Alerts

   Adrian Alexander Yu

May 15, 2020 We reiterate our HOLD rating on GLO with an FV estimate of Php1,900/sh. We continue to like GLO because of its a) dominant position in the wireless business; b) strong growth of its fixed line business; c) and resiliency of demand for data during the lockdown and pandemic.

   Richard Lañeda, CFA

May 14, 2020 FV estimate lowered to Php621, downgrade to HOLD. We are lowering our FV estimate on AC from Php629 to Php621 as we factored in the reduction in our fair value estimate of ALI (from Php37.10 to Php36.10). We are also downgrading our recommendation from BUY to HOLD as AC is trading at a 10.1% premium to our fair value estimate of Php621 after it has rallied from a low of Php360 to its most recent closing price of Php691.

   Frances Rolfa Nicolas

Given the improved sentiment towards water concessionaires following the President’s speech last week, we are reinstating our FV estimate of Php14.0/sh on MWC. Note that our FV estimate is still based on the assumption that the East Zone concession will remain until 2037 as stated in the current concession agreement. We will adjust our estimates accordingly once the new concession agreement is finalized and becomes available. At its current price of Php12.5/sh, upside to our FV estimate is limited. Moreover, there are still a lot of uncertainties surrounding the details of the new concession agreement. Hence, we are maintaining our HOLD rating on MWC.

   Richard Lañeda, CFA

We are reducing our fair value estimate from Php37.20 to Php36.10 as we reduced our revenue and income forecast for 2020 and 2021. Given our reduced fair value estimate of Php36.10 and the fact that the share price of ALI has rallied from a low of Php19.44 to Php33.30, the implied upside to our FV estimate is limited at 8.4%. Coupled with property companies’ poor earnings outlook, we are downgrading our recommendation on ALI from BUY to HOLD.

   George Ching

We have a HOLD rating on NIKL with a FV estimate of Php2.40/sh. While we remain positive on the long term outlook for nickel due to the rising EV battery demand, we believe that nickel price could remain depressed in the near term due to the impact of previous stockpiling activities ahead of the Indonesian nickel ore ban. Furthermore, the ongoing slowdown in the global economy due to the impact on the Covid-19 pandemic will continue to depress nickel prices in the near term.

   Frances Rolfa Nicolas

In a disclosure to the PSE, SMC announced that it will no longer proceed with the acquisition of majority stake in HLCM as the required approval from the Philippine Competition Commission (PCC) was not achieved. Recall that through its subsidiary First Stronghold Cement Industries, Inc., SMC intended to acquire 5.5Bil common shares of HLCM, which represents 85.7% of the latter’s common outstanding shares. As such, SMC will withdraw the launch of the tender offer of HLCM shares held by its minority shareholders.

   April Lynn L. Tan, CFA

1Q20 GDP contracted by 0.2%, significantly below consensus forecast of a 2.9% increase and a sharp reversal from the 6.7% growth registered during the fourth quarter last year. This is also the first time that the economy contracted since 4Q98. GDP contracted largely as a result of the enhanced community quarantine (ECQ) imposed in Luzon (which accounts for more than 70% of the economy) and some other parts of the country beginning middle of March. Broken down according to expenditure, GDP contracted as investments fell sharply by 18.3% in 1Q20 from a 2.5% increase in 4Q19. Investments fell as construction spending contracted by 3.4% after growing consistently in 2019 while durable equipment spending fell by 7.7% despite the low base in 2019. Exports were also weak, falling by 3% during 1Q20. On the positive side, private consumption and government spending continued to grow in 1Q20. However, the said growth was significantly slower at 0.2% and 7.1% respectively from 5.7% and 17.0% in 4Q19, and was not to offset the weakness in investments and exports. Broken down according to major economic sectors, forestry, and fishing fell by 0.4% while industry contracted by 3%. The industry sector fell as both manufacturing and construction, which were the growth drivers in the past, contracted in 1Q20. Meanwhile, the services sector grew by 1.4% during the period. However, the growth in the services sector was significantly slower than the 7% to 8% increase registered in 2019. Gross National Income fell by an even faster pace compared to GDP at 0.6% as Net Primary Income from the rest of the world dropped by 4.4%. Given the disappointing 1Q20 GDP numbers, there is a strong likelihood that the Philippines will miss even the lower end of NEDA’s and the DoF’s full year target of a 0.6% and 0.8% contraction in GDP. 2Q20 GDP will most likely register a sharper decline as most of Luzon will remain under ECQ for six weeks vs two weeks in 1Q20. Moreover, the reopening of areas under ECQ will be done in phases implying a slow recovery. The Philippines’ disappointing economic performance will most likely translate to poor earnings growth, hurting sentiment for the Philippine stocks.

   Frances Rolfa Nicolas

Withdrawing rating and FV estimate. With the significant uncertainty brought about by this development, we are withdrawing our rating and FV estimate until there is more clarity on whether or not ABS will be allowed to operate its free to air TV and radio channels.

   Justin Richmond Cheng, CFA

May 7, 2020. Downgrading estimates; maintain HOLD. We are reducing our estimates to account for DNL’s weak first quarter performance. We decreased our earnings forecast, factoring in a lower gross margin assumption due to the shift in sales mix. We cut our earnings forecast by 16% to Php2.2Bil in 2020 and by 18% to Php2.9Bil in 2021. Our new forecast implies an earnings decline of 16.5% for 2020 followed by a 30% recovery for 2021. Following the changes in our earnings forecast, we also cut our FV estimate by 10% to Php5.4/sh. We expect earnings to remain challenged in the short term amid lackluster demand as several DNL customers (restaurants, car manufacturers) are expected to suffer from weaker sales this year due to the COVID-19 crisis. At its current price of Php5.19, upside to our FV estimate is limited to 4%. Hence, we are maintaining our HOLD rating on DNL.

   Frances Rolfa Nicolas

With the significant uncertainty brought about by this development, we are temporarily withdrawing our rating and FV estimate on ABS until things stabilize.