peru equity guide 2020 equity guide 2020 - kallpa sab.pdfmichiquillay southern copper pampa de pongo...

Peru Equity Guide 2020Bet on consumption in the middle of global uncertainty

Bet on consumption in the middle of global uncertainty

Management

Alberto Arispe

CEO

(511) 630 7500

[email protected]

Corporate Finance Special Operations

Ricardo Carrión Miguel Rodriguez

Manager Manager

(51 1) 630 7500 (51 1) 630 7500

[email protected] [email protected]

Equity Research

Marco Contreras Marco Alemán Jose Inurritegui Anthony Hawkins

Head of Research Senior Analyst Analyst Assistant

(51 1) 630 7528 (51 1) 630 7527 (51 1) 630 7529 (51 1) 630 7500

[email protected] [email protected] [email protected] [email protected]

Sales & Trading

Eduardo Fernandini Hernando Pastor Mayra Carrión Hilmer Calderón

Head Trader Sales Trader Sales Trader Sales Trader

(51 1) 630 7516 (51 1) 630 7511 (51 1) 630 7510 (51 1) 243 8024


Rosa Torres Belon Walter León Blanca Pajuelo Mishell Morales

Sales Trader Sales Trader - Miraflores FX Sales FX Sales

(51 1) 630 7520 (51 1) 243 8024 (51 1) 630 7515 (51 1) 630 7525


Backoffice

Ramiro Misari Edilay Broncano Franklin Mujica

Head of Operations & IT Backoffice Analyst IT Analyst

(51 1) 630 7523 (51 1) 630 7500 (51 1) 630 7500

[email protected] [email protected] [email protected]

Internal Control

Lissete Cuyuche

Controller

(51 1) 630 7500

[email protected]

Accounting and Administration

Luz Quispe Juan Carlos Huisa Gema Torres

Chief Accountant Accounting Assistant Office Manager

(51 1) 630 7523 (51 1) 630 7500 (51 1) 630 7500

[email protected] [email protected] [email protected]

www.kallpasab.com 2Peru Equity Guide 2020

mailto:[email protected]



















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Index

Presentation ………………………………………………...…………………………………………………………………………………………………………………………………………………………..

I. Peru: Macroeconomic Outlook 2020 ………………………………………………………………………………………………………………………………………………………………………………..

2019: GDP would close with the lowest growth since 2009 …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..

Expectations for 2020 …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..

Investment boosted by the mining sector …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..

Fiscal Situation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..

Monetary Situation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..

Inflation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..

Exchange Rate …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..

II. Metals Prices: Outlook ………………………………………………………………………………………………………………………………………………………………………………..

Gold and Silver …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..

Copper ………………………………………..……………………………………………………………………………………………………………………………………………………………………..

Zinc ………………………………………...…………………………………………………………………………………………………………………………………………………………………..

Tin ………………………………….……………………………………………………………………………………………………………………………………………………………………..

III. Peruvian Equities ………………………………………………………………………………………………………………………………………………………………………………………………………

IV. Strategy: Overweighting Consumption ………………………………………………………………………………………………………………………………………………………………………………..

V. Companies under Coverage ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Financials

Credicorp ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Intercorp Financial Services ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Consumption

Alicorp ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

InRetail ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Infrastructure

v. Cementos Pacasmayo ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

vi. Ferreycorp ………………………………………………………………………………………………………………………………………………………………………………..………………………………………………………………………………………………………………………

Graña y Montero ………………………………………………………………………………………………………………………………………………………………………………..

Unacem ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Energy

ix. Enel Distribución Perú ………………………………………………………………………………………………………………………………………………………………………………..

Enel Generación Perú ……………………………………………………………………………………………………………………………………………………………………………………..

Engie Energía Perú …………………………………….……………………………………………………………………………………………………………………………………………………..

xii. Luz del Sur …………………….…………………………………………………………………………………………………………………………………………………………………………………..

Refinería La Pampilla …………………………………………………………………………………………………………………………………………………………………………………..

Mining

Buenaventura ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Cerro Verde ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Nexa Resources Perú ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Minsur ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Southern Copper ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Trevali ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

Volcan ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

www.kallpasab.com 3

xv.

xix.

Peru Equity Guide 2020

xvi.

i.

ii.

iii.

iv.

v.

vi.

vii.

i.

ii.

iii.

iv.

vii.

viii.

x.

xi.

i.

xiii. 39

41

53xx.

xvii.

ii. 17

37

iii.

iv.

xiv.

xviii.

5

10

11

12

14

19

21

27

29

45

47

49

51

23

31

33

35

25

4

5

5

6

7

8

8

9

8

13

15

9

10

43



Sincerely,

Marco Contreras

Head of Research

Kallpa Securities SAB

www.kallpasab.com 4

The North American market led the growth of the stock market, supported by the three reductions in the reference rate

of the US Federal Reserve (Fed). This, due to the fear of a deeper global economic slowdown, as well as the trade

tensions with China. The trade negotiations continued along 2019, while tariffs increased between both countries.

Finally, in December, the United States decided to suspend a scheduled tariff increase due to a progress within the

first phase of a trade deal that could be signed in January 2020.

For 2020 we are more optimistic. We expect an economic growth of 3.2%, which will be boosted by the recovery of the

primary sectors. Likewise, we estimate that consumption will continue to maintain a solid growth above 3.0%.


Finally, we always recommend investing in companies with good fundamentals, overweighting companies related to

the consumer sector, which we believe have a high potential for growth in their profits.

2019 was a positive year both for developed countries and emerging economies. After a highly volatile period in 2018,

S&P 500 had a positive performance of 28.9% in 2019, while emerging economies yielded 18.2%.

We would like to present the "Peru Equity Guide 2020" developed by Kallpa SAB's Equity Research Team. In this

document you will be able to find our overview of the Peruvian market and the economy for 2020. Furthermore, we

wish to share our recommendations of the stocks we like the most from the Lima Stock Exchange (BVL) and we also

update the target prices of the 20 companies we have under coverage.

Dear Investor,

Stock markets in emerging countries also had a good year. The MSCI Emerging Markets Index rose 18.2%,

recovering the loss of 15.3% that it had in 2018. A lower risk aversion and a slightly weaker dollar benefited this

market segment.

However, despite the above, the region suffered from a greater perception of risk towards the end of 2019, due to the

various social and political conflicts that broke out in Chile, Ecuador, Bolivia and Argentina.

Peru was no stranger to this situation and the political conflict between the legislative and the executive power ended

with the decision of President Martín Vizcarra to dissolve Congress and call for parliamentary elections on January 26,

2020.

In addition to political uncertainty, the local economy had a strong slowdown, due to the lower growth of the fishing

and mining sectors, which affected the country's exports. In this context, the GDP growth estimates for 2019 were

reviewed downwards from an estimated 4.0% at the beginning of the previous year to the 2.3% we currently expect.

Due to all of the above-mentioned, the Peruvian market did not perform well during the year. The MSCI Peru Index

rose only 1.1% in 2019.

We believe that in this context the Lima Stock Exchange (BVL) can have a positive performance. However, the market

will remain quite alert to external factors, such as the development of trade negotiations between China and the United

States, the Fed's monetary policy, the US presidential elections and the latter's recent conflict with Iran.



2019: GDP would close with the lowest growth since 2009

Source: BCR, Kallpa SAB Source: Ipsos

Expectations for 2020

Source: BCR, Kallpa SAB


ii.

i.

I. Peru: Macroeconomic Outlook 2020

We expect the year 2019 to close with a GDP growth of 2.3%; its lowest level since 2009 (when it grew 1.0%). This

figure, considerably lower than the previous year (2018 grew 4.0%), responds mainly to lower expected growth of

domestic demand, an adverse political environment and a slowdown in global economic growth. During the first half of

the year the local economy grew by an average of 1.8%, given the smaller progress in public investment and exports,

which we expect will recover in the second half.

Regarding the economic sectors, we highlight that fishing and mining would be the drivers of low growth. This, due to

a lower than expected anchovy catching and problems in the production of the Las Bambas and Cerro Verde mines. In

the midst of lower economic activity, the Central Bank decided to make 2 cuts of 25 basis points in its reference rate,

with the aim of stimulating consumption and investment.

In the political sphere, tensions between the Legislative and the Executive Power were maintained. After having

rejected two confidence votes proposed by the Executive, President Martin Vizcarra decided to dissolve the Congress

of the Republic. In this regard, he also called for extraordinary parliamentary elections, which will take place on

January 26. The new Congress will begin work in March 2020, to complete its mandate together with the president

until July 2021.

By 2020, we expect an acceleration of the economy, which would reach a growth of 3.2%. This would be boosted by a

recovery of the primary sectors, since we estimate a greater anchovy catching and a greater mining production. A

global scenario with lower trade tensions between China and the United States would also be beneficial and favor

commodity prices.

-1%

0%

1%

2%

3%

4%

5%

6%

7%

3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19

Chart N° 1: GDP vs. Domestic Demand

GDP Domestic Demand

9.1%

1.0%

8.5%

6.5%6.0% 5.8%

2.4%

3.3%

4.0%

2.5%

4.0%

2.3%

3.2% 3.2%

0%

2%

4%

6%

8%

10%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e

Chart N° 3: GDP Variation

11%

8%

4%

4%

3%

3%

16%

34%

17%

Chart N° 2: Voting Intention 2020

Acción Popular

Fuerza Popular

Partido Morado

Alianza Para el Progreso

Somos Perú

Frente Amplio

Others

Blank Vote

Don't know



Investment boosted by the mining industry

Source: BCR, Kallpa SAB Source: BCR, Kallpa SAB

Table N° 1: Portfolio of Main Mining Projects

Project Company

Quellaveco Anglo American

Los Chancas Southern Copper

Michiquillay Southern Copper

Pampa de Pongo Jinzhao Mining

Yanacocha Sulphides Minera Yanacocha

Haquira Antares

Mina Justa Minsur

Toromocho Exp. Chinalco

Others

Total

Source: BCR Source: MINEM

www.kallpasab.com 6

Metal

We believe that private investment can maintain its dynamism in 2019 and 2020. We expect growth of 4.2% and

3.5%, respectively. This progress would be based mainly on the execution of various projects, especially in the mining

sector. The non-mining sector would also see greater dynamism, as business confidence recovers.

During 2018, it began the construction of the Minsur Mina Justa copper project, which has an investment of USD

1,600 MM. Likewise, the expansion of the Toromocho mine from Chinalco (USD 1,300 MM) was also executed.

Additionally, in 2019 the work of the Anglo American Quellaveco project (USD 5,300 MM) began, which has given an

additional boost to the investment and it is the reason why we expect a 29% growth in the mining investment of 2019.

For the following years, the growth would be more moderate. We estimate that work will continue in Quellaveco during

2020, in addition to the last stage of Mina Justa, which should start production towards the end of the year.

By 2021 we expect a recovery in metal prices, which could trigger the construction of new projects that are currently in

the USD 57,772 MM portfolio of the Ministry of Energy and Mines. Among the next projects could be Pampa de Pongo

(USD 2,200 MM), Zafranal (USD 1,157 MM), Corani (USD 585 MM), Coroccohuayco (USD 590 MM), among others.

Cu 2,500

Fe 2,200

Cu


57,772

38,057

Cu 2,100

Cu 1,860

Cu 1,600

iii.

5,300

Cu 2,800

1,355

CAPEX (USD MM)

Cu

Infrastructure projects: The most important is the Line 2 of the Lima Metro, which has an investment of USD 5,700 MM

and has currently reached 27.8% progress. We also expect in 2020 the construction of the Jorge Chavez Airport

expansion (USD, 1500 MM) to begin, as well as other projects such as the Chancay Port Terminal or the Salaverry

Port.

Mining Investment: The main catalyst for private investment growth for 2019 will be the development of mining

projects. Chart 6 shows the high correlation between mining investment and private investment.

Chart N° 6: Mining vs. Private Investment Growth

30

35

40

45

50

55

60

65

70

2012 2013 2014 2015 2016 2017 2018 2019

Chart N° 5: Business Confidence

6.9%

-2.3%

-4.3%

-5.4%

0.2%

4.2% 4.2%3.5% 3.5%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2013 2014 2015 2016 2017 2018 2019e 2020e 2021e

Chart N° 4: Private Investment

-60%

-40%

-20%

0%

20%

40%

60%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19

Private Investment Mining Investment



Table N° 2: Main Infrastructure Projects

Project

Line 2 of the Lima Metro

Jorge Chávez Airport Expansion

Chancay Port

Rutas Nuevas de Lima

Muelle Norte Modernization

Red Vial 4

Treatment of Residual Water in Titicaca Lake

San Martín Port

Salaverry Port

Red Vial 6 Expansion

Source: AFIN, Universidad del Pacífico Source: BCR, Kallpa SAB

Table N° 3: Distribution of the budget for reconstruction

Sector

Transport

Education

Sewage

Roads

Agriculture

Health

Housing

Capex for damaged infrastructure

Prevention works and others

Total Budget


Fiscal Situation

www.kallpasab.com 7

2,671 10.4%

2,041 8.0%

1,114 4.3%

It is estimated that 2019 will close with an execution of PEN 2,500 MM, much higher than the previous two years.

Also, the estimate for 2020 is PEN 4,000 MM, maintaining a greater dynamism in the execution of these projects.

Chart N° 8: Public Investment Growth

38.0%

Despite the above-mentioned, we highlight the execution risk that exists in every project. Additionally, those works

whose progress depends on government decisions could see greater delays due to increases in the country's political

noise and the lack of experience of the authorities.

19,759

9,760

1,344

5,896


23.0%

25,655

1,343

370

380

229

CAPEX (USD MM)

1,500

1,300

260

1,483 5.8%

77.0%

590

5.2%

5.2%

CAPEX (PEN MM) %

Reconstruction works: In 2017 the country was affected by the “El Niño” Phenomenon, where great part of the

national infrastructure was damaged. Given this, the government planned a budget to carry out reconstruction works

for an amount of PEN 25,655 MM, which we expect will be executed in the medium term.

270

iv.

By 2020 we expect the fiscal deficit to remain stable at 1.7% of GDP, in line with the end of 2019, and would go hand

in hand with the expected recovery of economic activity and public investment (+ 5.0% YoY). By 2021 we expect the

fiscal deficit to be reduced to 1.6% of GDP.

We believe that public spending will bring greater indebtedness to the government, which will increase from 26.5%

(public debt / GDP) in 2019 to 27.3% in 2020. The levels of indebtedness would be gradually reduced, as the fiscal

deficit decreases.

5,700

200

We estimate that for the year 2019 the fiscal deficit would close at 1.7% (by November 2019, the accumulated fiscal

deficit of the last twelve months was 1.6% of GDP, after reaching 2.3% of GDP in 2018). The above would be due to

the higher current revenues of the general government (+0.2 pp of GDP vs. 2018), and for the reduction of non-

financial expenditure (-0.1 pp of GDP vs. 2018).

36%

19%

17%

12%

8%

5% 3%

Chart N° 7: Infrastructure Gap

Transport

Energy

Telecom

Health

Water and Sewage

Hidraulic

Education

11.1%

-1.1%

-9.5%

-0.2%

-2.3%

9.9%

-0.5%

5.0%

3.0%

-15%

-10%

-5%

0%

5%

10%

15%

2013 2014 2015 2016 2017 2018 2019e 2020e 2021e




Monetary Situation

Inflation

Exchange Rate


www.kallpasab.com 8

For 2020 we expect the exchange rate to fluctuate around 3.35. A slower stance on the Fed's monetary policy and a

slight increase in commodity prices (mainly copper), would contribute to maintain the exchange rate stable.


Finally, regarding the exchange rate (PEN / USD), during 2019 it registered a 1.5% drop. The lower strength of the

dollar was due to the reduction in Fed interest rates, although there was a greater risk aversion for the trade war

between the United States and China. This showed strong volatility, reaching a price above 3.40.

During 2019, the Central Bank reduced two times its reference rate, which went from 2.75% at the beginning of the

year to 2.25% at the end of the year, due to the low levels of inflation and economic growth below potential.

Since March 2017, inflation has remained within the target range of the BCR (between 1% and 3%). In 2019 prices

increased by 2.0%. This was the result of a rise in the prices of the service segments (+ 2.0%); and, electricity (+

2.6%).

For 2020, we expect inflation to remain within the target range, close to 2.0%, aligned with the price increase reported

in 2019.

v.

vi.

vii.

For 2020, we foresee that the Central Reserve Bank of Peru (BCR) will reduce its reference rate by 25 additional basis

points, in order to stimulate the economic growth, as inflation expectations remain in the target range. In this scenario,

the rate would close the year at 2.0%.

0.9%

-0.3%

-2.1%

-2.5%

-3.1%

-2.7%

-1.7% -1.7% -1.6%

-4%

-3%

-3%

-2%

-2%

-1%

-1%

0%

1%

1%

2%

2013 2014 2015 2016 2017 2018 2019e 2020e 2021e

Chart N° 9: Fiscal Deficit (% of GDP)

20.0% 20.1%

23.3% 23.8%24.9%

25.9% 26.5%27.3% 27.3%

0%

5%

10%

15%

20%

25%

30%

2013 2014 2015 2016 2017 2018 2019e 2020e 2021e

Chart N° 10: Public Debt (% of GDP)

0%

1%

2%

3%

4%

5%

6%

7%

8%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Chart N° 11: Reference Rate vs. Inflation

Reference Rate CPI YoY Variation

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Chart N° 12: Exchange Rate PEN/USD

e



Metals Prices: Outlook

Table N° 4: Average Metal Prices Vector

Source: Kallpa SAB

www.kallpasab.com 9

Throughout 2019 the price of gold registered a growth of 18.7%, while silver did it at 15.8%. Both results were mainly

influenced by the monetary policy of the US Federal Reserve (Fed). Due to the concerns about a possible slowdown in

the global economy, generated by the constant trade conflicts between the United States and China, the Fed decided

to reduce the reference rate three times in 2019, which is equivalent to a reduction of 75 basis points, placing it in the

range of 1.50% -1.75%. Moreover, there were recent tensions between the US and Iran, which were aggravated by

the murder of a high-ranked general from the Middle Eastern country, ordered by the US government. This has caused

threats from Iran, generating global uncertainty about a possible war.

18,000

Copper USD/Lb.

18,000

Gold USD/Oz

Silver USD/Oz


18.00 18.00

2019

1.00

New

20,000

Old

New

New

Old

New

16.50

1.16

18.00 18.00 18.00

II.

1,394

17.25 17.75 18.00

18,000

2021e

3.10

16.21

1,300

18,000

1.05

3.00

1.10

20,000 20,000

0.95

1.00

0.90

1.15 1.10 1.10 1.10

0.90

Zinc USD/Lb.

Lead USD/Lb.1.00 1.00 1.00 1.00 1.00

0.95

Tin USD/TM18,636 18,000 18,000

Given the previously mentioned factors, an offer without major changes and a demand with upward bias, in view of

greater long positions of investors and greater purchases by Central Banks, expectations for the gold metal are

positive in the short term.

3.252.72

3.00

Old 18,000

LT

1,500 1,450 1,400 1,350 1,300

Our expectations for the prices of metals for a medium and long term, which we use in our valuation models of mining

companies, are presented below.

1.00

1.20

0.91

i.

17.50 18.00

2.85 3.00

1,300

20,000

Vector

New

Old

Gold and Silver: Uncertainty over global economy would boost the demand of safe-haven assets

The year 2019 began with the optimism that the differences between the United States and China were resolved; therefore

there was positive expectations regarding the performance of base metals. Likewise, the inventories of these metals were

located at levels close to the historical lows. In this way, copper and zinc exceeded, at some point, the USD 2.95 / Lb. and

the USD 1.35 / Lb., respectively. However, the uncertainty over the outcome of the trade war ended up negatively affecting

their prices. The market expects that in the first month of 2020 the first phase of a trade deal to be signed. Such agreement

could clarify several doubts and boost the price of base metals. On the other hand, precious metals, such as gold and silver,

were the most benefited from global uncertainty during 2019, exceeding levels of USD 1,500 / Oz. and of USD 18.0 / Oz.,

respectively.

