estimates

Strong 3Q12 operating performance not enough to offset poor 1H12 results. AT reported net profits of Php424Mil in 3Q12, 30.8% lower than the previous year due to higher financing charges, and one time charges resulting from mark-to-market losses by the early settlement of its long-term debt, and issuance of its bond. This brought 9M12 net profits to Php2.03Bil, representing only 31.4% of consensus forecast. Excluding the one-time charges, operating income improved by 75.4% during the 3Q12 due to lower costs per ton. The substantial improvement in operating profits, however, was not enough to offset the weak performance during 1H12. 9M12 operating profit reached only Php2.96 Bil or 45.8% of full year estimates. 3Q12 revenues were flat at Php3.19Bil as higher sales volume offset the decline in price.

Higher volume offset lower price. 3Q12 revenues of AT were flat at Php3.19 Bil as higher sales volume offset lower copper prices. During 3Q12, AT produced 20.9Mil lbs of copper, 24.5% higher y/y. However, realized copper price remained weak, dropping by 17.7% to US$3.15/lb.

Operating cost improves. Overhead expense during 3Q12 declined by 14.2% to Php2.07Bil despite higher sales volume. Due to AT’s cost management initiatives, operating cost declined to US$2.61/lb in 3Q12 from US$3.71/lb last year. The vast improvement in cost per pound resulted to a 75% increase in operating income to Php847Mil and was responsible for the substantial improvement in operating margin to 26.5% in 3Q12 from 15.3% in 3Q11.




GMA Network, Inc. (GMA7)Net profit jumps 9.1% to Php573Mil

Net profits climb 9.1% on higher ad revenues. GMA’s 3Q12 net profits grew 9.1% to Php573Mil. This brought 9M12 net income to Php1.58Bil, representing 70.1% of consensus full year forecast. While net profits came in lower than expected, this was largely due to the significant increase in non-cash operating expenses. Revenues during 3Q12 grew by 12.9% to Php3.822Bil driven by higher ad revenues, while cash profits measured by EBITDA jumped by 24.2% to Php1.1 Bil. Revenues and EBITDA were better than expected with 9M12 total already exceeding 80% of consensus full year estimates.

Ad spending improve. Ad revenues in the quarter grew by 14.3% to Php3.53Bil largely due to higher ad minutes by both GMA and GMA News TV. Load factor for GMA rose to 83.4%, the highest level since the 4Q09. Management cited that ad spending continued to improve on both the international and domestic fronts and is a reflection of the strength of domestic consumption in the country.

Margins pulled down by higher capex. Operating margins in 3Q12 declined by 220 basis points largely due to the increase in its non cash expenses. During 3Q12, amortization of program rights rose by 42.9% to Php316Mil while depreciation expense rose by 43.4% to Php191Mil. Depreciation expense increased as a result of GMA’s substantial capital expenditure program recently. Last year, the company rolled out its Media Asset Management System (MAMS). Meanwhile, it launched its two multi-million originating stations in Ilocos and Naga earlier this year.




https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-20-PH-E-AT.pdf

https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-21-PH-E-GMA7.pdf



San Miguel Corporation (SMC)3Q12 profits rise to Php5.12Bil

3Q12 profits rise due to improvement of all business units. SMC’s 3Q12 net profits rose by 346.4% to Php5.12Bil. This brought 9M12 profits to Php19.2Bil, representing 95.9% of consensus full year forecast. All business units posted improvements in operations with consolidated revenues growing by 38.0% to Php179Bil in 3Q12.

Consumer business continues to perform well. SMC’s consumer businesses performed well during 3Q12 as San Miguel Brewery and San Miguel Food Group continued to grow while Ginebra San Miguel continued to recover.

Revenues of the beer business rose by 2.9% in 3Q12 largely due to higher sales volume. Total volume of the beer sold increased by 2.5% to 52.4Mil cases. According to management, the drop in domestic sales volume was offset by higher international sales volume. Coupled with lower fixed costs, operating income grew by 4.6% to Php4.6Bil.

The food business, meanwhile, benefitted from higher revenues and lower input costs. Revenues increased by 11.4% to Php24.0Bil, brought about by growth in domestic sales. Operating profits rose by a faster pace of 12.4% to Php1.41Bil as the company benefited from lower prices of corn and cassava.

Lastly, although GSM posted a loss of Php207Mil in 3Q12, this was lower than the Php375Mil loss incurred in the same period last year. High domestic sales growth of 11.4% resulted in better economies of scale. Intense competition last year was largely responsible for the weak sales last year.

Power sales decline, but operating income up. SMC Global Power also posted higher profits as is managed its costs. Operating profits climbed by 46% to Php5.0Bil in 3Q12. This was despite the 0.6% drop in revenues to Php17.8Bil. This was the lowest revenue posted in the past 5 quarters.