3.10

1,300

Old

Gold is considered a safe-haven asset, therefore its volatility is affected in great part by the perception of risk over the

expectations of different economic indicators, such as inflation and monetary policy, besides the geopolitical risk. In

addition, metal has been used for some time to speculate, through ETFs, therefore long and short positions create

volatility in the price. On the other hand, silver is considered a hybrid metal, as even though it is used as a precious

metal, it is also used as an industrial metal, therefore it is harder to measure if the price per ounce is over or

undervalued.

To analyze silver, it is useful to observe the gold / silver ratio. In the last 20 years, the ratio has been on average at

64.0x. In the last 10 and 5 years it has been located at 67.0x. In July 2019, the ratio reached a historical peak, due to

the higher rise in gold, a consequence of global trade conflicts. Silver remained relatively lagging, which could be an

indicator that the metal could have an attractive upside in the short and medium term. All of the above would support a

gold price of around USD 1,500 per ounce and a silver price of USD 17.50 an ounce in 2020.

1,300

0.95

1,300

3.30 3.20

1,300

1.00 1.00

3.15

3.15

New

Old

2020eMetal 2022e 2023e



Source: World Gold Council, Kallpa SAB Source: World Gold Council, Kallpa SAB

Copper: We expect a recovery in 2020

Source: Bloomberg, Kallpa SAB Source: Bloomberg, Kallpa SAB

Zinc: Market is getting close to a balance gradually

www.kallpasab.com 10

Chart Nº 15: International Copper Market

Additionally, the growth of the mining supply is also usually affected by disruptive events, which have affected between

5% -6% of the global supply in the last two decades. Protests for social conflicts or renegotiation of labor contracts are

always a risk that can affect the metal price.

Second, and with a close correlation to the above, the growth of China is one of the most important factors to maintain

the copper price at high levels, because it concentrates more than 50% of global demand. While China's demand has

slowed more than expected, world production also had an adjustment in 2019 due to lower grades and disruptions in

the production of some mines. By 2020, we do not expect many changes in this regard and we believe there will still

be a copper supply deficit.

Given this, we expect an average copper price of USD 2.85 by 2020 (+4.6% YoY).


First, although the persistence of trade tensions between the United States and China and the influence on the

economic growth of the Asian country have limited the recovery of the price of copper, it was recently announced that

a partial agreement between the two countries would be signed in mid-January 2020. Trade tensions, which began in

March 2018, have pushed investors away from the copper market in 2019, but a positive outcome of the negotiations

could align price expectations with market fundamentals and increase demand.

Important mines that removed 1.0 MM of annual MT of zinc were closed between 2013 and 2016, causing a supply

deficit, which until a year ago, was expected to last for a long time. Today, the situation has changed and there is a

possibility that it will be reversed with a greater offer.

Throughout 2019 the price of copper has increased 4.2% (vs. closing 2018), however, with respect to the average

price of 2018 the metal price has fallen 8.1%, again defined by the volatility generated by the uncertainty due to the

trade war between the United States and China, in addition to the conflicts in major producing countries such as Chile

and Peru. While the long-term deficit is now expected to be less than what it was expected years ago, the following

factors could still sustain and boost the price in 2020.

ii.

iii.

2,695 2,531 2,4592,101 2,237 2,241 2,028

2,340

1,667 1,670

1,467 1,4251,748

1,568

356

348 332

323 333335

324

0

1,000

2,000

3,000

4,000

5,000

6,000

2013 2014 2015 2016 2017 2018 2019e

Chart Nº 13: Physical Demand of Gold (MT)

Technology Safe-heaven asset and Central Banks Jewelry

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2003 2005 2007 2009 2011 2013 2015 2017 2019

Chart N° 14: ETFs Gold Holdings (MT)

Others Asia Europe US

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

USD/Lb.MT

Chart N° 16: Copper Inventory

LME Inv. Shanghai Inv. Copper Spot

0.00

1.00

2.00

3.00

4.00

5.00

-1,500

-1,000

-500

0

500

1,000

1,500

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

USD/Lb000' MTDemand - Supply Copper Price



Source: Bloomberg, Kallpa SAB Source: Bloomberg, Kallpa SAB

Source: Bloomberg, Kallpa SAB

Tin: Prices affected by a supply surplus



The average price of the metal during 2019 was USD 18,636 / MT (-7.4% vs 2018). The greater supply from Peru and

Malaysia, generated that the inventories at global level increase from 1,500 MT at the beginning of the year to 7,050

MT, affecting the price of the metal. However, towards the end of 2019 the price of tin presented an important

recovery and advance 8.0% from its lowest point in the year, in August (USD 15,760 / MT). For 2020 we estimate that

the price will recover due to a greater demand of the metal, and will be around USD 18,000 / MT.

The demand for zinc has shown steady growth in recent years, however, trade conflicts between the United States

and China, and the uncertainty about the global economy growth, have negatively affected the demand for metal in the

last year. Global demand for zinc is expected to grow at rates below 1.5% over the next two years, due to lower house

construction and a slowdown in China's transport sector.

The growth of the offer in the next two years would come largely from China (+150,000 MT), re-starts of inactive mines

(+100,000 MT), along with the increased production of mines such as Antamina, Penasquito, Gamsberg, among

others (+ 700,000 MT). The greater production would be offset by the low refining capacity that currently exists in the

markets, which generates a "bottleneck" in the short term. Thus, we believe that the price of zinc should be around

USD 1.05 / lb. in 2020 (-9.2% YoY).


iv.

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Jan

-17

Fe

b-1

7

Ma

r-17

Ap

r-17

Ma

y-1

7

Jun

-17

Jul-

17

Au

g-1

7

Se

p-1

7

Oct-

17

Nov-1

7

Dec-1

7

Jan

-18

Fe

b-1

8

Ma

r-18

Ap

r-18

Ma

y-1

8

Jun

-18

Jul-

18

Au

g-1

8

Chart Nº 17: Supply of Concentrates (YoY)

0.0

0.4

0.8

1.2

1.6

2.0

2.4

0

400

800

1,200

1,600

2,000

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

USD/Lb.000' MTChart Nº 18 : Zinc inventories

LME Inv. Shanghai Inv. Zinc Spot

0.0

0.5

1.0

1.5

2.0

2.5

-800

-600

-400

-200

0

200

400

600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

USD/Lb. 000' MT

Chart N° 19: Zinc International Market

Demand - Supply Zinc Spot

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

0

10

20

30

40

50

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

USD/TM000' MTChart N° 20: Spot price and Tin Inventories

LME Inventories Tin Spot



Peruvian Equities



Regarding the multiples valuation, the MSCI Peru Index trades at a P/E of 13.6x, 14.6% above its 10-year average of 11.9x.

Likewise, according to Chart N° 21, during the years with higher level of profits (years with high metal prices), the valuations

reached between 14x and 16x the level of net income of the companies. This reflects our high expectations of growth in

profits generated as a result of the greater efficiencies in consumer companies, and the expansion plans of mining

companies (Minsur and Southern Copper, mainly).

On the other hand, the net profit of companies linked to domestic demand would show a growth of 8.1%. The financial sector

(+8.9%) would be benefited from a greater dynamism of loans, especially in the retail segment. In the case of consumer

companies (+20.6%), the strong increase would come from the improvement in margins and deleveraging of InRetail and

Alicorp.


The infrastructure segment would also recover dynamism (+18.4%), due to better profits in cement companies, given better

margins in Unacem and the solid growth of the concrete business in Cementos Pacasmayo. The energy sector, meanwhile,

would not register significant changes (-3.6%), since the slight increase in the profits of the electricity distribution companies

would be offset by the lower profits of Engie and Relapasa.

III.

We estimate that in 2020 our sample of companies under coverage will see an increase of 19.2% in net income, boosted by

the companies of the mining industry, whose profits would increase by 31.4%. Companies like Cerro Verde and

Buenaventura will lead the progress in the sector. In the case of the first one, the advance would be influenced by a higher

level of production and greater cost efficiency. Regarding Buenaventura, profits would be boosted by better prices of precious

metals and better results from associates (Cerro Verde and Yanacocha).

However, for the profits of the companies to continue advancing, it will be necessary that: i) the positive performance in the

consumption and investment levels is maintained, ii) the portfolio infrastructure projects are executed, iii) greater mining

production, as a result of expansion plans and recovery of ore grades in mining companies; iv) that the price of copper

presents a recovery in 2020 and trades around USD 2.85 / Lb.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

0

500

1,000

1,500

2,000

2,500

Chart N° 21: P/E Ratio of MSCI Peru Index vs. MSCI Peru

MSCI Peru (Eje Der.) P/E MSCI Peru (Eje Izq.)

Prom.: 11.9x



Table N° 5: Top picks 2020



Despite the lower economic growth of 2019, private consumption has remained resilient, reaching a 3.0% growth. Along the

same line, consumer loans, credit cards and mortgages have registered solid growth, reaching double-digit increases,

although total loans in the financial system grow at levels close to 7%. We believe that the consumer sector will maintain its

trend in 2020 and that companies related to this sector could benefit. Likewise, the profits of the companies in this sector will

have remarkable growth in 2020, giving support to our recommendation.

Alicorp: Company whose main business is Consumer Good Peru (CGP). This segment will continue to be the main driver of

margins and profitability in 2020. We expect an EBITDA margin close to 13%. Although we estimate a reduction in margins in

the aquaculture business and an environment of higher commodity prices (soybean oil), we believe that this will be offset by

the efficiencies obtained from the integration of Intradevco, Fino and ADM Sao.

Market Cap.

(USD MM)

P/E

1.0 41.9%

16.9%

10.6%

2.6%

Industry

2.0

2021ePrice

InRetail Perú

P/BV

6.5

11.8

9.9

6,791Mining

Strategy: Overweighting Consumption

We recommend overweighting the companies related to Peruvian domestic demand, especially those in the consumer

sector. We remain cautious in the mining sector, although with greater optimism regarding copper producing companies.

30.4%

0.9%

624

4.2%

2,323

Cerro Verde: The largest copper producer in the country. We believe that the metal has fundamentals to maintain a price

around USD 2.85 / Lb. in 2020. In addition, a lower cash cost would maintain the EBITDA margin at levels close to 49%.

This, added to the low levels of indebtedness, could generate the increase in the payment of dividends.


2.93,898

2.2%

11.0 10.1

Cerro Verde

6.2Ferreycorp

EV/EBITDA

Machinery

n.a.

13.6 11.3

Retail 19.0

Dvd.

YieldTP 2020 Upside

1.3

6.1

5.2

11.0

7.58.1 2.4

n.a.

6.4

Intercorp Finan. Serv. Financial

IV.

4.7

22.7

2020e 2021e

13.5

24.8%

38.0%

4,808

2020e

Alicorp Consumption

Company

In mining, we remain cautious due to the high volatility in metal prices, lower ore grades and increased costs in some

companies in the sector. However, we are more optimistic about copper, given that we believe there are fundamentals that

could sustain a rise in the metal price in the medium term. The main risk will be the trade conflict between China and the

United States. However, this factor could be mitigated if a first trade deal can be signed at the beginning of the year.

In this scenario, we developed a model portfolio with our 5 top picks for 2020, taking as a starting point two companies in the

consumer sector: Alicorp in consumer goods and InRetail in the retail sector. We complement this selection with IFS, a

company in the financial sector focused on consumer loans; Ferreycorp, a company that will report a good profit generation

and with an attractive appreciation potential; and Cerro Verde, copper producer with high margins and greater production

expectations in 2020.

Ferreycorp: Company that will benefit from the high levels of mining investment estimated for 2020. During this and the next

year, the company will begin delivering machinery to the Quellaveco project (USD 5,300 MM), which will support the sales

figures. Meanwhile, the continued growth of the spare parts and services business unit will continue to be the main driver of

profitability for the company. To this, an attractive cash generation is added, which has improved the payment of dividends.

Intercorp Financial Services: Holding whose main asset is Interbank, fourth bank for total loans but first on credit cards. Its

focus on the consumer sector will allow it to continue growing in double digits in 2020. ROE would be reduced to levels of

17% due to the recent share issuance but should increase in the medium term.

InRetail: Holding with the first player in the market in the Food Retail, Pharmacies and Shopping Centers businesses. Food

Retail will generate high levels of growth with the greater penetration of its discount store format. Meanwhile, the pharmacy

and shopping center segments will bring margin improvements, given the greater synergies to be generated between

Inkafarma and Mifarma; and, the incorporation of the new Real Plaza Puruchuco in the company's cash flows.

9.13

2.15

41.65

38.50

19.40

PEN

PEN

USD

USD

USD 25.30

45.00

52.00

3.05

12.60

USD

USD

USD

PEN

PEN



V. Companies under coverage

Table N° 6: Companies under coverage

Financials

Consumption

Infrastructure

Graña y Montero

Energy

Mining

Southern Copper

n.a.: does not apply

Source: Kallpa SAB


Buy

Buy

1.70

33.70

0.58

Buy

Buy

41.65 52.00 24.8% 11.00

Hold

Dvd.

Yield

2.6%

4.2%

4.0%

Rating

3.9%

3.2%

2.6%

0.0%

10.6%

5.9%

0.9%

7.66

6.06

14.45

26.85

PricePrevious

TP

We emphasize that of the companies we have under coverage, we have made significant adjustments in our target prices,

especially in cement companies and in polymetallic miners.

For polymetallic miners, the main driver of the lower target prices has been the downward adjustment in our zinc price vector,

which has an even greater impact on the margins of these companies. Additionally, the 26% adjustment in the zinc content of

the Cerro Lindo reserves, which was made in the last update of its mining plan, also influenced Nexa Resources Peru target

price.

0.0%

Hold

Buy

Hold

5.29

0.74

0.58

2.22

4.35

1.03

17.0% 2.88

n.s.

6.99

1.28

2.29

PEN

IFS USD

6.76 1.93

0.31

1.97

Market Cap.

(USD MM)

10.05 4,808

3.68

2.00

8.90

3.30

2.85

3.70

8.50

Hold

Buy

Buy

5.19

2.92

16,712

6.10

241.00 n.a.

PEN

38.50 45.00

12.04 11.15 209.52

2,323

3,898

7.52

9.94

235.50

49.10

13.40

45.00

0.0%

4.6%

4.6%

1.55

168.7%USD

Relapasa

19.40

Hold

Hold

Buy

Hold

Buy

Hold

Minsur

PEN

1,304

0.0%

4.9%

4.9%

15.0%

2.2%

0.6%

5.34 6.6%

30.4%

13.00

7.90

6.95

Hold

Hold

2.95

8.70

14.70

0.18

41.71

14.6%

Luz del Sur

9.25 29.4%

Enel Gx

PEN 7.15

26.1%

Engie Perú

UNACEM

PEN

60.0%

3.45

14.02

8.38 5.94

13.42

0.95

8.59

7.43

7.36

5.68

Enel Dx

11.14

14.83

68.22 65.26

2.14

4.32

0.126

n.s.

5.17 5.67

16.00

5.16

2.14

1.22

0.83

6,791

0.131

9.02 4.62

2.50

2021

7.28

0.18

5.67

1.39

0.53

6.99 0.39

19.91

-12.7%

26.00

USD

PEN

PEN

n.a. n.a.

414

41.9%

64.7% 6.30

9.30

1.83

1,085

13.58

1,343

1,048

1,592

13.44

C. Pacasmayo

4.32 PEN

7.40

3.05

2.80

EV/EBITDA

32,271

18.50 -28.8% 20.29 19.78

149

1,872

29.0% 12.11

0.62

PEN

Nexa Perú

Cerro Verde

Ferreycorp

15.82 13.93

6.38

3.20

n.a.

8.12

1,949

-1.0% 4,027

9.05

8.05

11.33

16.24

1,363

15.0%

785

2.30 Buy

2.15

11.00

2020 2021 2020

13.53 11.76 9.13

19.03

TP P/BV

16.9%

2.15

1.70

2.00

7.42

14.93

21.3%

Credicorp

PEN

USD

0.49

4.04


10.36

4.74

USD

PEN

7.26

12.60

USD

Upside

Kallpa Securities SAB has twenty (20) companies under coverage that belong to the following industries: financial (2),

consumption (2), infrastructure (4), energy (5) and mining (7). All of them are listed in the Lima Stock Exchange (BVL).

2.90

22.65

38.0%

Industry / Company

16.41

2.39

PEN

624

8.12

InRetail

Buenaventura

Alicorp

6.20

Trevali

6.54

11.01 10.87

P/E

19.46

13.51

14.65

4.3%

36.40

25.30

14.50

313

Volcan

USD

PEN

In the case of cement companies, the values have been adjusted for lower levels of growth and long-term margins, in line

with an estimated long-term growth for the Peruvian economy of 3.0% (previously it was estimated 4.0%).

8.23



Marco Contreras

Head of Research

(511) 630 7528

[email protected]

Credicorp Ltd.

Target Price (USD)

Rating Hold

Market Capitalization (USD MM)

Market Price (USD)

Shares Outstanding (MM)

Upside

ADTV - LTM (USD MM)

Range 52 weeks (USD)

YTD Change

Dividend Yield - LTM

Trading

ADTV: Average Daily Traded Volume

Financial Ratios

Loans/Deposits

NIM

Efficiency

EPS (PEN)

ROE

ROA

P / E

P / BV

Sensitivity Analysis

Source: Bloomberg

www.kallpasab.com

244.30 250.61

Target Price

15

234.02

187.07


2.35

197.79 - 249.15

16,711.62

189.61

Recommendation

13.10

Source: SMV, Kallpa SAB

1.98 1.85

USD 241.00

High level of competitiveness. With the economic slowdown in the country,

the level of competitiveness has increased, especially in the wholesale

segment. Our profits estimates may be affected if the company decides for

an aggressive pricing strategy.

Valuation

We believe that the company has solid fundamentals, which fall on

attractive rates of growth of loans, and improvements in the level of

operational efficiency. However, we note that these are already internalized

in the market price, which is why we recommend to hold.

42.7%

We value Credicorp with a residual income model over a 10-year horizon.

We use a discount rate (COK) of 10.5% and a perpetual growth rate of

3.0%.

Fundamentals are already internalized

17.2%17.1%

58.29 62.93

2.2%

215.47 218.90

193.51 196.04 198.85 202.02

11.54%

LTM: Last 12 Months

Fundamentals for 2020

241.00

5.5%

Chart N° 22: BAP vs. PERU SELECT

2.15

2019e

1.04

43.0%

79.76

17.1%

5.5%

2.2%

HOLDCredicorp Ltd.

2020e

15.0%

2.50%

-1.5%

Financial Industry

1.04

182.75 184.80

2.3%

2021e

42.5%

4.0%

NYSE, BVL

(BVL: BAP)

10.04%

236.06 241.00 246.64 253.15

238.82

2.00%

180.90

5.5%

229.77

12.04 11.15

1.04

53.59

11.04% 191.24

Source: Kallpa SAB

10.54%

NIM: Net Interest Margin

COK / g

232.12

231.70

9.54%

4.00%3.50%3.00%

222.76 227.13

We estimate that the company will generate greater operational

efficiencies. However, we expect the ROE to remain close to 17.0% in the

short term.

Risks

Peru risk. The main risk of the company is its leverage to the Peruvian

economy. Political risk can also affect the development of new investments

and impact on the growth of bank loans.

Asset quality. A deterioration in the asset quality could cause significant

increases in provisions, affecting Credicorp's future profits and ROE.

We expect loans to maintain the dynamism shown in 2019 and advance

7.0% in 2020, boosted mainly by the retail segment.

The cost of risk would be around 1.5%, while PDL ratio would reach 3.1%.

NIM would remain stable at 5.5%.

Kallpa Securities SAB updates its valuation of Credicorp Ltd. (Credicorp), with a

hold recommendation. Our new 2020 year-end target price of USD 241.00 is 15%

above the USD 209.52 market price, as of the closing of January 7th, 2020.209.52


480

500

520

540

560

580

190

200

210

220

230

240

250

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.USDBAP PERU SELECT




INCOME STATEMENT (PEN MM) BALANCE SHEET (PEN MM)

Interest Income Funds available

Interest Expenses Investments

Net Interest Income Net Loans

Net Provisions for Loan Losses Fixed Assets, Net

Net Income after Provisions Intangibles, Net

Non-Financial Income Other Assets

Insurance's Technical Result Total Assets

Operating Expenses Deposits and Obligations

Operating Income Due to Banks and Correspondents

Income Tax Reserves for Claims

Net Income Bonds and Subordinated Debt

Minority Interest Other Liabilities

Net Income Attributable to Credicorp Total Liabilities

Shares Outstanding - Average (MM) Equity Attributable to Credicorp

Earnings per Share - EPS (PEN) Minority Interest

Net Equity

Liabilities + Equity

GROWTH (%) CASH FLOW (PEN MM)

Loans' Growth Net Income

Deposits' Growth Non-Cash Expenses

Net Interest Income's growth Changes in Assets and Liabilities

Provisions' Growth Operating Cash Flow

Operating Income's Growth Investment Cash Flow

Net Income's Growth Financing Cash Flow

Free Cash Flow

FINANCIAL RATIOS

Net Interest Margin (NIM)

PDL Ratio

NPL Ratio

Coverage for PDL

Coverage for NPL

Efficiency Ratio

Loans / Deposits

Payout Ratio

Dividends per Share (PEN)

ROE

ROA

VALUATION

P / E

P / BV

MANAGEMENT

Walter Bayly CEO

César Ríos CFO

Milagros Cigueñas IRO

Source: Credicorp, SMV, Kallpa SAB


-7,025

2,316

23,253

114,056

2,144

34,197

7,879

121,404

-1,932 3,003

-3,365

62.93

22,313 22,881

4,649 5,020

977 1,052 201,765

-1,386


4,749 5,127 21,160

519

229,350

-747

26,538

1,086 1,077

2019e

7.3%

215,284

2,995

4,649

-834

6.3%

22,641

32,613 35,227

-766

2,986

2020e 2021e

30,977

6,505 7,024

215,284 229,350

7,449 4,567 4,710

2020e 2021e 2020e

7.0% 7.0% 4,275

7.3%

2021e2019e

2,615

4.0% 4.0% 4.0%

37.89

1.85

-1,329

2.2%

1.04

2.15 1.98

42.7% 42.5%

2019e

13.10 12.04

186,412

28,872

10,044

-1,169

7.0%

198,373

53.59 58.29

1,031

7.7%

10,747

-2,253

30,251

618 726

5,020

4,366 24,226

201,765

56.5%

146.1% 145.8% 145.8%

113.1% 112.8% 112.8%

9,936

3.1%

2020e 2021e CHART N° 24: CREDICORP LOANS 3Q2019

1.04

17.1% 17.1% 17.2%

65.0%

8.0%

2021e

7.3%

2.2%

2,397

24,624

122,040

4,781

-7,824

32,703

28,254

92

2,223

3.1%

8.8%

2019e

9,144

31,430

129,902 9,812

-1,633

5.5%

4,275

5,070 5,376 21,971

8,418

10,472

29,627 12,509

-3,852

7.0%

905

13,421 14,324

2020e 2021e 2019e

4,800

9.1%

6.7%

-2,054

113,496

175,227

-1,806

6,000 9,387

3,018

17.9%

-3,610

Credicorp: Financial Summary

2019e

8.4%

-1,756 -1,896 8,843

80 80 80

7.3%

28.22 30.28

7,338

2020e

26,020

5.5%

100 108

43.0%

3.1%

8.0% -396

5.5%

CHART N° 23: SHAREHOLDERS

56.5%

11.15

1.04

2.3%

7.0%

21,781

130,583

9,374

-7,421

16%

84%

Romero Family

Institutional Investors

25%

16%

14%

9%

9%

7%

7%

5%5% 2%

Corporate

Medium-size companies

Mortgage

Mibanco

SME

Consumption

Bolivia

Small Businesses

Credit Cards

Others



Marco Contreras

Head of Research

(511) 630 7528

[email protected]

Intercorp Financial Services (BVL: IFS)

Target Price (USD)

Rating


Market Price (USD)


Upside

ADTV - LTM (USD MM)

Range 52 Weeks

YTD Change

Dividend Yield LTM

Trading

Financial Ratios

Loans / Deposits

NIM

Efficiency Ratio

EPS (PEN)

ROE

ROA

P / E

P / BV

Source: Kallpa SAB

Source: Bloomberg


11.54% 44.09 44.68


Chart N° 25: IFS vs. PERU SELECT

3.00% 3.50% 4.00%

56.05


45.34 46.08

2.0%

34.2%

10.04% 53.62 54.76

12.03 11.00

1.97 1.80

2.00% 2.50%

57.54


COK / g

48.46 49.39 50.45

9.54% 57.67 59.09 60.73 62.64 64.89

50.97 52.00 53.17 54.52

0.96 0.96

2021e

1.9% 2.0%

5.5%

34.3%

5.5%

17.6%

46.91 47.64

Financial Industry Target Price

5.5%

13.88

BUY

10.05

1.66

12.69

Intercorp Financial Services

Inc.USD 52.00

52.00

Buy

17.1%

4,808.40

41.65

115.45

24.8%

2.13

38.00 - 50.00

BVL


LTM: Last 12 Months

0.96

11.04%

NIM: Net Interest Margin

Source: SMV, IFS, Kallpa SAB

Risks

34.5%

11.87

17.2%

59.27


2019e 2020e

10.54% 50.06

Retail segment will continue to lead growth during 2020

1.8%

46.92

4.2%

We estimate a ROE of 17.1% in 2020, which would be below the 17.6% we

expected for 2019, due to the impact of the issuance of shares conducted

in July 2019. However, we expect an increase in ROE in the medium term,

given the strong growth of loans in Interbank and the better profitability

levels of Interseguro.

Asset quality. A deterioration in the asset quality could lead to increases in

provisions, affecting the company's estimated future earnings.

Valuation

Recommendation

We believe that IFS has solid fundamentals that rely in the strong credit

growth of the retail segment (especially consumption and credit cards) and

the improvements we expect in profitability. Considering the above, our

recommendation is to buy.

The efficiency level would improve slightly and reach a ratio of 34.3% in

2020, better than the 34.5% we estimated for 2019.

Peru risk. The main risk of the company is its leverage to the Peruvian

economy. Political risk can also delay investments and affect consumer

decisions, causing a negative impact on the growth of the loan portfolio.

We value IFS with a residual income model over a 10-year horizon. We

use a discount rate (COK) of 10.5% and a perpetual growth rate of 3.0%.

Kallpa Securities SAB updates its valuation of Intercorp Financial Services Inc.

(IFS), with a buy recommendation. Our new 2020 year-end target price of USD

52.00 is 24.8% above the USD 41.65 market price, as of the closing of January

7th, 2020.

We expect the loans growth to maintain its dynamism and rise 10.0% in

2020, boosted by the growth of the retail segment.

Provisions would record a similar growth to the loan portfolio, while the

IFS’s PDL ratio would remain at 2.7% in 2020.

480

500

520

540

560

580

36

38

40

42

44

46

48

50

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.USD

IFS PERU SELECT





Interest Income Funds available

Interest Expenses Investments

Net Interest Income Net Loans

Net Provisions for Loan Losses Investment Properties

Net Income after Provisions Fixed Assets, Net

Non-Financial Income Other Assets

Premium Less Claims Total Assets

Operating Expenses Deposits and Obligations

Operating Income Due to Banks and Correspondents

Translation Result Bonds, Notes and Other Obligations

Income Tax Insurance Contract Liabilities

Net Income Other Liabilities

Minority Interest Total Liabilities

Net Income Attributable to IFS Equity Attributable to IFS

Shares Outstanding (MM) Minority Interest

Earnings per share - EPS (PEN) Net Equity


GROWTH (%) CASH FLOW (PEN MM)

Loans' Growth Net Income

Deposits' Growth Non-Cash Expenses

Net Interest Income's growth Changes in Assets and Liabilities

Provisions' Growth Operating Cash Flow


Net Income's Growth Financing Cash Flow

Free Cash Flow

FINANCIAL RATIOS CHART N° 26: SHAREHOLDERS

Net Interest Margin (NIM)

PDL Ratio

NPL Ratio

Coverage for PDL

Coverage for NPL

Efficiency Ratio

Loans / Deposits

Payout Ratio


ROE

ROA

VALUATION CHART N° 27: IFS LOANS BY SEGMENT - 2020

P / E

P / BV

MANAGEMENT

Luis Felipe Castellanos CEO

Michela Casassa CFO

Ernesto Ferrero IRO

Source: IFS, SMV, Kallpa SAB


16.6%

10.05

2021e

4,244

10 11

2,945 3,244

2020e

9.4% -1,807

21,177

36,909

29.6% 10.0% 8.4%

2021e

4,879 5,169

5 - - 8,053 8,538 9,045

-455

9

2,710

1,883

113

3.3% 3.3%

1.97 1.80 1.66

14.4% 10.0% 8.5% 433 411 395

12.0% 10.0%

12.03 11.00

12.69 13.88 8,207 9,008 9,736

72,655

10.8%

-518 -567

1,448

-1,988

1,514

5.5% 5.5% 5.5%

2.7% 2.7%

1,348

9.4%

2,881

8.5% 1,339

-1,405

11,387

883

7.61

824 801

1,069 988

-324 -343

18,880 20,004

2020e

2,700 1,598

3,467 3,867

2021e

40,616

2019e

2,735 2,765

13,355 14,343

-368

1,602

115 50 55 115

1,475 1,613 1,883

3,881

-290

2019e 2020e 2021e

2021e

-2,142

11,931 12,506

1,883

74,586

-2,319 38,523

10.0%

12,286

1,057

95.8%

8,958 9,681

-1,462

4,871

2,628

78,632 84,322

45

792

1,121 1,188

2020e

Intercorp Financial Services: Financial Summary

2019e 2020e

2019e

2.0% 1.9% 2.0%

17.6% 17.1% 17.2%

95.8%

60.4% 50.0% 60.0%

5.80 5.80

152.7% 149.5% 147.5%

124.5% 122.3% 120.8%

34.5%

72,655

1,798

11.6% 9.8%

5,403 5,906

11.87

-1,536 -1,662

2020e

-1,525

9.4%

1,339 1,465 8,162

1,993 2,180

2,109 833

34.3% 34.2%

2019e

23.5%


42,392 45,983

78,632

95.8%

2021e

3.3%

64,448 69,624

-179

2.7%

84,322

1,465 1,602

44,056

-838

4,602

2019e

3,905

-922 -1,000

1,831

71%

14%

16%

Intercorp Peru y related companies

Pension Funds

Others

46%

34%

17%

2%

Commercial

Consumption

Mortgage

SME



Marco Contreras

Head of Research

(511) 630 7528

[email protected]

Alicorp S.A.A.

Target Price (PEN)

Rating Buy

Market Capitalization (PEN MM)

Market Price (PEN)

Shares Outstanding* (MM)

Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading

Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (PEN)

ROE

ROA


Chart N° 28: ALICORC1 vs. PERU SELECT

Source: Bloomberg


2021e

BUYAlicorp S.A.A.

Integration and deleveraging will boost margins



5.2% 5.4% 6.2%

13.76

14.17

17.62 19.59

9.13

854.58

7,782.89

12.60

(BVL: ALICORC1)

11.76

3.00% 3.50% 4.00%

13.53

2.37 2.00

-0.8%

2.6%

38.0%

8.50 - 11.55

2020e

Consumer Staples Industry Target Price


We expect that in 2020 growth will be led by the consumer and aquaculture

businesses. We also believe that deleveraging and a slight improvement in

margins will be the main drivers of profits. Given this, our recommendation

is to buy.


2.39 2.18 1.97

15.38

We expect a 19.8% growth in sales in 2019, which would be boosted by

the acquisition of Fino and ADM Sao in Bolivia, and Intradevco. For 2020

we expect a 7.1% growth, which would be boosted by the Consumer

Goods Peru and Aquaculture segments.

The market share above 50% in several categories and the broad

distribution network will still be the main competitive advantages for the

company.

We expect an EBITDA margin of 13.1% in 2020. We believe that higher

operating efficiencies will compensate for higher commodity prices such as

soybean oil.

PEN 12.60

2.47

10.04

8.81%

9.31%

12.60

2.00% 2.50%

13.56 14.72

0.594 0.673

13.17

11.10 11.79

7.81%

16.87

LTM: Last 12 months

16.8% 17.6%

15.34

BVL

8.31%

14.81 16.07

8.12

12.32

2.74

* Includes 7.39 MM of investment shares (ALICORI1)


0.775

15.6%

2019e

Recommendation

9.81%

10.61

7.52

After the sale of Credicorp shares, the net debt / EBITDA ratio would close

2019 at 2.7x. Assuming there will be no other M&A operation, the ratio

should continue to decline in 2020 to 2.4x.

Risks

Latam risk. Main risk is the exposure of the company to the performance of

the economies of Peru, Bolivia, Chile, Ecuador, Brazil and Argentina.

Commodity risk. Nearly 50% of the cost of sales correspond to commodity

purchases. Volatility in commodity prices can have an impact in Alicorp's

margins.

Climate risk. The aquaculture segment depends on the performance of the

fishing industry in Ecuador and Chile, which is sensitive to weather

changes that can affect its profitability.

M&A risk. Risk that an M&A operation will not reach the return expected by

management.

11.28 12.05 12.98

9.12

8.77

9.60

WACC / g

10.15 10.79 11.53

Source: Kallpa SAB

Valuation

We value Alicorp with a Free Cash Flow to the Firm (FCFF) model in a 10-

year horizon. We use a discount rate (WACC) of 8.8% and a perpetual

growth rate of 3.0%.

Kallpa Securities SAB updates the valuation model of Alicorp S.A.A. (Alicorp),

with a buy recommendation. Our new 2020 year-end target price of PEN 12.60 is

38.0% above the PEN 9.13 market price as of the closing of January 7th, 2020.

480

500

520

540

560

580

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENALICORC1 PERU SELECT




Alicorp: Financial Summary

INCOME STATEMENT (PEN MM) BALANCE SHEET ( PEN MM)

Net Sales Cash and Cash Equivalents

Cost of Sales Accounts Receivable

Gross Income Inventory

Sales Expenses Other Short Term Assets

Administrative Expenses Current Assets

Other Expenses Fixed Assets, Net

Operating Income Other Long Term Assets

Financial Income Non Current Assets

Financial Expenses Total Assets

FX Gains (Losses) Short Term Debt

Stake in Associates Accounts Payable

Income Before Taxes Other Short Term Liabilities

Income Tax Current Liabilities

Net Income Long Term Debt

Minority Interest Other Long Term Liabilities

Net Income Attributable to Alicorp Non Current Liabilities

Shares Outstanding - Average (MM) Equity Attributable to Alicorp

Earnings per Share - EPS (PEN) Minority Interest

Depreciation and Amortization Net Equity

EBITDA Liabilities + Equity

MARGINS AND GROWTH (%) CASH FLOW (PEN MM)

Gross Margin Net Income

Operating Margin Depreciation and Amortization

EBITDA Margin Changes in Working Capital

Net Margin Others

Sales Growth Operating Cash Flow

Operating Income Growth Investment Cash Flow

EBITDA Growth Financing Cash Flow

Net Income Growth Free Cash Flow

FINANCIAL RATIOS

Current Assets / Current Liabilities

Average Days of Inventory

Debt / Equity

Net Debt / EBITDA

EBITDA / Financial Expenses

Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Alfredo Perez CEO

Juan Moreyra CFO

Gisele Remy IRO

Source: Alicorp, SMV, Kallpa SAB


423 362

2020e 2021e

10,635 11,255 691

1,742

1.04 0.86

1,056 1,104 1,184

3,260

279

-267 10,635

575 662

17 17 17

3,577 3,941

3,738 3,271

3,958

-906 241

10,635

3,594 3,278

442

-8,405

1,865

2020e 2019e

1,592 1,675

2,480 2,661 2,850 1,694 1,792

-714 -747

249 256

4,218 4,139

-0 -0

4,298 3,831 3,653

4 -

-284

2,533 -0

2021e

10,571 10,679

-7 -11 -11 3,179 3,196 3,216

997 1,075 1,186 3,238 3,236 3,238

96 31 27 6,417 6,433 6,454

3,093

560 560 560

822 946 256 256 256

-238 -247 -284 3,060 3,146 3,068

575 662

-

507

855 855 855

2019e 2020e 2021e

1,287 1,390

-41 -69 -61

25.0% 25.0%

13.0%

10,571 10,679

0.673 0.775

290 315 316

2019e 2020e 2021e

10.0% 10.1% 10.5%

13.1% 13.3%

-1,752 -330 -338

11.5%

30.1%

1.38

83.00 82.00 81.00

25.3% 507 575 662

290 315 316

5.1% 5.4% 300 284 267

8.1%

16.8% 17.6%

11.33 10.50 9.52

8.77 8.12 7.52

2.39 2.18 1.97

1.14 1.06 1.00

15.34

19.8% 7.1% 5.8%

3.68 4.90 5.64

2019e 2020e 2021e

1.38 1.32

15.6%

26.8% 7.8% 10.3%

8.0%

1.29

5.2% 5.4% 6.2%

9.5% 9.8% 11.0%


2019e 2020e 2021e

45.1% 45.0% 45.0%

0.240 0.303

2.74 2.37 2.00

13.53 11.76

6 -

4,225

476

0.594

2,327 2,447

511

749

-805

-350

9,931

2019e

-671

-7,451 -7,974

-

13.4% 15.0%

342 -1,043 -907

-354 -268 -61

1,502

0.349


CHART N° 30: SALES BY SEGMENT 2019

5.9%

-861

46%

29%

15%

10%

Romero Group

Pension Funds

Mutual Funds

Others

34%

17%17%

22%

10%

Consumer Goods Peru

Consumer Goods International

B2B

Aquaculture

Crushing



Marco Contreras

Head of Research

(511) 630 7528

[email protected]

InRetail Perú Corp.

Target Price (USD)

Rating


Market Price (USD)


Upside

ADTV - LTM (USD MM)

Range 52 weeks

YTD Change


Trading


LTM: Last 12 Months


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (PEN)

ROE

ROA


Chart N° 31: INRETC1 vs. PERU SELECT

Source: Bloomberg



2.00%

Recommendation

The low penetration of formal retail in Peru and the leadership in the 3

business segments where it operates are the main fundamentals of the

company. Likewise, net income should present a notable improvement in

the medium term due to the better operating margins and the lower

expected indebtedness, which is why we recommend to buy.

Valuation

We value InRetail with a Free Cash Flow to the Firm (FCFF) model in a 10-

year horizon. We use a discount rate (WACC) of 8.2% and a perpetual

growth rate of 3.0%


2.50% 3.00% 3.50%

4.7%

4.42

36.54 39.44 42.90 47.10

Target Price

(BVL: INRETC1)

101.24

16.9%

2.01

30.40 - 40.30

6.9%

0.9%

BVL

29.16 22.65 19.03

45.00

Margin improvement will come from pharmacies and Puruchuco

10.4% 12.3%

34.79

11.00 9.94

3.15 2.71 2.42

4.00%

4.1%

34.088.70%

5.69 6.78

Buy

Source: Kallpa SAB

2019e 2020e 2021e

2.92 2.66

13.3%

3.3%

12.35

7.20% 49.49 54.24 60.13 67.60 77.41

7.70% 43.44 47.20 51.75

37.57 40.89

2.43

9.20% 30.38 32.42

3,897.68

38.50

8.20% 38.37 54.7945.00 49.3741.40

57.40 64.57

Peru risk. A macroeconomic or adverse political situation could have

negative impacts on the growth of the economy and local consumption,

which would affect the businesses of supermarkets and pharmacies.