Oil business reverses losses incurred in the 2Q12. PCOR’s 3Q12 net income declined 56.4% to Php500Mil. Although this was an improvement from the Php2.1Bil loss posted during 2Q12, 9M12 profits reached only Php932 Mil, representing only 12.8% of consensus forecast. The company said that it continued to suffer from depressed margins because of volatility in global oil markets in 3Q12. Petron’s Malaysian operations contributed Php155Mil in net income during 9M12, representing 16.6% of the company total earnings.




https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-21-PH-E-SMC.pdf



Property Sector ReviewResidential business mixed while rental business remained strong

SMDC disappoints while MEG outperforms. Earnings of property companies continued to grow rapidly in 3Q12, driven by the strong booking of residential revenues and higher leasing revenues. SMDC was the only exception, with net income down 47.9% due to flat real estate revenues and 63.8% increase in operating expenses. Comparing 9M12 earnings to full-year forecasts, only SMDC disappointed because of its weak 3Q12 earnings. MEG beat expectations because of its higher than expected rental revenues and other income. On the other hand, ALI, FLI, VLL, and CPG are on track to meet estimates.

SMDC and FLI hold back launches, take-up growth slows. Total take-up sales grew 17.9% y/y in 3Q12, significantly slower than the 59.3% growth registered in 2Q12. Growth slowed largely due to FLI and SMDC which held back project launches and focused on selling their existing real estate inventory. Excluding FLI and SMDC, other developers’ take-up sales grew 22.9% y/y.

Rental revenues continue to grow, numerous expansions underway. Rental revenues of property companies continued to grow as companies continued to expand their leasing portfolio. During 3Q12, rental revenues increased by an average of 19%.We expect growth to remain fast in the next three years given the expansion plans by the different companies. FLI is planning to increase its leasing portfolio from 289,000 sqm to 597,700sqm by 2015 (107% growth). ALI is planning to double its leasing portfolio from around 1.28 Mil sqm in 2009 to 2.6 Mil by 2014. MEG did not disclose specific targets for its leasing portfolio but given its landbank in McKinley, Eastwood, and Cebu, the opportunity to expand is readily available.


RICHARD LAÑEDA, [email protected]

https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-21-PH-Property.pdf



Power Sector ReviewPower firms deliver mostly in line results

Earnings of power firms were mostly in line with expectations during 3Q12. Hydroelectric plants’ earnings continued to outperform market expectations in 3Q12 as they benefited from higher demand for ancillary service and higher WESM prices. The earnings of coal fired power plants were mixed. Sales volume rose due to higher contracted capacity. However, this was offset by outages and lower average sales price as a result of lower coal prices. Meanwhile, the sales volume growth of power distribution firm MER moderated in 3Q12 (+3.7%), coming from a high base last year, and as operations were disrupted by floods during the period.

Ancillary service continues to drive hydro plants’ earnings. Hydroelectric plants continued to beat market expectations due to higher revenues from their ancillary services and higher WESM prices. Ample level of water in the dam of hydroelectric plants allowed them to sell bulk of their capacity as ancillary service to the NGCP. The NGCP also paid a higher price for ancillary services due to the increase in power demand during the period. During 9M12, ancillary service revenues of AP’s Magat hydroelectric plant rose 16% to Php9.35Bil, representing 77% of our full year forecast. Meanwhile, ancillary service revenues of EDC and FGEN’s Pantabangan-Masiway reached Php1.86Bil, representing 82.8% of our full year forecast.

Sales volume growth of power distribution slowed down. MER’s 3Q12 sales volume growth moderated to 3.7%, after growing by 9.8% in 1H12. Growth slowed mainly due to the high base last year. Operations were also disrupted by floods during August. This brought 9M12 sales volume growth to 7.7%, in line with our forecast. Meanwhile, AP’s power distribution companies registered an average sales volume growth of 6% in 9M12.

Coal plants earnings continue to rebound. Earnings of AP’s coal plant continued to rebound in 3Q12 since there were no major outages during the quarter and as output increased due to higher power demand from Meralco. The Pagbilao, AP’s biggest coal plant, posted an 18% increase in output as its capacity factor sold increased from 59% to 69%. Meanwhile, sales volume of SCC’s Calaca coal plants rose 6.4% y/y, brought about by the completion of the rehabilitation of unit 1 towards the end of 3Q12.



https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-21-PH-Power.pdf



Nickel Asia Corporation (NIKL)Reducing FV estimate to Php16.40/sh on higher project cost

Taganito HPAL project cost to increase to US$1.59Bil. NIKL reported on Tuesday that the company’s second nickel processing plant in Taganito is expected to incur an additional cost of US$290Mil. This will bring its total cost to US$1.59Bil, 22.3% higher than the initial cost of US$1.30Bil. Of the total increase, US$150Mil was due to the damages sustained by the plant as a result of the October 2011 insurgency attack. Material prices were also higher than expected due to the construction specification of the project. The remaining US$140Mil is attributable to the difference in currency rates for construction fees that are non-US dollar denominated.