WACC / g

Kallpa Securities SAB updates the valuation model of InRetail Perú Corp.

(InRetail), with a buy recommendation. Our 2020 year-end target price of USD

45.00 is 16.9% above the USD 38.50 market price as of the closing of January

7th, 2020.

InRetail Perú Corp.

High competitiveness with other companies in the sector (Falabella,

Cencosud) and with the traditional channel can generate pressure on the

margins of the company.


The EBITDA margin would increase from 11.0% in 2019 to 11.3% in 2020,

as a result of the expectation of better margins in the pharmacies business

and a significant increase in the EBITDA of shopping malls, due to the

opening of the Real Plaza Puruchuco at the end of 2019.

Risks

We expect sales growth of 8.4% in 2020, based mainly on the growth of

the Food Retail segment through the Mass and Economax formats.

We expect rapid deleveraging in 2020, as we expect higher levels of

EBITDA and lower investments, compared to 2019. We estimate that the

net debt / EBITDA ratio will reach 3.2x in 2019 and 2.7x in 2020.

USD 45.00BUY

Retail Industry

480

500

520

540

560

580

28

30

32

34

36

38

40

42

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.USDINRETC1 PERU SELECT






Cost of sales Accounts Receivable




Other Income, Net Fixed Assets, Net

Operating Income Investment Properties

Financial Income Intangibles, Net

Financial Expenses Other Long Term Assets

FX Gains (Losses) Non Current Assets

Income Before Taxes Total Assets

Income Tax Short Term Debt

Net Income Accounts Payable

Minority Interest Other Short Term Liabilities

Attributable to InRetail Current Liabilities

Shares Outstanding (MM) Long Term Debt

Earnings per share - EPS (PEN) Other Long Term Liabilities

Depreciation and Amortization Non Current Liabilities

EBITDA Equity Attributable to InRetail

Minority Interest






Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Juan Carlos Vallejo CEO

Gonzalo Rosell CFO

Vanessa Dañino IRO

Source: InRetail, SMV, Kallpa SAB


2020e

702 -9,174 -9,898 -10,637

2020e 2021e 2019e2019e

780 883

2021e

50 13 14 3,630 3,754 3,891

1,179

4,344 4,704 1,835 1,953 2,098

-2,376 -2,564 -2,756 190 192 194

13,139 14,242 15,341 569 521 472

-464 -445 -434 328 328 328

-1 - - 10,806 11,103 11,392

733

3,966

InRetail: Financial Summary

1,340 1,502 3,670 3,822 3,954

18 12 11 3,177 3,199 3,219

-460 -453 -460 3,296 3,446 3,647

484 616 734 3,555 3,726 3,829

36 40 48 39 39 39

448

907 1,079 14,102 14,549 15,039

-249 -290 -345 372 398 453

4.42 5.69 6.78 815 815 815

259 276 286 5,547 5,314 5,160

1,439

576 686 3,967 4,164 4,321

101 101 101 4,732 4,499 4,345

11.3% 11.7%

7.3%

10.7% -487 -735 -721

115.2%

1,616 1,788 4,475 4,917 5,372

114 154 186

2021e 2019e 2020e 2021e

445 433 423

11.0%

3.7%

2019e

27.4% 19.0% -93

-814 -573 -575

1.11 0.97

30.0%

-49

11.83

7.8%

12.35

9.5%

2019e

3.3% 4.1% 4.7%

13.3%

2020e 2021e

1.25 1.16

8.8%

15,039

-49

30.2%

14,102 14,549

9.94

2.92

2019e 2020e

0.86

3.15 2.71

72.00 68.84

24.8% 12.3%

2020e 2021e CHART N° 32: SHAREHOLDERS

0.83 0.83 0.84

73.00

30.5% 30.7% 448 576 686

9.0% 9.4%

56 -27 -148

11.00

1,259 1,248

25.7% 13.6% 12.1%

4.3% 4.8%

2.66 2.43

8.4% 7.7% 1,208

9.8% 259 276 286

1.123 1.327 2.277

19.03

2.42

3.63 4.12

CHART N° 33: EBITDA 2019e BY SEGMENT

29.16 22.65

15.07 13.26

3.10

10.4%

54.6%

1.35

40.0%

12.3%


71%

17%

12%

Intercorp and subsidiaries

Pension Funds

Others

28%

48%

23%

Food Retail

InRetail Pharma

InRetail Shopping Malls



Marco Contreras

Head of Research

(511) 630 7528

[email protected]

Cementos Pacasmayo

TP per Share / ADR (PEN / USD)

Rating Buy


Market Price (PEN / USD)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading

* Includes 13.2 MM of investment shares (CPACASI1)


LTM: Last 12 Months


FINANCIAL RATIOS

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (PEN)

ROE

ROA


Source: Bloomberg


Macroeconomic risk. Macroeconomic and political instability could cause

delays in private investment and therefore impact on cement demand.



11.09

12.9%

7.73 8.26 8.90 9.67

6.59 6.96 7.40

A future of concrete

2,629.90

6.10 / 9.01

9.20%

8.70%

8.20%

9.8% 11.5%

-0.8%

5.9%

6.5%


5.45 - 6.83

21.3%

0.84

7.91 8.52

7.40 / 11.04

4.9% 5.7%

Cement Industry Target Price

Cementos Pacasmayo S.A.A. PEN 7.40BUY

(BVL: CPACASC1)

10.20%

2019e

2.59 2.35 2.15

0.332 0.388 0.441

BVL, NYSE

8.07 8.63 9.29 10.10

7.27

423.87

2020e 2021e

18.51 15.82 13.93

1.83 1.81 1.79

8.78 8.12 7.66

WACC / g 2.00% 2.50% 3.00% 3.50% 4.00%

5.99 6.30 6.66 7.08 7.57

5.46 5.73 6.03 6.38 6.78

Source: Kallpa SAB

CHART N° 34: CPACASC1 vs. PERU SELECT

9.70%

Valuation

We value Pacasmayo with a Free Cash Flow to the Firm (FCFF) model in

a 10-year horizon. We use a discount rate (WACC) of 9.2% and a

perpetual growth rate of 3.0%.

Recommendation

A greater dynamism in the concrete business would be the main driver of

growth and profit generation of the company. This will also reduce leverage

and maintain an attractive dividend payment, which is why we recommend

to buy.

The EBITDA margin would be 29.7% in 2020, similar to the margin we

expect for 2019. This, given that the greater dilution of fixed costs, which

we estimate due to the increase in the use of cement plants, would be

offset by a greater share of sales of the concrete business, which reports

lower margins.

We believe that the company can still maintain a payout close to 100%, as

long as it does not make large investments or develop projects in the

medium term.

Risks

Kallpa Securities SAB updates its valuation of Cementos Pacasmayo S.A.A.

(Pacasmayo), with a buy recommendation. Our new 2020 year-end target price of

PEN 7.40 is 21.3% above the PEN 6.10 market price as of the closing of January

7th, 2020.

We expect sales to increase by 8.1%, led by the increase in revenues from

the concrete business. We believe that the increase in the execution of

reconstruction works will be the main driver during 2020 and would allow

an increase in cement dispatches close to 6.0%.

Geographic concentration in the north of the country.

Execution risk in reconstruction works in Northern Peru, that depend on the

Government's management capacity

480

500

520

540

560

580

5.0

5.4

5.8

6.2

6.6

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENCPACASC1 PERU SELECT








Administrative Expenses Other Short Term Assets

Sales Expenses Current Assets


Operating Income Intangibles, Net

Financial Income Other Long Term Assets

Financial Expenses Non Current Assets

FX Gains (Losses) Total Assets

Income Before Taxes Short Term Debt

Income Tax Accounts Payable

Net Income Other Short Term Liabilities

Minority Interest Current Liabilities

Attributable to Pacasmayo Long Term Debt

Shares Outstanding (MM) Other Long Term Liabilities

Earnings per Share - EPS (PEN) Non Current Liabilities

Depreciation and Amortization Equity Attributable to Pacasmayo






Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Humberto Nadal CEO

Manuel Ferreyros CFO

Claudia Bustamante IRO

Source: Pacasmayo, SMV, Kallpa SAB


2021e

1,389 1,501 1,598

-894 -952 -1,004

495 550

282 318 349

3 2 2

-82 -85

594

2021e

91 99 105

-43 -46 -49

2 - -

-172

-

202 236 268

-60 -70 -79

142 166 189

-

20

142 166 189

428 428 428

Pacasmayo: Financial Summary

2019e 2020e

-185 -196

40 41 56

2019e 2020e

-84

-1 -

- -

2,902 2,903 2,916

20 20

81 86 91

139 146 151

240 252 262

514 548 577

57 59 60

702 746 798

1,092 1,072 1,052

2,106 2,063 2,024

47 47 47

46 47 47

2,200 2,157 2,118

13.1%

10.2% 11.1%

131 131 131

1,203 1,183

1,439 1,449 1,472

2,902 2,903 2,916

1,223

17.0% 13.5%

2019e

-85

2020e 2021e

142 166 189

132 128 125

-73 -31 -27

80 82

100.0%

0.360 0.365

20.3% 21.2%

2019e 2020e 2021e

2019e 2020e 2021e

35.6% 36.6% 37.2%

29.1%

0.332 0.388 0.441

-132 -128 -125

413 447 474

21.8%

29.8% 29.7% 29.6%

9.6%

11.4% 8.0% 6.1%

9.5%

0.388

9.8%

8.78 8.12

10.0% 8.1% 6.4%

16.5%

81

280 346 367

-85 -85

-205 -259 -267

-9 2 14

12.88 11.40 10.40

2.59 2.35 2.15

5.03 5.27 5.67

200.9% 110.0%


CHART N° 36: CEMENT PRODUCCION 2019E BY PLANT2019e 2020e 2021e

2.61 2.42 2.27

18.51 15.82 13.93

0.77 0.75 0.73

2.92 2.97 3.05

210.00 210.00 210.00

11.5% 12.9%

1.83

4.9% 5.7% 6.5%

7.6% 8.6%

1.81 1.79


7.66

11.8%

50%

21%

16%

13%

Inversiones ASPI

Pension Funds

ADR Program

Others

48%

40%

13%

Pacasmayo

Piura

Rioja



Marco Contreras Marco Alemán

Head of Research Senior Analyst

(511) 630 7528 (511) 630 7527


Ferreycorp S.A.A.

Target Price (PEN)

Rating Buy


Market Price (PEN)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading

Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (PEN)

ROE

ROA


Source: Bloomberg


We expect a growth in Ferreycorp sales of 13.3% and 6.0% for the years

2019 and 2020, respectively. The greater dynamism would come from the

new machinery delivery line, as a result of the contracts closed in previous

years. This business line would represent around 12-13% of total revenues

in the years 2019 and 2020 (vs. 5.6% in 2018). The business line of spare

parts and services would maintain its growing path.

Target Price

PEN 3.05


4.07 4.50 5.05

-1.8%

6.38

0.95

0.324 0.332

13.3% 13.0% 12.9%

Ferreycorp S.A.A.

(BVL: FERREYC1) Deals closed, post-sales assured3.05

2,088.78

2.15

971.52

41.9%

1.55

BUY

Capital Goods Industry

1.96 - 2.61


3.50% 4.00%

8.09% 3.41 3.71

8.59% 2.98 3.22 3.51 3.86 4.28

10.6%

BVL


LTM: Last 12 Months

0.88 0.82

6.23 6.20 6.06

3.11 3.14 2.93

5.3% 5.4% 5.6%


2019e 2020e 2021e

7.29 6.54


9.09% 2.61 2.81 3.05

Ferreycorp trades at an EV/EBITDA 2020 of 6.2x, below the 7.1x median of

its peers, and at a P/E 2020 of 6.5x, below the median of 12.5x of similar

companies.

9.59% 2.29 2.46 2.66 2.88 3.15

2.16 2.32 2.50 2.72

Source: Kallpa SAB

3.32 3.66

0.294

WACC / g 2.00% 2.50% 3.00%

We value Ferreycorp with a Free Cash Flow to the Firm (FCFF) model in a

10-year horizon. We use a discount rate (WACC) of 9.1% and a perpetual


Risks

A lower than expected growth of private investment, generated by the

slowdown and lower execution of projects, in addition to a lower dynamism

of the mining industry (~55-60% of its sales), due to problems with the

communities and commodity volatility.

The high level of competitiveness that exists in mining industry, due to the

participation of Komatsu Mitsui, which could take a more aggressive stance

in this new mining investment cycle.

Valuation

10.09%

Recommendation

All in all and considering the attractive dividend yield, we reaffirm our buy

recommendation of FERREYC1.

CHART N° 37: FERREYC1 vs. PERU SELECT

The estimated portfolio of mining projects according to the Ministry of

Energy and Mining (MEM) exceeds USD 57,000 MM for the following

years. 71% of them corresponds to copper projects, a metal that

represents a large part of Peru´s exports, and with solid fundamentals in

the medium and long term.

We estimate that the margins and the generation of cash flows would

remain stable due to the 5.5% growth in 2020 of the spare parts and

services business unit (segment that generates the highest margins), which

would maintain the gross margin between 23% - 24%

Kallpa Securities SAB updates Ferreycorp S.A.A. (Ferreycorp) valuation model

with a buy recommendation. Our new 2020-year-end target price of PEN 3.05 is

41.9% higher than the PEN 2.15 market price as of the closing of January 7th,

2020.

2.02

480

500

520

540

560

580

1.9

2.0

2.1

2.2

2.3

2.4

2.5

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENFERREYC1 PERU SELECT
















Stake in Associates Accounts Payable

Income Before Taxes Other Short Term Liabilities

Income Tax Current Liabilities

Net Income Long Term Debt

Shares Outstanding - Average (MM) Other Long Term Liabilities


Depreciation and Amortization Net Equity






Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Mariela García CEO

Patricia Gastelumendi CFO

Elizabeth Tamayo IRO

Source: Ferreycorp, SMV, Kallpa SAB


2021e

- - 1,066

2021e

532 526

-621

-92 -91 6,203

5,893 6,244 6,433

9 8

690 693

14

709

-161

287 319

1,631

536

6,203

-640 45

-90

1,460

2,371

6,076

83

6,076

1,258

2019e

682 737

2,539

0.95 0.85

7.9% 7.9%

190 190

14

327

46 47

1,138 1,561 1,424

4

-325 3,572 3,825

5,780

616

21

2020e 2021e

642 668

56 66 81

-4,475 -4,784 -4,942

4 1,177

1,492

448 463

-143

2,251

4

976

5,780

987

1,328

985 190

-147

2020e 2021e

-17

1,614

153.00

2,257

365

6.06

144

-308 -321

3.14 2.93

12.9%

6.20

-17

1,751

0.228 0.147 0.164

7.9%

2.3% -104

144 149

511

15

7.50 7.65 7.91

3.11

13.0%

150.00 154.00

11.4% 2.5%

0.69

-586

2,293

2,050

0.294 0.324 0.332

3,910

1,592 1,609 1,625 8

474

23 24 2,208

0.3%

2019e

Ferreycorp: Financial Summary

-187 -193

-168 -303

-29

9.0%

319 327

149 2,195 137

1,694 1,710

1,418 1,839 2,018 2,071

1,300

1,954

8.4%

2019e 2020e 2021e

13.3% 3.0%

CHART N° 38: SALES BY ECONOMIC SECTOR

6.0%

4.9% 5.1% 5.1% 64 63

24.1% 23.4%

2019e 2020e

10.9%

13.3%

1.58 1.96 1.91

10

CHART N° 39: SALES BY BUSINESS UNIT 2020e

0.95

2020e 2021e

8.17 8.02

6.23

6.54

0.82

6.38

98.4% 50.0%

2019e


50.0%

1.00

-106 -162

23.2% 287

14

0.88

5.4% 5.6%

-314

0.67

8.08

11.0%

0.73

7.29

11.7%

8.3% 137

401

5.3%

-1.0% 1.8%

27.4%

14.1%

11.1%

2019e 2020e

6%

35%

59%

Onyx Latin America Equity FundLP

Pension Funds

Others

49%

12%

10%

8%

7%

13%Spare Parts and Services

CAT Machinery for Other Industries

Allied Equipment

Rental and Used Equipment

Other Lines

CAT Machinery for Mining





(511) 630 7528 (511) 630 7527


Graña y Montero S.A.A.

TP per Share / ADR (PEN / USD)

Rating Hold


Market Price (PEN / USD)


Upside

ADTV - LTM (S/ MM)

Range 52 weeks

YTD Change


Trading

Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (PEN)

ROE

ROA


Source: Bloomberg


We expect sales to register a slight improvement of 1.7% in 2020, and with

it, that the Backlog / sales ratio will oscillate at levels of 2.0x - 2.2x during

the year.


Graña y Montero S.A.A.

Target Price

PEN 2.80HOLD


64.7%

0.79

Risk of execution in E&C projects, both in terms of time and costs incurred

by the company.

(BVL: GRAMONC1)

1.70 / 2.53

814.92

2.49 2.59

Source: Kallpa SAB


2.40

CHART N° 40: GRAMONC1 vs. PERU SELECT

2.26

2.60

3.34

2.80 / 4.18

May the force be on the margins

2.42 2.50 2.5911.12%

The net debt / EBITDA ratio for 2020 would be 1.1x, below 1.4x in 2019, as

a result of a 17.5% reduction in net debt levels and a 7.2% increase in

EBITDA.

Risks

Fines or civil reparations that the company can face, given the

investigations that have been made to G&M.

Valuation

11.62%

6.6%

10.12%

2.50% 3.00% 3.50% 4.00%

9.62% 3.02 3.15 3.30

2.80

3.173.03

0.0%

0.81

NYSE, BVL


LTM: Last 12 months


2019e

0.51

1.06

2.7%

0.9% 2.4% 2.6%

Construction Industry

2.912.80

8.59

0.58 0.53

We expect a recovery in private investment levels, mainly in the mining

industry, which would be the main driver of sales for the segment of E&C

(Engineering and Construction). We estimate that the Backlog will stay at

levels of USD 2,200 - 2,500 MM.

1.25 - 2.40

1,385.37

2020e 2021e

6.8%

1.37

2.92

2.69

2.33

3.48 3.68

7.57 6.30

3.052.69 2.80

* Exchange Rate USD/PEN: 3.35

We emphasize that the EBITDA margin of the E&C area would be 4.5% in

2020, higher than 3.3% in 2019e. This, given the company's objective of

seeking projects with more efficient schemes. This would lead the

consolidated EBITDA margin to rise to 14.3% in 2020, above the 13.6%

expected for 2019e.

Capex by 2020 would rise to USD 60 MM, of which 70% would correspond

to GMP investment commitments.

0.121 0.252 0.273

We value Graña y Montero with a Free Cash Flow to the Firm (FCFF)

model in a 10-year horizon. We use a discount rate (WACC) of 10.6% and

a perpetual growth rate of 3.0%.

Recommendation

10.62%

WACC / g 2.00%

Kallpa Securities SAB updates Graña y Montero S.A.A. (Graña y Montero or

G&M) valuation model with a hold recommendation. Our new 2020-year-end

target price of PEN 2.80 is 64.7% higher than the PEN 1.70 market price as of the

closing of January 7th, 2020.

Despite the high upside regarding the market price, we highlight the high

risk level due to the situation facing the company regarding the several

investigations that have been carried out. Given this, we recommend to

hold.

3.99 4.32 5.19

0.0%

480

500

520

540

560

580

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENGRAMONC1 PERU SELECT





Graña y Montero: Financial Summary






Other Income Current Assets

Operating Income Fixed Assets, Net

Financial Income Intangibles, Net


FX Gains (Losses) Non Current Assets

Stake in Associates Total Assets





Attributable to Graña y Montero Long Term Debt



Depreciation and Amortization Equity Attributable to Graña y Montero

EBITDA Minority Interest

Total Liabilities + Equity





Net Margin Others





FINANCIAL RATIOS


Collection Period

Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Luis Díaz CEO

Mónica Miloslavich CFO

Paola Pastor Investor Relations

Source: Graña y Montero, SMV, Kallpa SAB


200

420

181

1,613 1,770

6.6% 6.8%

14.7%

991

28

443 467

7,304

-

660

1,622

2,431 2,598 2,728

623 659

15.1% 80 166

627

241 278 291

2019e

618

7,439

622

4.29

2.7%

6.9% 7.2%

0.64 0.77 0.75

0.53 0.51

7.57 6.30

CHART N° 42: BACKLOG BY SECTOR

8.59

5.65 6.48 8.80

3.99

0.58

2021e

3.36

2.4% 2.6%

4.4%

2019e

- - 0.076

2020e

4.32 5.19

0.9%

30.0%

0.51

33

5.8% -339

-243

n.s.

7.2%

7,328 7,439

2019e 2020e 2021e

4.59

1.30 1.31 1.35

97.00

1.06 0.81

0.0%

0.67

2020e

108.6% 8.5% 32

2021e

-256

-225

0.0%

0.57

1.37

193 200

2020e 2021e

0.121 0.252 0.273

582

13.6%

181

1.9% 3.8%

1.7% 3.6% 564

-225

19.7% 7.2% 6.9% -193

181 193

4.0% 103 105

9.5% 463 514

CHART N° 41: SHAREHOLDERS2019e

-3.7%

113

-4

1 190

38 920

-173 -145 -143 2,495 2,464 2,448

-5 -

-3,689 -3,698

278

660

14.8%

306

-47 -55 -60 2,682 2,665 2,631

660

580 644 677 586

278

386

3,824 3,843

401 429 459 463

588

- 3,480 3,484

2020e

4,269 4,342 4,498

-218 277

867 894

2019e

1,940

3,555

-3,820 1,801 1,808 1,836

-

516

3,884

597

42

815 811

2020e 2021e

844

1,908

9.9% 10.2%

127

470 466

486

7,328

354

-209 -214

181 1,143 1,004

30

99.00

2019e

-155

80

60

2021e

1,934

-

326 281

-1

101.00

-104

7,304

166

13.6% 14.3%

-

9.4%

222

-113

22%

19%

10%10%

5%

35%

Pension Funds

Original Family

Pacifico Corp. S.A.

Megeve

Aberdeen

Others

38%

32%

24%

4%2%Oil & Gas

Mining Projects

Transport

Real Estate

Others





(511) 630 7528 (511) 630 7527


UNACEM S.A.A.

Target Price (PEN)

Rating Buy


Market Price (PEN)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading

Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (PEN)

ROE

ROA



Source: Bloomberg


Political and social conflicts that affect the performance of the operations of

subsidiaries abroad (Ecuador, Chile, Colombia, etc.). This could reduce the

levels of private investment and public budget in the following periods.


2.63 2.75 2.89 3.05 3.24

10.81% 2.40 2.50 2.62 2.75 2.91

0.192

Source: Kallpa SAB

8.81% 3.53 3.73 3.98 4.27 4.62

9.31% 3.19 3.36 3.56 3.80 4.08

9.81% 2.89 3.04 3.62

2.50%

0.83 0.78 0.75

6.14 5.94 5.68

3.14

3,636.26

2.00

1,818.13

60.0%

1.51

1.93 - 2.90


0.0%

2.6%

BVL


0.215

3.00%2.00%

10.31%

Cement Industry Target Price

UNACEM S.A.A. PEN 3.20BUY

(BVL: UNACEMC1) Peru cement to improve. Attractive cash flows3.20

LTM: Last 12 Months


2019e 2020e 2021e

10.44 9.30 8.38

For 2020, we expect the net debt / EBITDA ratio to be 2.7x (2019 would

close at 3.1x). This is the result of a 10.6% drop in net debt levels and a

3.3% growth in EBITDA. This would generate an increase in the potential

payment of dividends in the future.

8.2%

2.71 2.35

0.239

3.20 3.40

Valuation

We value UNACEM with a Free Cash Flow to the Firm (FCFF) model in a

10-year horizon. We use a discount rate (WACC) of 9.8% and a perpetual


Recommendation

3.50% 4.00%

4.2%

8.6% 9.1%

3.3% 3.8%

WACC / g

CHART N° 43: UNACEMC1 vs. PERU SELECT

We expect an increase of 5.3% in the company’s revenue in 2019, due to

the greater dynamism in cement businesses in the United States; and,

concrete in Peru and Chile. For 2020 we expect an increase of 1.1%, given

that the foregoing would be offset by a contraction in Ecuador's revenues.

We expect the EBITDA margin to be 30.9% in 2020. We highlight the

higher cement margins in the United States (due to better prices in

Arizona), as well as in concrete and electric power units.

Risks

Lower-than-expected private investment growth in Peru, as a result of the

delay of large infrastructure projects in the area of influence of the

company.

A lower capacity to increase prices, due to higher imports in the company's

area of influence. Likewise, we highlight the lower-than-expected

efficiencies, given the increases in costs such as electricity, oil, freight,

insurance, among others.

Given the aforementioned, and the expectation of greater dynamism of the

Peruvian economy as well as the better expected operating margins for the

company, we maintain our buy recommendation.

Kallpa Securities SAB updates Unión Andina de Cementos S.A.A. (UNACEM)

valuation model with a buy recommendation. Our new 2020 year-end target price

of PEN 3.20 is 60.0% higher than the PEN 2.00 market price as of the closing of

January 7th, 2019.

480

500

520

540

560

580

1.9

2.1

2.3

2.5

2.7

2.9

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENUNACEMC1 PERU SELECT





UNACEM: Financial Summary









Stake in Associates Other Long Term Assets




Income Before Taxes Accounts Payable

Income Tax Other Short Term Liabilities

Net Income Current Liabilities

Minority Interest Long Term Debt

Attributable to UNACEM Other Long Term Liabilities

Shares Outstanding - Average (MM) Non Current Liabilities

Earnings per Share - EPS (PEN) Equity Attributable to UNACEM

Depreciation and Amortization Minority Interest

EBITDA Total Liabilities + Equity





Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Carlos Ugás CEO

Álvaro Morales CFO

Francisco Barúa CIO

Source: UNACEM, SMV, Kallpa SAB


-343 -334

1.03

80.1%

2021e

1,077

0.91

4.3%

2019e

-388

10.9% 129

1.78

26

CHART N° 45: EBITDA BY SUBSIDIARY 2020e

58


762 762 785

0.75

1.85

12.3%

-27

1,108

-5 -2 -2 3,338 3,177 2,736

348 391 434 872 872 875

CHART N° 44:SHAREHOLDERS

3.5%

2019e 2020e 2021e

434

168 480

1,282 1,338 10,386 10,359

465

-161

0.192 0.215 0.239 4,373 4,679 4,878

1.87

3.3%

9.89 9.57 9.07

6.14 5.94 5.68

0.83 0.78

2020e 2021e

-694

1,241

9.4%

18.9% 19.3%

10,334

166 164

3.8% 4.2%

10.44 9.30 8.38

60.0%

0.047 0.047 0.129

8.2% 8.6% 9.1%

44.3% 24.6%

6.6%

2019e 2020e

5.9% 6.2%

19.7% 465 480 492

30.9% 31.1% 15 -26

98.00 99.00 100.00

0.89 0.76 0.69

3.14 2.71 2.35

4.42 5.40 6.04

1,818 1,818 1,818 4,210 4,049 3,611

5.3% 1.1% 1,113

-675 -650

1.09

492

9.3% 3.4% 5.4%

7.7% 3.3%

30.2%

10.0% 279 231 214 8.3%

2019e 2020e 2021e

27.7% 28.4% 28.7% 348 391

343 389 432 1,635 1,440 1,706

6 8 11 8,895 8,758 8,601

-282 -239 -223 10,386 10,334 10,359

3 - - 716 521

505 572 635

761

-183 -203 157 158 160

19 1 1 7,163 7,016 6,849

776 802 845 1,392 1,401 1,411

2 2 2 340 340 342

-2,973 -3,065 529 546 565

1,182 1,235 798 806 840

-277 -277 -285 27 28 28

-104 -103 -105 1,491 1,576 1,758

1,138

2019e 2020e 2021e 2019e 2020e 2021e

4,111 4,155 4,300 137 196 324

-2,972

43%

24%

20%

12%

Inversiones JRPR S.A.

Inversiones Andino S.A.(Controlado por JRPR)

Pension Funds

Others

62%15%

9%

9%

5%

UNACEM Perú

UNACEM Ecuador

UNICON y CONCREMAX

Celepsa

Others



Marco Contreras

Head of Research

(511) 630 7528

[email protected]

Enel Distribución Perú S.A.A.

Target Price (PEN)

Rating Buy


Last TP (PEN)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading


LTM: Last Twelve Months


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (PEN)

ROE

ROA



Valuation

Source: Kallpa SAB

Recommendation

Source: Bloomberg


12.5610.27

7.59% 6.33 6.59 6.89 7.21 7.57

8.36 8.837.09% 7.23 7.56 7.94

6.76

1.69 1.73

0.639

18.3% 16.8% 15.7%

CHART N° 46: ENDISPC1 vs. PERU SELECT

6.59% 8.32 8.76 9.25 9.80 10.43

5.59% 11.44 12.23 13.14 14.22 15.51

6.09% 9.69

2019e

10.92 11.68

8.8% 8.4% 8.0%

2.00% 2.25% 2.50% 2.75% 3.00%

(BVL: ENDISPC1)

4,565.73

7.15

638.56

0.48

5.18 - 7.35

2020e

WACC / g

2021e

11.18 11.01 10.87

1.93 1.77 1.66

7.15 6.95

0.649

Higher prices and high margins in 2020


Risks

The company is exposed to regulatory changes which could affect the

operations of the energy distribution in the medium term

Good economic prospects, margin stability and higher rates would be the

main catalysts during 2020. We believe that the share price does not yet

reflect the fundamentals of the company, so our recommendation is to buy.

-2.7%

0.658

We value the company with a Free Cash Flow to the Firm (FCFF) model in

a 10-year horizon. We use a 6.6% WACC and a perpetual growth rate of

2.5%.

3.2%

BVL

9.25

Electricity Industry


Enel Distribución Perú S.A.A. PEN 9.25BUY

Target Price

We expect that the company does not have its free customers share too

affected, following the trend of 2019, resulting in greater stability of cash

flows. We believe that revenue growth could be around 3.0% in 2020.

A further oversupply in the electricity market could generate higher

competition levels that would make free clients to contract directly with the

electricity generators for a lower price.

The higher regulated market prices, reflected in the company's results in

2019, would continue to be an important catalyst in the generation of cash

flows by 2020.

The company's investment levels would be around PEN 460 MM, in order

to ensure the quality and maintenance of networks, and reduce energy

losses.

29.4%

1.68

Kallpa Securities SAB updates Enel Distribución Perú S.A.A. (ENDISPC1)

valuation model with a buy recommendation. Our new 2020-year-end target price


January 7th , 2020.

480

500

520

540

560

580

4.5

5.0

5.5

6.0

6.5

7.0

7.5

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENENDISPC1 PERU SELECT




Enel Dx: Financial Summary





Commercialization Expenses Other Short Term Assets


Other Income (Expenses), Net Fixed Assets, Net




FX gain (loss) Short Term Debt





Earnings per Share - EPS (PEN) Other Long Term Liabilities


EBITDA Equity






Net Margin Others

Sales' Growth Operating Cash low


EBITDA's Growth Financing Cash Flow

Net Income's Growth Free Cash Flow

FINANCIAL RATIOS


Collection Period

Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Riccardo Lama CEO

Guillermo Lozada CFO

Pilar Cano Finance and Investor Relations

Source: Enel Dx, SMV, Kallpa SAB


581

408

51 53

2021e

4,773

681 112 116

13 14 4,368 4,637 4,890

0.64

7.15

2019e

-172

12.7%

1.93

11.18

9.15

2019e

-2,253

2019e

2019e

0.43

18.8%

1.94

27.3%

639 639

2021e

658 671

24

3,194 3,294 88

-2,408

1,113

6 6

289

2020e

415 420 975

- - 242 272

272 -2,328

-105

307

2020e 2021e 2019e

101 107

184

14.1%

333

-92 -94 -97 4,783 5,083 5,362

12

-113 6

845 866 886 49

-108

420

27.1%

195

4,783

184

2020e

5,083 5,362

1,473

867 892

-464 -463 1.5% -462

27.1% -23 4 4

27.1% 26.9% 408

195 1,445

2,754

2019e

80

0.23 0.31 0.39

1.69 1.73

9.20 9.18 9.16

22.00

6.95 6.76

CHART N° 48: RENEVUE BY CLIENT 2019e

1.66 1.77

1.89 1.83

12.0% 11.4% 10.9%

2.9%

2021e

0.649 0.658 179 179 179

843 2,363 2,583

1,495

2020e 2021e

81

415

-106 -111

2.9% -200 -219

0.43 0.42

1.6% 1.3% -12

-175 -177 72 73 74

6

0.60

13

23.00 24.00

0.61

1,266

8.8% 8.4% 8.0%

18.3% 16.8% 15.7%

1,294 1,316


210

2.0%

13.0%

42.8% 60.0%

1.68

21.2% 21.0% 20.7%

649 696 719

84

-117

-250

116

0.639

639

2

5.0%

415 447 472

1,028

24 25 4,256 4,521

590 598 660

210

3.1% 3.1%

12.8%

2020e

27.2%

13.2%

2021e


47.8%

8.84

2020e

11.01 10.87

8.98

682 706

3,098

55%

12%

18%

15%

Residential

Commercial

Industrial

Others

83%

11%

6%

Enel Perú S.A.C.

Pension Funds

Others



Marco Contreras

Head of Research

(511) 630 7500

[email protected]

Enel Generación Perú S.A.A.

Target Price (PEN)

Rating Buy


Last TP (PEN)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading




Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (PEN)

ROE

ROA



Valuation

Source: Kallpa SAB

Source: Bloomberg


-0.66 -0.74

BVL

14.4%

2.55 2.67 2.81 2.98

6.74%

3.08

8.24% 2.28 2.37 2.47 2.58 2.72

4.26

2.84 3.00

WACC / g 1.00% 1.50% 2.00% 2.50%

2.90 3.31

7.74% 2.44

7.35 7.26 6.99

9.8% 9.6% 10.0%

14.5% 14.1%

0.155 0.164

7.24% 2.63 2.75

3.00%

6.24% 3.10 3.30 3.54 3.85

0.154

3.19 3.42 3.72

2020e 2021e

14.92 14.83 14.02

2.14 2.06

2019e

We have valued the company under the Free Cash Flow to the Firm

(FCFF) methodology, with a 10 year horizon. We used an 7.2% WACC and

a perpetual growth of 2.0%.


(BVL: ENGEPEC1)

2,838.75

1.99

Recommendation


Risks

Low volatility and play for dividends

Great part of the company’s power plants are hydroelectric generation, so

the climatic factor (lack of rainfall) could increase costs and reduce

margins.

A rise in the energy spot price can generate distortion in the margins of the

company, since the company is a net buyer.

The increase in the company's cash level, together with lower investment

levels, would result in higher dividends in the coming years, with a gradual

increase in payout (we expect a 100% payout in the following years).

We estimate that the company maintains an aggressive strategy in the

generation of new contracts for free customers, taking advantage of the

current price situation, which we estimate will remain at similar levels

during 2020.

2.90

Electricity Industry Target Price

PEN 2.90Enel Generación Perú S.A.A.

0.16

1.83 - 2.63

26.1%

BUY

6,529.13

2.30

3.9%

0.0%

-0.56

For the next year we expect the company to maintain its stable

fundamentals, mainly its high levels of cash and low debt. We also believe

that there is potential to increase dividend payments, given the current little

investment in the sector. We believe that, although the shares has shown a

positive performance in 2019, the fundamentals are not yet fully

internalized in the market price, so our recommendation is to buy.

CHART N° 49: ENGEPEC1 vs. PERU SELECT

We expect energy production to grow above 2.5% and the EBITDA margin

to remain around 49% in 2020.

Kallpa Securities SAB updates Enel Generación Perú S.A.A. (ENGEPEC1)'s

valuation model with a buy recommendation. Our new 2020-year-end target price


January 7th, 2020.

480

500

520

540

560

580

1.6

1.8

2.0

2.2

2.4

2.6

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENENGEPEC1 PERU SELECT




Enel Generación Perú: Financial Summary

INCOME STATEMENT (USD MM) BALANCE SHEET (USD MM)





Other Income (Expenses), Net Current Assets


Financial Income Intangibles


FX gain (loss) Non Current Assets

Income Before Taxes Total Assets

Income Tax Short Term Debt

Net Income Accounts Payable

Minority Interest Other Short Term Liabilities

Net Income Attributable to Enel Gx Current Liabilities


Earnings per Share - EPS (PEN) Other Long Term Liabilities


EBITDA Equity Attributable to Enel Gx

Minority Interest






Net Margin Others





FINANCIAL RATIOS


Collection Period

Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Marco Raco CEO

Guillermo Lozada Pozo CFO

Pilar Cano Finance and Investor Relations

Source: Enel Gx, SMV, Kallpa SAB


-947 -1,042 541 563 586

1,651 1,791 619 671 755

2019e 2021e 2019e 2020e 2021e2020e

1,720

1,325 1,437

-79 -85 3 3 3 -82

5

646

750 85 89 93

7.35 6.99

-0.66

48.34

14.1% 13.9%

2019e 2021e

13.7%

2020e

-0.56 -0.74

2.14 1.99

4,714 4,839

-997

704

645 670 3,285 3,287 3,287

20 5

3,389 3,402

19

6.234 6.234 6.234 -17

-

647 634

20 83 96 109 19

675

7.26

2.06

10.0%

14.5% 14.4%

0.118 0.124

51.6% 80.0%75.0%

0.116

14.1%

615 600

447 476

182 182 182

-187 -199

374 394 412

-198

450

9

440 438

39 7 59

70 70

183 202

3,056 3,168 3,282

0.154 0.164

880 862 888

2,839 2,839

785 785 785

2,839

0.155

193

839 829

96 77 103

872

69

-1 -527.1% 26.5%26.1%

193 202

438 440 466

4,621 4,714 4,839

2019e 2020e 2021e

48.7%

39.1% 37.4%

42.6% 41.9%

2019e 2021e2020e

42.0%

37.6%

48.8%50.2% -7 -10-5

9.6%

624 653


82 51 85

2019e

3.9%

-26.2% 3.7%

4.8% 4.2%4.2%

0.1%

1.2%

0.6%

CHART N° 51: SALES BY PRODUCT - 2019e

9.44 9.88

3.69 3.40

14.92 14.02

3.54

14.83

9.87

-343 -366 -353

-199 -207 -215

2.16

29.15 57.79

-2 -

466

9 10

615

2020e

0.04

119.5 119.5

0.05 0.03

2021e

2.03 2.40

-32.5% 5.7%

9

4,621

-21.7%

119.5

625

183

1,247

-28 -15

3,374

723

9.8%


84%

14%

3%

Enel Perú S.A.C.