After factoring in the higher cost of the Taganito project, we are reducing our FV estimate on NIKL by 4.6% from Php17.20/sh to Php16.40/sh. NIKL has a 22.5% equity in the project, which translates into an additional US$65.2Mil or Php2.67Bil cost.

Maintain HOLD rating. We maintain our HOLD rating on NIKL with our new FV estimate of Php16.40/sh. Although we like Nickel Asia for the being one of the lowest cost producers of nickel in the world and for the attractive earnings potential of its upcoming Taganito HPAL facility, valuations are not cheap with the stock trading at 11.8X FY13E P/E. In contrast, regional peers are trading at 9.24X FY13E P/E.



https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-21-PH-E-NIKL.pdf



Bank of the Philippine Islands (BPI)BPI and PNB confirm talks of merger

BPI and PNB confirm discussions. In separate disclosures submitted to the exchange on Wednesday, BPI and PNB confirmed that there has been talks between the two banks for a possible merger/acquisition. However, no other details were given. The two banks said that the appropriate disclosures will be made in accordance with the PSE disclosure rules. Trading of the shares of the two banks were voluntarily suspended on Wednesday.

The Philippine Daily Inquirer reported yesterday that BPI is currently in advanced talks to acquire a majority stake in PNB. Based on the report, the Ayala group and the Lucio Tan group might be able to strike a deal at Php96/sh, 14% higher than the closing price of PNB on Tuesday and equivalent to around 1.55X end 2013 BV per share of the merged PNB-Allied based on our estimates. Assuming that the deal pushes through, total consolidated assets of BPI would reach Php1.4Tril, placing them above the BDO (Php1.2Tril) as the largest bank in the country.

Merger expected to be done via share swap. According to a report from Philippine Star, “PNB is offering a share swap deal with BPI instead of an outright buyout”. Based on our computations and assuming the share swap is priced at Php96.00 per PNB share and Php88.45 per BPI share (current market price of BPI), Ayala Corp and the LT group will be the two biggest shareholder of the merged bank at 33% and 19% respectively.

PNB major beneficiary of the potential acquisition. While the deal is not yet finalized, speculation about the potential acquisition has pushed share prices higher, particularly that of PNB. During the last two trading days, PNB’s share price increased by 17% while BPI’s rose by 4%. Aside from the speculation that the deal would be executed at a significant premium to PNB’s share price, we think PNB will greatly benefit from the entry of BPI. BPI has an excellent track record in terms of successfully acquiring other banks. Its entry into PNB, which will eventually merge with Allied Bank, should reduce the execution risk of the PNB-Allied merger which we think is one of the major concerns of investors notwithstanding the numerous synergies of that would result from the merger of the two banks.

Trading of BPI and PNB to resume on Thursday. Without disclosing any other details (aside from confirming the discussions), BPI and PNB have requested the trading of their shares to resume on Thursday.

Reviewing rating. We currently have a BUY rating on both BPI and PNB with FV estimates of Php91.00/sh and Php87.00/sh respectively. BPI’s acquisition of PNB could potentially create synergies for the surviving bank. However, given the significant increase in the share price of both BPI and PNB recently, we will be reviewing our ratings and FV estimates on the two stocks to determine whether the current valuation is justified.




https://beta4.colfinancial.com/ape/Final2/ResearchCompUpdates/DOWNLOADS/2012-11-22-PH-S-BPI.pdf



Investment Rating Definitions

Stocks that have a BUY rating have attractive fundamentals and valuations, based on

our analysis. We expect the share price to outperform he market in the next six to twelve

months.

Stocks that have a HOLD rating have either 1.) attractive fundamentals but expensive

valuations; 2.) attractive valuations but near term earnings outlok might be poor or

vulnerable to numerous risks. Given the said factors, the share price of the stock may

perform merely inline or underperform the market in the next six to twelve months.

We dislike both the valuations and fundamentals of stocks with a SELL rating.

We expect the share price to underperform in the next six to twelve months.

BUY HOLD SELL

Securities recommended, offered or sold by COL Financial Group, Inc.are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.

Important Disclaimers

company reports: indices chib (hold) · 2012-11-23 · mang inasal representing bulk of the growth....

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