Pension Funds

Others

75%

24%

1%

Energy

Power

Others



Marco Contreras

Head of Research

(511) 630 7528

[email protected]

Engie Energía Perú S.A.

Target Price (PEN)

Rating Hold


Last TP (PEN)


Upside

ADTV - LTM (PEN MM) Fundamentals for 2020

Range 52 weeks

YTD Change


Trading




Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (USD)

ROE

ROA



Valuation

Source: Kallpa SAB

Recommendation

Source: Bloomberg


1.15

7.05 7.43 7.28

We believe that the financial strength of the company, in addition to the

high margins are the main fundamentals of the company. The stock has

shown a bullish rally in 2019, and we believe that the market has already

internalized much of the company's fundamentals. Given this, our

recommendation is to hold.


a 10-year horizon. We used an 6.2% WACC and a perpetual growth rate of

2.0%.

The oversupply of energy in the Peruvian market has stagnated energy

generation prices, which would cause Engie Peru to re-contract its

available installed capacity and / or close new contracts at lower prices.

The company, being a net buyer in the spot market, would be affected by

its cost structure due to an increase in the purchase price of energy.

Significant increase in the price of oil, which would imply an increase in the

price of inputs such as fuel (diesel), and would affect the company's

margins.

Risks


2019e 2020e 2021e

11.42 13.44 13.51

3.00%

5.74% 8.59 9.50 10.65 12.17 14.23

6.5% 5.4% 5.1%

WACC / g 1.00% 1.50% 2.00% 2.50%

1.99 2.41 2.68

0.206 0.175 0.174

11.0% 8.9% 8.6%

1.22 1.18

5.99% 8.00 8.80 9.80 11.09 12.81

8.38 9.34 10.57

6.74% 6.55 7.11 7.78 8.62 9.68

6.24% 7.47 8.18 9.05 10.16 11.61

6.49% 6.99 7.61

Kallpa Securities SAB updates Engie Energía Perú S.A. (ENGIEC1)'s valuation

model with a hold recommendation. Our new 2020-year-end target price of PEN

9.05 is 14.6% higher than the PEN 7.90 market price as of the closing of January

7, 2020.

3,512.00

7.90

601.37

14.6%

Fundamentals already reflected in the market price9.05

(BVL: ENGIEC1)

Electricity Industry

0.68

5.47 - 8.10

CHART N° 52: ENGIEC1 vs. PERU SELECT

0.6%

4.6%

BVL

HOLD

Target Price

Engie Energía Perú S.A. PEN 9.05

We expect that the company can grow through renewable energy

generation. Intipampa is already operating and the company was awarded

the Punta Lomitas wind power plant (300 MW). We expect this diversified

matrix to be an important catalyst in the company's profits in the medium

term.

The company is fully-contracted throughout 2020, and has secured

contracts until 2030. In addition, it has presented an improvement in

margins this year. We expect an EBITDA margin of 49% by 2020.

480

500

520

540

560

580

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENENGIEC1 PERU SELECT




Engie Energía Perú: Financial Summary











FX gain (loss) Total Assets




Shares Outstanding (MM) Current Liabilities

Earnings per Share - EPS (USD) Long Term Debt

Depreciation and Amortization Other Long Term Liabilities

EBITDA Non Current Liabilities

Equity


MARGINS AND GROWTH (%) CASH FLOW (USD MM)




Net Margin Others





FINANCIAL RATIOS


Collection Period

Debt / Equity

Net Debt / EBITDA


Payout Ratio

Dividends per Share (USD)

ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Hendrik De Buyserie CEO

Marcelo Fernandes CFO

Adriana Burneo IRO

Source: Engie Energía Perú, SMV, Kallpa SAB


-330 -362 106 108 110

541 563 58 52 57

2019e 2021e 2019e 2020e 2021e2020e

552

-356

15 15 293 295 302

-24 -25 43 44 44 -24

15

187

3 6

201 85 91 92 196 211

-37 -45 89 89 89 -40

-

- 6 - 2,173 2,291 2,417

-1 - 1,881 1,996 2,115

150 176

3 76 74 71

202 191 1,716 1,834 1,955

0.174 446 496 585

601 601 250 284 288

124 105 13 13 13

-52 -44 59 63 64 -44

106

601

0.175 0.206

2021e 2019e 2020e 2021e

1,163 1,198 1,230

2,173 2,291 2,417

284 276 760 810 899

83 84 314 314 314 83

270

2020e2019e

-4 -2

37.3% 34.0% 83 83 84

39.0% 35.7% 124 106 105 35.6%

33.9%

48.9%

19.1%22.9%

52.5% 48.9% -11

18.6% 31 37 42

3.9% 2.0% 226 222 230 2.0%

-7.3%

-5.0%

-15.0%

0.65

2019e 2021e CHART N° 53: SHAREHOLDERS

1.17 1.05

2020e

1.04

71.3

0.59

71.3 71.3

0.54

14.7% -0.5% -16 -6 4

3.7% 2.0% -202 -29

1.22 1.15

9.95 10.48

7.05 7.28

CHART N° 54: SALES BY PRODUCT - 2019e

3.71 3.56

11.42 13.51

3.63

13.44

10.73

7.43

1.18

7.8% 6.9%

2019e

2.41

6.75

6.5% 5.1%

11.0% 8.6%


0.109 0.121 0.118

8.9%

5.4%

-23

-41 -199

149 179 208 211

60.3% 57.0%

1.99 2.68

7.67 6.08

8.4% 2.3% -203

68.9%

2021e

7.1%

2020e

62%

31%

7%

International Power S.A.

Pension Funds

Others

65%

33%

2%Energy

Power

Others



Marco Contreras Electricity Industry

Head of Research

(511) 630 7528

[email protected]

Luz del Sur S.A.A

Target Price (PEN)

Rating


Market Price (PEN)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading




Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA Risks

EPS (PEN)

ROE

ROA



WACC / g

Source: Kallpa SAB

CHART N° 55: LUSURC1 vs. PERU SELECT

Source: Bloomberg


21.5% 20.8% 20.1%

13.42 13.00

2.06 2.06

9.9% 9.7% 9.5%

6.26%

5.76% 22.51 23.91 25.53 27.41 29.64

7.26% 14.80 15.42 16.10 16.86 17.71

6.76% 16.82 17.62

2.00% 2.25% 2.50% 2.75% 3.00%

13.13

19.33 20.37 21.54 22.89 24.44

13.62 14.16 14.75 15.41

18.50

Kallpa Securities SAB updates Luz del Sur S.A.A. (Luz del Sur)'s valuation

model with a hold recommendation. Our new 2020-year-end target price of PEN

18.50 is 28.8% lower than the PEN 26.00 market price as of the closing of

January 7th, 2020.



a 10-year horizon. We use a 6.8% WACC and a perpetual growth rate of

2.5%.

Recommendation


The announcement of the parent company Sempra Energy to sell the

company for USD 3,560 MM would be the main catalyst in the first months

of the year, a period in which the transaction would be closed.

19.50 20.62

2020e

20.29 19.78

4.10

20.79

4.35

13.87

2.02

2019e

3.86

4.19 4.29 4.40

Luz del Sur S.A.A

7.76%

5,333.93

Valuation

2021e

HOLD

Deal would keep market price above TP

PEN 18.50

26.00

486.81

-28.8%

(BVL: LUSURC1)

Hold

Target Price

18.50

We highlight the solid fundamentals of the company, which are based on

growth expectations and high levels of profitability. Although the stock price

trades above our target price, we believe that this situation will still be

maintained for a few months, until the company is sold. We reaffirm our

recommendation to hold.

The current oversupply of the electricity market, which we expect will

continue throughout 2020, distort the company's margins.

1.0%

4.6%

BVL

The company would continue to report solid margins, as a result of the

higher prices in the regulated market and the payment of PEN 120 MM per

year, as a result of the option agreement with generation companies.

The company has an attractive dividend payment (estimated dividend yield

of 4.6%)

Unexpected regulatory modifications in the sector could negatively affect

sales and margins of the company

1.79

10.65 - 27.01

480

500

520

540

560

580

8.0

12.0

16.0

20.0

24.0

28.0

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENLUSURC1 PERU SELECT




Luz del Sur: Financial Summary














Shares Outstanding (MM) Current Liabilities

Earnings per Share - EPS (PEN) Long Term Debt



Equity






Net Margin Others





FINANCIAL RATIOS


Collection Period

Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Mile Cacic CEO

Luis Fernando de las Casas CFO

Hans Berger Corporate Relations Manager

Source: Luz del Sur, SMV, Kallpa SAB


0.71

55.08

0.75

2.02

10.06

83%

18.0%

3.8%

18.2%

102 949

863

36

2,519

5,454 5,735 5,992 33 35

976

19

-109

885

1,728 1,964 1,907

487 487

1.282

-261

624

102 102

609 640 267 273

1.314

6,294 6,599

934

6.2%

14.2% 3.4% 3.2%

46

2021e

-107 -115 738 762

47

2019e 2021e 2019e 2020e

1,042

278

-255 -268 315 328 342

487

-8

2,340

110 129 612

3,088 3,277

6,599 6,884

2021e

1,131

32.0%

-2,262

2020e

3,470

-2,358

1,111

-60

-111 789

-58 -62 133 138 143

504 524 543 -2,456

3,342 3,599 49

2.06

10.02

74%

0.92

9.97

72%

827 855

9486 9017.8%

6,095

6,884

2020e 2021e

624 640

-387

-20 -3

21.5% 20.1%

-418 -4012.7%

2.5%

2020e

0.93


-468

20.29

2019e

12928.1%

31.6%

2,912

1,087

6,294

31.4% -31

31.8%

2020e

15.0% 2.7%

19.78

11.3%

19

2.06

55.08

0.82

55.08

0.74

32.3%

11.9% 11.6%

4.40

-8

28.4% 27.8% 110 120

15.49 15.07

13.87 13.42

4.35

1.250

1,002

2019e

609

3.7% 774

4.24

20.79

2019e 2021e

-376 -429

12.9% 2.5%

0.72

31.7%

120

1,095

2019e 2020e

-113

0.73

9.9% 9.7% 9.5%

908 461

1,060

20.8%

4.10 3.86

612

54

14.68

13.00

CHART N° 57: ENERGY DISTRIBUTED BY CLIENT TYPE (GWH)

4.09

-105


612

1

0.92

334 467

2,577

2021e

5,556 5,837 19

1,143 51 1,080 56

84%

8%

8%Sempra Energy

Pension Funds

Others

34%

24%

6%

4%

32%

Residential

Commercial

Industrial

Others

Toll



Marco Contreras Jose Inurritegui

Head of Research Analyst

(511) 630 7528 (511) 630 7529


Refinería La Pampilla S.A.A.

Target Price (PEN)

Rating


Market Price (PEN)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading

ADTV: Average Daily Trades Volume

LTM: Last 12 months

Exchange Rate USD/PEN: 3.35


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (USD)

ROE

ROA



Source: Kallpa SAB Valuation

CHART N° 58: RELAPAC1 vs. PERU SELECT

Source: Bloomberg

39

7.42

0.35

2021e

6.99

0.005 0.005

0.106

0.161

5.44 5.47 4.95

0.006

0.39 0.37

2.4%

0.0%

0.095

0.12

0.09 - 0.18

4.9%

Refinería La Pampilla S.A.A.

0.107

Oil & Gas Industry

8,319.18

4.3%

Hold

1,048.22

0.126

(BVL: RELAPAC1)

Risks

Target Price

BVL

Investments would generate greater efficiencies0.131

0.106 0.134

8.55% 0.158 0.175 0.194

9.55%

2.0%

0.144

0.244

0.165

0.179

0.094 0.119

0.130

2020e

7.36

10.05%


7.24

7.2% 4.7%

2.4%

10.55%

0.084


a 10-year horizon. We use a 9.6% discount rate (WACC) and a perpetual


Recommendation

0.065 0.074 0.083

9.05%

2019e

6.37

WACC / g 1.0% 1.5% 2.0% 2.5% 3.0%

8.05

1.9%

HOLD

Potential restructuring of its indebtedness, in order to increase its maturity

profile and further diversification of its financing.

0.118 0.131 0.147

0.201


We expect that production in 2020 will not be very different from that of

2019, with a slight growth of 1.0% YoY.

0.217

Support of the parent company Repsol S.A. that participates with 92.42%

of the company

Unexpected regulatory modifications in the industry can negatively impact

We estimate that the refining margin will reach USD 5.5 per barrel in 2020

and that this level will be maintained in the long term.

Kallpa Securities SAB updates Refinería La Pampilla S.A.A. (Relapasa)

valuation model with a hold recommendation. Our new 2020-year-end target

price of PEN 0.131 is 4.3% higher than the PEN 0.126 market price as of the


Volatility in the price of crude oil. Refining margins doesn't adjust at the

same time as oil price. Sudden changes in the price of crude oil or

international refining margins can significantly affect the company's

profitability. Trade war or disagreements of the OPEC countries could

affect the price of crude oil.

The company's results during 2019 have shown a YoY improvement. The

implementation of the Monoboya terminal project would generate lower

cost overruns. However, we believe that this is already internalized in the

market price, which is why our recommendation is to hold.

PEN 0.131

Monoboya Terminal is already operational, which would allow the company

to reduce the cost overruns generated by the rough sea (~ USD 20 MM).

480

500

520

540

560

580

0.08

0.10

0.12

0.14

0.16

0.18

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Pts.PENRELAPAC1 PERU SELECT




Relapasa: Financial Summary












Income by Subsidiary Short Term Debt




Shares Outstanding - Average (MM) Long Term Debt

Earnings per Share - EPS (USD) Other Long Term Liabilities


EBITDA Net Equity






Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Dante Blotte CFO

Daniel Cabrera Controller

Liliana Bazán IRO

Source: Relapasa, SMV, Kallpa SAB


2020e 2021e 2019e

40

17

12

1,285

-29

10.31

2020e

0.32

3,660 13

-3,281 -3,323

3,534

212

20

2019e 2020e

537 561

1.01

-79

323

4.4%

43.00

1.07

-80

2019e

218

371

222

2021e2020e

393 391 405

2,037


-46 -50

358

246

55

1,259

- -

2.9%

307

3

141

887

-15

3.0%

-1

7.2%

2021e

-29

0 0

-

40

1,191

3,499

1,271

49 39 42 570

2,037 2,077 2,095

807

10.95

752

-50

43.67 43.00

4.95

1.49

1.1% 1.2%

2019e

6.2%

8.5%

0.006

647 599

90 90

40

0 90

-1

-99

-

2.55

4.4% -8

1.0%

696

-13.0%

0.31

6.0%

1.32

-43

0.92

0.39

-21

12

334

3.5%

6.37

49

-1.7% 5.3% -52

-36 -38

38

8,319 8,320

8.05 7.42

4.6%

845

2020e

49 39

7.36

2.53

10.15

60

5.47

125

2.0%

0.0%

46 50

-

-20.9%

n.s.

1.4%

3.1%

n.s.

-38 -60 -64

-16 -18

63

6.1%

106

-5.9% 7.9%

n.s.

4.6%

2019e

-30

-92

-

0.0%

2021e

205 218

50

49

648

4.11

70

-66

661

8

-3,438

42

4.9%

612


0.37

0.0%

2.4% 1.9%

2020e

4

155

8,319

8

1.50

153 161 806

0.35

0.005 49

2021e CHART N° 60: SALES BY PRODUCT 2019e

4.3%

0.32

0.005

6.99

-19

4.3%

2021e

4.7%

316 60

2,077 2,095 -2

109

2019e

836

1,178 1,168 -1

7.24

5.44

-79

103 111 4 3 2

8

92%

8%

Repsol Perú B.V.

Others

47%

26%

20%

7%

Destilates

Gasolines

Residuals

Others



Marco Contreras

Head of Research

(511) 630 7528

[email protected]

Buenaventura

Target Price (USD)

Rating


Market Price (USD)


Upside

Range 52 weeks

YTD Change

ADTV - LTM (USD MM)


Trading NYSE, BVL


LTM: Last 12 Months


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (USD)

ROE

ROA



Source: Kallpa SAB

CHART N° 61: BVN vs. Gold Spot

Recommendation

Source: Bloomberg


We value Buenaventura using the Sum of Parts methodology considering

the direct operations (WACC @ 9.9%) subsidiaries and associates. Each

part was valued using the methodology of Free Cash Flow to the Firm

(FCFF).

We consider that the fundamentals of the company are already internalized

in the market price. Therefore, we affirm our recommendation to hold with

a TP of USD 14.50.

1.23

Copper and Gold play. Cerro Verde's cash flows are the main asset

Valuation

3.30 15.42 16.08 16.74 17.38 18.00

1,500

13.18

2.85

2.70

Cu / Au

14.63

13.84 14.50 15.13 15.763.00

1,400

1.39

3.15 14.30 14.96 15.62 16.26 16.89

2.1% 5.0%

10.91 11.56 12.22 12.86

12.05 12.71 13.36 14.00

1,100 1,200 1,300

2.40 1.36 1.17

-4.2%

0.27 Fundamentals for 2020

HOLD

Compañía de Minas

Buenaventura S.A.A.

24.38 16.00 16.41

0.33 0.80 0.82

2.8% 6.6% 6.4%

We estimate 14.1% increase in sales for 2020 that will be driven by higher

gold production, coming from the recovery in production levels of

Tambomayo and Orcopampa, as well as the best average price of the

precious metal (+7.6%).

Mining Industry Target Price

USD 14.50

Hold

13.84 - 17.78

-1.0%

(BVL, NYSE: BVN)

1.31

5.0%


2019e

14.50

4,027.14

14.65

274.89

2020e 2021e

13.49

48.52 19.91 19.46

0.6%

Correction in the price of copper as trade, political or social tensions

intensify in the main economies globally, and affect their potential growth

rates.

Average life of mine of own operations including reserves and resources of

3 years, which increases uncertainty regarding the growth of the company.

However, the company´s track record in renewing reserves and resources

is a fundamental factor in the future performance of mining operations.

We expect the company to have a gold production cash cost of USD 850.0

/ Oz and a silver cash cost of USD 12.0 / Oz. We also expect a greater

impact of the De-Bottlenecking program.

Kallpa Securities SAB updates Compañía de Minas Buenaventura S.A.A.

(BVN) valuation model with a hold recommendation. Our new 2020-year-end

target price of USD 14.50 is 1.0% below the USD 14.65 market price as of the


We expect greater dividends from Cerro Verde in the next years, due to the

efficiency of the operation and the solid fundamentals of copper in the mid

term.

Risks

Volatility of the price of gold and silver, metals that together represent more

than 50% of the income from direct operations.

1,200

1,300

1,400

1,500

1,600

13.0

14.0

15.0

16.0

17.0

18.0

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

USD/Oz.USDBVN Gold Spot




Buenaventura: Financial Summary





Administrative and Sales Expenses Other Short Term Assets

Exploration Expenses - Greenfield Current Assets



Financial Income, Net Non Current Assets


Stake in Associates Short Term Debt





Attributable to Buenaventura Other Long Term Liabilities

Shares Outstanding - Average (MM) Non Current Liabilities

Earnings per Share - EPS (USD) Equity Attributable to Buenaventura


EBITDA (Exc. Associates) Total Liabilities + Equity





Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Víctor Gobitz CEO

Leandro García CFO

Rodrigo Echecopar IRO


4.54


n.s.

Source: Buenaventura

0.08 0.08 0.08

3.98 4.00

48.52 19.91 19.46

n.s. 83.38 106.15

24.38 16.00 16.41

1.39 1.31 1.23

CHART N° 63: TARGET PRICE BREAKDOWN

2.8% 6.6% 6.4%

2.1% 5.0% 5.0%

3.2% 6.5% 6.3%

2019e 2020e 2021e

-35.7% 52.3% -2.5% -46 -43

39.27 42.02 44.89

0.20 0.18 0.17


2.40 1.36 1.17

5.07 7.73 7.54

n.s. 27.9%

-39

-687.5% 143.7% 2.3% 85 39 43

2019e 2020e 2021e

2.35 2.65 3.06

8.6% 18.3% 18.9% - - -

-19.0% 14.1% -0.6% 260 378 387

n.s. n.s. -21.4% -129 -296 -305

9.7% 16.3% 15.0% 83 202 207

-3.8% 4.8% 3.8% 217 221 226

18.6% 24.8% 24.4% -40 -45 -45

180 274 267 4,086 4,232 4,387

2019e 2020e 2021e 2019e 2020e 2021e

83 202 207 222 222 222

688 665 652

0.33 0.80 0.82 2,897 3,077 3,262

217 221 226 226 226 226

254 254 254

128 311 318 51 38 25

68 68 68

83 202 207 275 265 248

-0 -0 -0 466 443 430

-45 -109 -111

-37 53 41 1,706 1,803 1,913

3,438 3,531 3,629

- - - 4,086 4,232 4,387

195 283 297 156 158 154

-24 -20

966 1,102 1,095

-872 -923 -931

8 8 8 1,731 1,728 1,716

272

269 275 281

94 180 165 158 166 174

31 31

701 759 648

2019e 2020e 2021e

31

-34 -33 -31

-104 -102 -100

-30

191 229

2021e 2020e2019e

73%

27%

Others

Benavides Family

44%

42%

11%

3%Cerro Verde

Direct Operations

Yanacocha

Tantahuatay





(511) 630 7528 (511) 630 7527


Cerro Verde

Target Price (USD)

Rating


Market Price (USD)


Upside

Range 52 weeks

YTD Change

ADTV - LTM (USD MM)


Trading BVL


LTM: Last 12 months


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (USD) Risks

ROE

ROA



Source: Kallpa SAB

CHART N° 64: CVERDEC1 vs. Copper Spot

Recommendation

Source: Bloomberg


Kallpa Securities SAB updates Sociedad Minera Cerro Verde S.A.A. (Cerro

Verde)'s valuation model with a buy recommendation. Our new 2020 year-end

target price of USD 25.30 is 30.4% higher than the USD 19.40 market price as of

the closing of January 7th, 2020.

We remain positive in copper companies due to the potential beneficial

environment that the price of copper would have in the short term, given

the expected supply deficit globally. In addition to the solid fundamentals in

the price of copper, the company has an attractive generation of operating

cash flows, which would lead to an increase in the payment of dividends in

the medium term. Given this, we reaffirm our recommendation to buy.

30.4%

25.30

Buy

6,791.09

19.40

350.06

-0.41

21.90 28.60

5.16

-0.16

2.2%

(BVL: CVERDEC1)

3.25 3.50

20.28 24.19 28.01 31.73 35.42

9.34% 19.32 23.00 26.60 30.11 33.58

17.00 - 24.50

0.5%

0.09

6.4%

COK / Cu 2.50 2.75 3.00

2020e

18.71

1.04

13.58

1.43

1.21 1.15

5.98

We expect Cerro Verde will remain as a low cost producer, and would stay

in the first quartile of the copper producers' cost curve. Cash cost net of

byproducts would be around USD 1.07/Lb. in 2020.

CAPEX will be at USD 400.0 MM, and will be used mainly for the

maintenance of the unit.

Volatility in the copper price, which represents 90% of the company's

revenues.

2021e

7.6%


Copper play and low debt. Potential for dividend payment

25.30

1.71

BUY

10.4%

22.96

2019e

31.88

7.0% 9.2%

4.8%

4.74

25.92 28.84

0.12

11.33

27.21 30.31

18.43

17.60 20.88 24.09

16.83 19.93

1.28


Sociedad Minera

Cerro Verde S.A.A.


9.84%

10.84%

10.34%

8.84%

Commercial discounts to the sale of concentrates can affect the company's

profitability. We estimate an average commercial discount of 8.0% for the

following 5 years in the sale of concentrates.

Valuation

We value Cerro Verde with a Free Cash Flow to the Firm (FCFF) model, in

a 27-year horizon, which is equivalent to the life of mine. We use a 9.8%

discount rate (WACC).

USD 25.30

We project that revenues have a 7.8% increase in 2020, given a growth in

the average price of copper (+4.6%) and a higher volume sold (+2.0%). We

expect the copper production level to rise to 465,000 MT, with an average

price of USD 2.85/Lb.

2.4

2.5

2.6

2.7

2.8

2.9

3.0

16

17

18

19

20

21

22

23

24

25

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

USD/Lb.USD

CVERDEC1 Copper Spot





Cerro Verde: Financial Summary






Other Operating Income Current Assets




FX Gain (Losses) Total Assets




Shares Outstanding - Average (MM) Current Liabilities

Earnings per Share - EPS (USD) Long Term Debt



Net Equity






Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Derek Cooke CEO

Rohn Householder Administration Manager

Source: Cerro Verde, SMV, Kallpa SAB


1.28 1.21 1.15

2.51

10.57 8.20 7.16

5.98 5.16 4.74

2.39

0.429 0.62 0.86

11.74

6.8% 8.6% 9.8%

2019e 2020e 2021e

203.2% 37.8%

7.0% 9.2% 10.4%

4.8% 6.4% 7.6%

0.17 0.16 0.08

0.12 -0.16

22.46

95.00

92

18.71 13.58 11.33

2.70

75 45

1,083

19.9%

1,064 1,141


14.5%

526 521 516

1,210 1,403 1,527

1,014 1,014 1,014

1,918 1,466 1,014

2020e 2021e

30.4% 35.1% 37.8%

25.6%

-18.2%

2019e 2020e

13.6% 17.3%

8.8%

904

2019e

45.2% 48.6%

5,322 5,604 5,904

7,642 7,926 7,775

2020e 2021e

363 500 600

526 521 516 30.6% 33.3%

103 -32 -20

1.037 1.429 1.713

2019e

50.4%

363 500 600

350 350 350

593 808 965

1 - -

192 193 193

402 855 857

-308 -365

- 452 452

209 210 212

7,926

337

485

10 15

-103 -90

4.13 2.41

-12.3% 7.8%

28.9%

-10.3% 15.9%

95.00

15.62

7,642

2021e

814

882

2,027

2,677 2,887

-68

-230

-360 -292 -797

263 367 -53

1,132 1,079

364 382

487 491

73 77 76

2,059

3,031

-1,872

1,010

1,015

5,537

452 -

-460 -404

-0.41

-397

685 5,300

445 446 448

7,775

95.00

5,982 5,866

5,420

-1,863

60.0%60.0%

-1,885


CHART N° 66: SALES BY PRODUCT

-119 -122 -126

2019e 2020e

23

2021e

2.36

19.8%

5.0%

125.3%

-10 -10 -10

1,146

2019e

5,748

1,660

764

2021e2020e

53%

21%

20%

6%

Cyprus Climax Metals Company(Freeport)

SMM Cerro Verde Netherlands B.V.(Sumitomo)

Compañía de Minas BuenaventuraS.A.A.

Others

82%

9%

10%

Copper Concentrates

Copper Cathodes

Others (silver and molybdenum)



Marco Contreras Jose Inurritegui


(511) 630 7528 (511) 630 7529


Nexa Resources Perú S.A.A.

Target Price (PEN)

Rating Hold


Market Price (PEN)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading

ADTV: Average Daily Trades Volume

LTM: Last 12 Months


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (USD)

ROE

ROA Risks


Valuation

Source: Kallpa SAB

CHART N° 67: NEXAPEC1 vs. Zinc Spot

Recommendation


Kallpa Securities SAB updates Nexa Resources Perú S.A.A. (NEXAPEC1),

valuation model with a hold recommendation. Our 2020-year-end target price of

PEN 3.68 is 6.6% higher than the PEN 3.45, as of the closing of January 7th,

2020.

The company remains a cost efficient producer, with a solid cash position

of USD 432.0 MM and low leverage (Net Debt / EBITDA of -0.4x). Cerro

Lindo, with 8 years of life of mine is the main asset. The implementation of

new projects in the portfolio will be key to adding value to the company.

However, we believe that the above is already internalized in the share

price, which is why we recommend to hold with a TP of PEN 3.68.

-0.46

Volatility in the price of base metals such as zinc and copper, where the

company concentrates almost 80% of total sales.

32.0% of our target price is represented by the company´s projects. The

current project values can be changed due to delays, variation of CAPEX,

costs, among others.

0.010 0.069

3.39 3.76 4.12 4.49 4.84

6.6%

0.47

Nexa Resources Perú

S.A.A.

PEN 3.68

Drop in reserves in Cerro Lindo affects target price

Target Price

6.2% 5.6%

3.45 3.82 4.18

2.94

The costs would be around USD 40.1/MT and would tend to fall, given

synergies after the integration of Atacocha and El Porvenir.

2.07

11.64 5.34 5.67

(BVL: NEXAPEC1)

3.68

4,367.96

3.45

1,272.11

2020e 2021e2019e

68.25 14.93

2.29 2.05


We expect sales to register a 5.0% growth, as the fall in the price and

production of zinc, will be offset by the higher production and prices of

metals such as copper and silver.

15.0%

BVL

(*) 1,257.7 MM common shares and 14.4 MM investment shares.

0.0%

HOLD

3.50

3.90 4.27 4.62

We value Nexa Perú with a Free Cash Flow to the Firm (FCFF) model in a

10-year finite horizon; after that the company will be liquidated. We use a

discount rate (WACC) of 8.9%.


3.25 3.17 3.53

2.72 3.08

Cu / Zn

2.75

1.30

3.60

3.00

Source: Bloomberg

3.31

2.8% 14.5% 12.7%

1.3%

3.23


1.151.00

4.04 4.403.68

0.064

16.24

3.96

3.07 - 4.19

2.50 2.50 2.86

0.70 0.85

-0.58

Mining Industry

-0.69

We have incorporated the new Cerro Lindo mining plan in our model, which

extends mine life by one year but reduces the zinc content in reserves by

26%

We estimate that zinc production falls 3.0% and reaches 207,745 TMF due

to lower grades in Cerro Lindo. However, we expect greater production of

metals such as copper, silver and lead, which amount to almost 50% of the

company's sales.

0.9

1.0

1.1

1.2

1.3

1.4

3.0

3.2

3.4

3.6

3.8

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

USD/Lb.PEN

NEXAPEC1 Zinc Spot



Nexa Perú: Financial Summary



Cos of Sales Accounts Receivable


Amortization Other Short Term Assets


Administrative Expenses Fixed Assets, Net

Other Income, Net Other Long Term Assets

Operating Income Non Current Assets

Financial Income, Net Total Assets





Net Income Attributable to Nexa Perú Long Term Debt


Earnings per Share - EPS (USD) Non Current Liabilities

Depreciation and Amortization Equity Attributable to Nexa Perú

EBITDA Minority Interest






Net Margin Others

Sales' Growth Operating Cash Flow




FINANCIAL RATIOS



Debt / Equity

Net Debt / Equity



Payout Ratio

ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Ricardo Galvao Porto CEO

Claudia Torres CFO

Henry Aragón IRO

Source: Nexa Perú, Kallpa SAB


0.54

6.2%

2.8%

68.25 14.93 16.24


2.05

8.34

5.67

2.07

10.5%

2021e

7.69

2.29

2.2% 11.7%

1.3%

1.64

5.6%

177 152


0.54

0.015

3.24

28.45

-0.46

-81 -83 396.1% -7.7% -70

-5.8% -214 -35 -102

357.2% -8.1% -268 61 -33

630

8.68 14.41 14.32

-0.69

100.0% 100.0% 100.0%

0.60

26.91

2020e

34.1% 19 87 80

4.3% 20.3% 19.8% 73 69 68

14.1% 29.2% 29.1% -48 2 -5

11.2% 10.9% -29 18 8

3 3 3

1,447

-45

362

545

-6 1 1

774

-16

1,272

2019e 2020e 2021e2019e

81 63 60 59

239

142 131 0 0

-54 -50 176 171 166

326

-6

1,418 -15

342 342 342

1,272 215 220 203

0.064 557 562

214 17 17 18

0

0.069

1.56 1.65

325

146 661

-58 -57

721

20

158

441

2020e

227

414 475

2021e

-513 -485

14.5% 12.7%

343

2019e

247

252 38 38 38

2021e

730

336 330

-5

-12 1,382

673 688

68 568 637

1,272

87 80

2020e

-539

225

266

3.02

-85.2%

-86.6%

104

25.61

2019e

73

27.4%

-10.3%

-57

-65

203

742

13

0.010

-7

2.6%

38.17

32

266 258

737

2021e 2019e 2020e 2021e

-5.5% 15

231

34.2%

69

0.069

88

-11

-43

4

1,382 1,447 1,418

-3

CHART N° 69: SALES BY MINING UNIT 2019e

2019e

-63.0%

11.64

19

779

2020e

-0.58

3.35

0.156

117.9%

5.0%

-40

5.34

80%

12%

8%

Nexa Resources

Pension Funds

Others

64%

24%

12%

Cerro Lindo

El Porvenir

Atacocha





(511) 630 7528 (511) 630 7527


Minsur S.A.

Target Price (PEN)

Rating Buy


Market Price (PEN)


Upside

ADTV - LTM (PEN MM)

Range 52 weeks

YTD Change


Trading


LTM: Last 12 Months


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (USD)

ROE

ROA

Source: SMV, Kallpa SAB Risks


Valuation

Source: Kallpa SAB

Recommendation

Source: Bloomberg


Kallpa Securities SAB updates Minsur S.A. (MINSURI1)´s valuation model with a

buy recommendation. Our new 2020-year-end target price of PEN 2.00 is 29.2%

higher than the PEN 1.55 market price as of the closing of January 7th, 2020.

We value Minsur with a Free Cash Flow to the Firm (FCFF) model in a 16-

year horizon. We use a discount rate (WACC) of 9.4%

We project that the cash cost of San Rafael - Pisco will be USD 8,800/MT,

the cash cost of Pucamarca USD 405 / Oz. and that of Pitinga (considering

the credit for by-products) USD 10,500/MT.

2.15 2.34

We estimate a production of 28,500 MT of tin (including B2) and 100,000

oz of gold in 2020.

2.10

(*) 19.2 MM in common shares with a face value of PEN 100.0

and 960.9 MM in investment shares with a face value of PEN

1.0.

BVL

16,000 18,000

1.66

1.90

0.71

3.15 1.76 1.95

We estimate that the maintenance CAPEX will be around USD 70 MM. We

expect Mina Justa to close 2019 with an advance of around 70%, and that

about USD 520 MM remain to be disbursed in 2020 (60% corresponds to

Minsur).

Volatility in the price of tin and gold, metals that represent 74.0% and

19.0% of the company's total sales, respectively.


PEN 2.00BUY


2.39


16.5%

1.91 2.10 2.30 2.49 2.68

Mina Justa execution risk. Likewise, changes in cost estimates and CAPEX

may affect the company's cash flow.

While ~ 74% of Minsur's revenues will come from tin in 2020, when Mina

Justa begins full capacity operations in 2021, copper will represent around

50% of the company's revenues. We believe that the metal it will produce

maintains solid fundamentals and that the new operation will add value.

Given the above, we reaffirm our recommendation to buy.

2.20

2020e 2021e

Cu / Sn 14,000

2.30

2.85 1.47

Bofedal 2 begins and Mina Justa follows

1.85 2.05 2.24

3.00 1.61

2.70 1.32 1.51 1.71

22,000

18.84 12.11 5.17

1.03

2.50

2019e

0.85

0.023

0.79

4.9%

20,000

2.00

4,497.48

1.55

Minsur S.A.

980.22

29.2%

2.8%

1.81 2.00

2.54

0.120

5.4%

0.038

8.1%

1.9%

0.97

1.89

5.67

-0.6%

1.37 - 1.82

7.47

(BVL: MINSURI1)

6.2%

3.30

CHART N° 70: MINSURI1 vs. Tin Spot

In 2020, we expect an increase of 11.9% in revenue, due to a 17.5%

increase in the volume of sales of San Rafael, as we added B2 project in

the company's operations. On the other hand, we expect a 6.1% drop in

the average price of tin by 2020 and a 7.6% growth in the average price of

gold.

15,000

17,000

19,000

21,000

23,000

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

USD/TMPEN

MINSURI1 Tin Spot





Minsur: Financial Summary







Exploration expenses Fixed Assets, Net

Other Income, Net Intangibles, Net

Operating Income Investments in Associates

Financial Income, Net Other Long Term Assets

Stake in Associates Non Current Assets

FX Gain (Losses) Total Assets

Other Income (Expenses), Net Short Term Debt





Net Attributable Income Other Long Term Liabilities

Shares Outstanding - Average Non Current Liabilities

Earnings per Share - EPS (USD) Equity Attributable to Minsur


EBITDA Total Liabilities + Equity





Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Juan Luis Kruger CEO

Diego Molina CFO

Aura Lía Benavides Head of Financial Planning

Source: Minsur, Kallpa SAB


13.9%

CHART N° 72: REVENUE BY METAL 2020e

1.03 0.97 0.85

55.6%

0.80

4.99

3.9% 5.1% 13.3%

5.67 2.50

8.92

18.84 12.11 5.17

2.65 2.37 1.15

3.28

2019e 2020e

7.47

11.91

2021e

CHART N° 71: SHAREHOLDERS MINSURI1

1.9% 2.8% 6.2%

0.022 0.012 0.020

5.4% 8.1% 16.5%

2019e 2020e 2021e

2.78 1.76 2.10

97.90 94.88 50.90

0.88

0.71 1.89

0.66

12.90

60.0%

687

-53 -54 -55

278

-4.9% 33.5% 172.1%

-0.1% 31.7% 127.2%

37.2% 40.1% 42.1%

35.2%

35.5% 41.8% 46.3%

10.0%

2021e

2.4%

2019e 2020e

291 491

181

359

1,266

1,309 1,377 1,570

621

166 -36.5%

-841 -741 -233

746 104

158 211 575

-31 -57 -54

15 16 17

67 111 355

297 304

2,684

62 64

1,096

0.038 0.120

-92

1,034 970

-9 -9

170

-67 -59 -183

3,322 3,409

3,680

2,210

135 538

-43 -43

264

33 33 33

94 121

891 986

260

3,962 4,197

711 795 1,632

-476


308 324

5.37

2.30

-1

48 59 52

134.2%

15.9%

118 -347

2020e 2021e

71 111

61

2019e 2020e 2021e

3,962 4,197

95

365 375

264 269

-946

85 71 42

996 640 788

513

112

-2 -3

2,252

485 -1 491

499

113 115

120 124 132

2019e

-9

-44

319

341

333

295 295 295

1,392 1,329

94 121 181

252 333 755 3,680

2019e

22.3% 26.6%

58.9% 60.0%

213

-0 -0

2020e 2021e

679

71

-4 -

-446

1,597

260

980 980 980

0.023

11.9% 105.3%

111

- - 1

294

- -9 -

29%

20%13%

38%

AFP Prima

AFP Integra

AFP Profuturo

Others

74%

18%

8%

Tin

Gold

Others





(511) 630 7528 (511) 630 7527


Southern Copper

Target Price (USD)

Rating


Market Price (USD)

Shares Outstanding (MM)*

Upside

Range 52 weeks Fundamentals for 2020

YTD Change

ADTV - LTM (USD 000')


Trading BVL, NYSE

(*) Net of treasury stock, 110.89 MM approximately.


LTM: Last 12 Months


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (USD)

ROE Risks

ROA


Valuation

Recommendation

Source: Bloomberg


(BVL, NYSE: SCCO) Copper play with very attractive margins

2021e

20.04

53.53

21.82 27.57

19.97 25.31

42.64 48.87

33.33

4.62

10.01

26.38 33.17 39.95

39.09

44.11

Volatility in copper price, given that it represents 82% of the company´s

revenues.

Target Price

12.1%

15.43

3.25

HOLD

USD 36.40Southern Copper

Corporation

13.3%

58.97

Hold

We expect SCCO to remain in the first quartile of the copper producer cost

curve. Implicit cash cost net of by-products would be USD 0.83/Lb. for

2020e, below the USD 0.85 / Lb. we expect for 2019.

By 2020, we expect that CAPEX rises to USD 1,319 MM, higher than the

estimated USD 854 MM in 2019, with the objective of expanding the

company's operations, mainly in Mexico.

2.08

4.04

1.19 1.11

27.0%23.6%

1.31

17.38

9.02

4.32

4.9%

32,271.32

WACC / Cu

10.04%

11.0%

3.50

2020e2019e

41.71

773.71

-12.7%

29.65 - 43.00

2.40 2.71

25.6%

Kallpa Securities SAB updates Southern Copper Corporation (SCCO)´s

valuation model with a hold recommendation. Our new 2020-year-end target

price of USD 36.40 is 12.7% lower than the USD 41.71 market price as of the


3.00

44.84

30.65

51.54

46.74


35.99 41.33

Source: Kallpa SAB

9.04% 23.93

2.50

Source: Southern Copper, Kallpa SAB

30.17 36.40

2.75

8.04% 29.24 36.68

CHART Nº 73: SCCO vs. Copper Spot

0.11

Although the stock had a great improvement in 2019, it was due to the

strong punishment for increased political risk in Mexico generated towards

the end of 2018. We highlight the company's expansion plans in the

medium-long term, as well as the expected efficiency in these projects.

Despite this, the upside is limited, so we recommend to hold. However, we

consider it an attractive play of copper performance.

9.54%

8.54%

Delays in the Tía María project due to social conflicts. The project

represents 2.5% of our TP. The value of the project has a 50% discount

due to the uncertainty of its development.

We value Southern Copper with a Free Cash Flow to the Firm (FCFF)

model in a 10-year horizon. We use a discount rate (WACC) of 9.0% and a

perpetual growth rate of 2.0%.

Mining Industry

8.23

36.40

-1.7% With Toquepala operating at full-capacity, we expect sales to register a

growth of 6.7% in 2020, given an increase in the average price of copper

(+4.8%) and higher volumes of copper production (+3.0%) and

Molybdenum (+5.6%). We expect the copper production level to reach 1.04

MM of MT.

Political risk in Mexico due to the government´s position against the mining

activity.

2.5

2.6

2.7

2.8

2.9

3.0

25.0

30.0

35.0

40.0

45.0

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

USD/Lb.USDSCCO Copper Spot





Southern Copper: Financial Summary



Cost of Sales Short Term Investments

Gross Income Accounts Receivable

SG&A Expenses Inventory

Exploration Expenses Other Short Term Assets

Operating Income Current Assets

Financial Income, Net Fixed Assets, net


Income Before Taxes Non Current Assets

Income Tax Total Assets

Net Income Short Term Debt

Result. By affiliates, net of taxes Accounts Payable

Results for Minority Interest Other Short Term Liabilities

Net Income Attributable to SCCO Current Liabilities




EBITDA Net Equity






Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Óscar González CEO

Raúl Jacob CFO

Víctor Pedraglio Financial Planning Manager


3,329

10.01 9.02 8.23

4.62

Source: Southern Copper Corporation

CHART N° 75: SALES BY METAL

14.5% 15.8%

10.06

53.0% 55.2%

21.8% 23.6% 25.3%

2.9%

15.4% 12.7%

-564 -2,072

6.7% 5.2%

2.0% 13.3% 11.3%

1.31

5.10

15.43

2019e 2020e 2021e

3.00 3.19 3.14

84.16

80.2% 85.0% 85.0%

-23

-15 -15

3,014 3,397

1,592 1,838 2,072

2019e 2020e 2020e 2021e

773

42.3% 44.8% 47.3% 1,611 1,857 2,092

4,530

1,934

6,363 6,364

410 410 410

826

2021e

12 12

6 7 7

1,611

-4,302 -4,326 -4,211

2,939

9,323 9,822

15,394

415

15,898

2.40 2.71

1,358 1,144 1,130

6,560

3,725 4,131

787 802

1,857 2,092

773

415

12

334 322 314

2019e

-435 -109

-124 -133 -139

363 363 363

3,092 3,493

4,070 3,646 3,548

400

10,416

1,919

200 200

3,205

-1,018 -1,175 -1,325

530 516

415

787 802

2,033 1,597 1,488

2021e2019e 2020e 2021e2019e 2020e


15,313

2,956

51.0%

544

965 952 940

3,877

55 55 55

45.2%

4.04

11,243

23.6%

826

12.69

2020e 2021e

773

1.76 2.03

1.00 0.88

4.78

3,704

-301

7,303 7,795 8,202

2,610 11,748 12,350

1,926


27.0%

11.0% 12.1% 13.3%

81.33 79.82

1.19

0.82

703

-1,441

-25 -26

11.20

6,970 6,773 6,774

15,898

2.08

40.2% 42.7%

4.32

4.54

17.38

-1,874

1,291

25.6%

1.11

1.60

10.9% 9.7%

3.6%

4.8%

-315

-14

-29 -31 -33

13.5%

20.04

15,313 15,394

-854 -1,319

655 678

-292

6,984 7,477 7,994

11.84 13.72 15.54

2,708

89%

11%

Grupo México S.A.B.

Others

82%

10%

4%3%

1%

Copper

Molybdenum

Silver

Zinc

Others



Marco Contreras Jose Inurritegui Mining Industry


(511) 630 7528 (511) 630 7529


Trevali Mining Corp.

Target Price (USD)

Rating


Market Price (USD)


Upside

ADTV - LTM (USD MM)

Range 52 weeks

YTD Change


Trading

Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

EPS (USD)

ROE

ROA


Risks


Source: Kallpa SAB

Valuation

CHART N° 76: TV vs. Zinc Spot

Recommendation

Source: Bloomberg



a 19-year finite horizon. We use a discount rate (WACC) of 11.3%.

Kallpa Securities SAB updates Trevali Mining Corp. (TV)´s valuation model with

a hold recommendation. Our new 2020-year-end target price USD 0.492 is

168.7% higher than the USD 0.183 market price, as of the closing of January 7th,

2020.


13.32% 0.311 0.387 0.464 0.541 0.619

Operational risk. The company needs to successfully execute its cost

reduction plan, otherwise it can generate losses with an adverse juncture of

metal prices.

0.325 0.425 0.525 0.626 0.727

0.29 0.29

1.65

1.30

0.643

-4.3% 0.2%

0.70 0.85 1.00 1.15

-0.3%

-0.10 -0.41

2.14 2.22

-0.042 0.001 -0.004

-7.2% 0.4% -0.4%

The T90 cost reduction program, which begins in 4Q2020, could reduce

the AISC to USD 0.90/Lb. in 2022 (USD 1.00 / Lb. in 2019e). In addition, it

would generate an increase of between 60% and 80% in the production of

Rosh Pinah (2019e: 94 MM of Lb. of zinc). The program is partially

incorporated into our model.

10.32% 0.321 0.414 0.508 0.602 0.696

11.32% 0.317 0.404 0.492 0.580 0.668

12.32% 0.314 0.395 0.477 0.560

0.183

813.15

168.7%

0.04

(BVL, TSX: TV)

0.492

2020e 2021e

n.s. n.s.

We expect a 9.1% YoY sales drop, mainly because of a fall of 9.2% YoY of

the zinc price.

We estimate that zinc production will remain stable and reach 405.6 MM

pounds by 2020.

0.121 - 0.350

USD 0.492HOLD

5.8%

0.0%

TSX, BVL

ADTV: Average Daily Trading Volume

LTM: Last 12 Months

Hold

148.81


Target Price

0.31

0.38

2019e

n.s.


In 2019, the company will reach production and cost guidance without

problems. Management has shown interest in implementing operational

efficiency programs to reduce costs and increase production. However,

due to past results, the market still does not trust the company. The T90

program, volatility in the price of zinc and refining and smelting costs (which

do not depend on Trevali) will be the factors to be observed in the short

and medium term. In this way, we recommend to hold.

9.32%

WACC / Zn

Trevali Mining Corp.

In the hands of Ricus and the T90 program

We forecast that the company's cash-cost is USD 77.0/MT, which would be

equivalent to a reduction of 2.4% YoY, given the normalization of Caribou

production and operating efficiencies in Perkoa.

Volatility in the price of base metals, which could be caused by commercial

tensions between China and the United States. It is estimated that by 2020,

83% of total sales would be zinc.

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

0.10

0.15

0.20

0.25

0.30

0.35

0.40

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

USD/Lb.USDTV Zinc Spot





Trevali: Financial Summary





General and Administrative Expenses Other Short Term Assets

Other Expenses, Net Current Assets


Financial Income, Net Exploration and Evaluation Assets


Income Before Taxes Non Current Assets

Income Tax Total Assets

Net Income Short Term Debt

Minority Interest Accounts Payable

Net Income Attributable to Trevali Current Liabilities




EBITDA Equity Attributable to Trevali

Minority Interest






Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Ricus Grimbeek CEO

Gerbrand Van Heerden CFO

Brendan Creaney IRO

Source: Trevali, Kallpa SAB


1.1%

-3

485

CHART N° 78: SALES BY MINE - 2019e

-81

59 58

-34 1

-0.3%

0.09

-28

2.11

82

-81 -59 -51 -73.1%

-0.4%

-4.3%

1.93

2019e

0.6%

0.2%

2021e

2021e

63.00

5.6% 2.1%

-0

n.s. n.s.

0.29 0.29

-19.2% -22.9% -3.3%

-34 45

-7.2%

n.s.

0.51

12.81

89.51 8.31

2020e

24.10

2019e 2020e 2021e

-89 -78

2020e

731 758

23

146

24.4% 24.2%

815

81

51 -1

146 146

-3 -3

78

46

1

2019e

214 192 169

458 488

64 81

465 446

83

2

-28 3 -1

-6 -5

-41 2

-8 -2 -2

2019e

385

-355 -330

30 16 11

2020e 2021e

350 341

-334

5

1 -3 23

2

34

121

56

-36

76

2021e

80

32 32

558

416

121

734

122

-2 0 -0

-0.04 0.00 0.00

-3

121

55

176

-9 -9

83

2019e


609 589

731 758

169

778 778 68

2020e

31

-8 6

18.14

22 7

57

6

-

2020e

7.8% 4.6% 3.1%

85

0.0%

2.10

-8.8% 0.3% -0.8%

-0.10 -0.41

- -

0.0%

-68 21

-102.8% -393.2%

56.00


3

-68.9%

-

64 -4.3%

-65.5%

0.31

0.0%

61.00

15.08

0.16 0.14

0.38

- -

5

0.53

- -

61

-

-9

0.4%

89

0.4%

0.47

n.s.

23

111 85

-9.1% -2.6%

-34

1.65 2.14 2.22

4.9%

28.8%

2021e

734

-5

21 23 22

35%

26%

6%

33%

Institutional Investors

Glencore PLC

Blackrock

Others

33%

29%

21%

17%Perkoa

Caribou

Rosh Pinah

Santander



Marco Contreras Jose Inurritegui Mining Industry


(511) 630 7528 (511) 630 7529


Volcan Cia Minera (BVL: VOLCABC1)

Target Price (PEN)

Rating Hold


Market Price (PEN)


Upside

ADTV - LTM (PEN MM) Fundamentals for 2020

Range 52 weeks

YTD Change


Trading


Financial Ratios

P / E

P / BV

EV / EBITDA

Net Debt / EBITDA

UPA (USD)

ROE Risks

ROA



Source: Kallpa SAB Valuation

Recommendation

Source: Bloomberg


Volatility in zinc and silver grades in its main units like Chungar and Yauli.

Kallpa Securities SAB updates the valuation of Volcan Compañía Minera S.A.A.

(VOLCABC1) with a hold recommendation. Our new 2020-year-end target price

of PEN 0.62 is 17.0% above the PEN 0.53 market price as of the closing of

January 7th, 2020.

We project that the cost be increased to USD 54.9/ MT due to the sale of

low-cost units.

We value Volcan with a Free Cash Flow to the Firm (FCFF) model in a 16-

year finite horizon. We use a discount rate (WACC) of 8.8%.

0.26

0.007

0.1% 4.1%

2.52

2.77

10.36

0.62

2020e

(*) Includes 1,427 MM type A shares that trade at PEN 4.00

ADTV: Average Daily Trading Volume

We estimate that CAPEX would stay at USD 150.0 MM, which would be

used mainly to sustain the company's operating units.

LTM: Last 12 Months

We highlight the sale of the Óxidos and Cerro de Pasco units, which aims

to reduce leverage (Net Debt / EBITDA greater than 3.0x). However, the

current situation of lower prices and the deterioration of commercial terms

continues to affect the company's performance. In the absence of catalysts

in the short term and awaiting a new strategy for financial restructuring, we

recommend to hold.

Volatility in the price of zinc and silver, that account for 60.7% y 24.7% of

the company's total sales, respectively.

HOLD

0.52 0.63 0.75

0.85

0.007

0.70 0.85

0.45 0.57

0.37 0.49 0.60 0.72

0.87 0.98

CHART Nº 79: VOLCABC1 vs. Zinc Spot

2019e


0.0%

BVL

2.96

0.69

2021e

0.44 0.55 0.67 0.79

1.30

0.62

1.00 1.15

4.2%

0.0% 1.3% 1.4%

0.000

n.s. 68.22 65.26

19.1%

11.14

The company has an interesting portfolio of projects, but still in early stages

of development. Production growth (excluding Romina 2) in the short-

medium term will depend on positive exploration results.

2.44

2.66

0.31 - 0.76

0.74

We expect a 16.7% drop in sales, due to lower prices in metals such as

zinc and lead; and the sale of the Cerro de Pasco and Oxides units.

Ag / Zn

Target Price

PEN 0.62

6,271.25

0.53

3,858.68

17.0%

0.91

2.88

10.70

0.38 0.50

0.32

0.80 0.92

22.00

20.00

18.00

16.00

14.00

We forecast a production of 228,000 MT of zinc, below the 241,000 MT

that it would produce in 2019, due to the sale of the Cerro de Pasco and

Óxidos units. The foregoing would be offset by the income it will receive

from the transaction with Cerro de Pasco Resources.

Volcan Compañía Minera

S.A.A.

Waiting for a new restructuring strategy

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

0.3

0.4

0.5

0.6

0.7

0.8

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

USD/Lb.PENVOLCABC1 Zinc Spot




Volcan: Financial Summary







Other Operating Income, Net Fixed Assets, Net

Impairment of Non-Financial Assets Intangibles, Net




FX Gain (Loss) Short Term Debt







EBITDA Net Equity






Net Margin Others





FINANCIAL RATIOS



Debt / Equity

Net Debt / EBITDA


Payout Ratio


ROE

ROA

ROIC

VALUATION

EV / Sales

P / E

EV / EBIT

EV / EBITDA

P / BV

MANAGEMENT

Juan Ignacio Rosado CEO

Jorge Murillo CFO

Source: Volcan, SMV, Kallpa SAB


2019e

-24

2.44

5.36 6.47 6.48

0.0% 0.0% 0.0%

- - -

42.0%

731

0.0% 1.3% 1.4%

2.4% 3.8% 5.4%

109 100 98

351 321

-23 -17

-90

4.1% 4.2%

177 251 226

-160 -124 -125

-40

252 260 242

0.1%

36

-93

2019e 2020e 2021e

1 27 29

83 82

19 2 2

-47 -40

24

393 393

3,858 677 87

393

1,123 1,069 480

649

852

0.96

2.96 2.52

0.000 0.007 0.007

199

11

CHART N° 80: SHAREHOLDERS - VOLCAAC1

199 177

40

1.08

-97.5% n.s. 4.5%

-4.2% -16.7%

-7.0%3.3%

177 160

40.2%

0.1% 4.4%

-1.0%

0.32

2 6 1

2,067 2,036

29

3,858

1

4.8%

-66.7% 55.8%

2019e 2020e 2021e

21.7% 17.8% 18.3%

7.1% 13.4%

-17

-23

160

2,123

188 167 164

763 768

35

749

-

27

13.6%

33.9%

676 705

-508 -492

161 110

3,858

-42

31

-

-1

783

590

58

53

2019e 2020e 2021e


-

1,850 1,795 1,760

2,123 2,067 2,036

211 209 209

-17 -23

-56 -42

-29 31

-37

743 618 602

-581

-

134 112

-

109

273 272 277

50.79 32.60

4.48

n.s. 68.22 65.26

44

43.0 43.0

2020e

0.85 0.85

1.21

2021e

40 75 85

31 25 25

68 60

46

-17

2.88 2.77 2.66

891 823

54 54

32.95

2021e

2019e 2020e 2021e

43.0

2019e 2020e

4.35

110

CHART N° 81: TARGET PRICE BREAKDOWN

3.63

10.70 10.36 11.14

-23.1%

-2.7%

42%

11%10%

10%

8%

8%

11%

Glencore International

Empresa Minera Paragsha

José Ignacio de Romaña Letts

Irene Florencia LettsColmenares

Blue Streak International

Sandown Resources

Others

61%13%

6%

20%Mining Operations

Mining Projects

Cemento Polpaico

Chancay Port



Recommendation

Buy +

Buy

Hold

Sell

Under Review (U.R.) -


Definition of qualification ranges

Kallpa Securities SAB has 4 qualification ranges: Buy +, Buy, Hold and Sell. The analyst will assign the coverage one of these

ranges.

Upside

The fair value calculated by Kallpa SAB is based in one or more valuation methodologies commonly used by financial analysts,

including but not limited to discounted cash flows, In Situ valuations or any other applicable methodology. It should be noted that the

publication of a fair value does not imply any guarantee that the value will be achieved.

Appendix – Disclaimer

Analyst certification

The economic compensation of the analyst that prepared this report is based in several factors, including but not limited to Kallpa

Securities SAB’s profitability and the profits generated by its different areas, including investment banking. In addition, the analyst

does not receive any kind of economic compensation from the companies he/she covers.

This valuation report was prepared by Kallpa Securities SAB’s employees that maintain the position of Analyst. Persons involved in

the elaboration of this report are authorized to maintain shares.

Share prices in this report are based on market prices as of closing of the day prior to the publication of this report, unless it is

strictly stated.

General statement

Kallpa Securities SAB has reasonably designed policies to prevent or to control the exchange of non-public information used by

areas such Research and Investment, Capital Markets, among others.


< -15%

> +30%

+15% - +30%

-15% - +15%

The analyst that prepared this report hereby certifies that: i) the opinions and views expressed in this valuation report, in regard with

the issuer and with the company’s overview, reflected his/her personal opinion and ii) No part of his/her salary compensation was, is

or will be related directly or indirectly to the recommendations expressed in this report.

This document is for informative purposes only. Under no circumstances it should be used / be considered as an offer of sale or an

application of purchase of shares or any other securities mentioned in this document. The information herein has been obtained

from sources which are believed to be reliable, but Kallpa Securities SAB does not guarantee the trustfulness or accuracy of the

content of this report, or the future market values of shares or other securities mentioned in this document. The views and opinions

expressed in this document constitute our opinion at the time of this report and are subject to change without any notice. Kallpa

Securities SAB does not guarantee analysis updates before any change in the circumstances of the market. The products referred

in this document may not be available for purchase in some countries.

The range assigned to each company covered by the analyst in these reports is based on the analysis/monitoring Kallpa Securities

SAB has been developing for the company. In some cases, the analyst can express his/her short-term points of view to traders,

vendors and some Kallpa Securities SAB’s clients but this point of view may differ in time by market volatility and other factors.


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