Alerts

   Justin Richmond Cheng, CFA

Maintain HOLD rating. We currently have a HOLD rating on DNL with a FV estimate of Php9.2/sh. Fundamentally, we continue to like DNL because of its successful move to grow the share of its high margin products and its resilience to rising input costs and exchange rate volatility. Furthermore, the domestic economy is already showing signs of a recovery which bodes well for bulk of its business. However, global economic outlook remains weak, and exports account for 19% of total revenues and a bigger share of profits. The coronavirus outbreak in China also presents an additional risk to DNL.

   Adrian Alexander Yu

Reiterate BUY rating. We reiterate our BUY rating on TEL with an FV estimate of Php1,450/sh. We continue to like TEL because of their aggressive growth in mobile data, strong position of its home business, and robust network expansion plans, At a current share price of Php1,040/sh, the stock is currently trading at a 2020E EV/EBITDA of 4.7x, which is below the regional average of 6.70x. TEL is currently offering a dividend yield of 7.4% based on its 2019 dividend payout of Php65/sh. Capital appreciation potential is also attractive at 39.4%.

   John Martin Luciano, CFA

Data from the PSA showed that factory output, as measured by the Volume of Production Index, decreased 1.6% y/y in January. This is softer than the 4.2% decline seen in the same month in 2019. The drop was due to the contraction made by wood and wood products (down 42.6%), petroleum products (down 39.7%), basic metals (down 23.8%), among others. On the other hand, sectors that grew include printing (up 38.4%), machinery except electrical (up 28.1%), chemical products (up 20.3%), among others. Likewise, total manufacturing in terms of the Value of Production Index declined 6.3% y/y in January, larger than the 0.3% decline last year. Average capacity utilization rate was 84.4%, with 12 out of 20 major industries operating at 80% and above capacity utilization rates.

   John Martin Luciano, CFA

Headline inflation slowed down to 2.6% y/y in February from 2.9% y/y in the previous month. This was slower than consensus forecast of 3.0% and was within the BSP’s expected range of 2.4-3.2%. This resulted to a year-to-date average inflation of 2.8%, within the government’s target range of 2-4% for the year. Meanwhile, core inflation, which excludes selected volatile food and energy items, eased slightly to 3.2% y/y in February from 3.3% y/y in the previous month. Food inflation decelerated on the back of slower price increases of meat, fish, and vegetables while rice and corn inflation also remained negative in February. Meanwhile, non-food inflation slowed, driven by the decline in electricity rates due to lower generation charges. Furthermore, price rollbacks of domestic petroleum products, which was influenced by the lower international price of crude oil, also brought down non-food inflation.

   George Ching

We have a BUY rating on DMC with a FV estimate of PHp10.29/sh. While near term sentiment on DMC will most likely remain negative due to the uncertainties on Maynilad, we believe that concerns are overblown given DMC’s depressed valuation. Based on DMC’s current market price of Php5.29/sh, the company is trading at a 55% discount to its NAV. This implies that Maynilad, its construction, DMCI Homes and nickel mining businesses are worthless, and investors are only paying for SCC (accounts for 107% of DMC’s current market capitalization). DMC is also trading at only 5X 2020E P/E, a discount relative to the 14.5X average P/E of its industry peers. Based on DMC’s current market price, upside to our FV estimate of Php10.29/sh is significant at 94.5%. Even if we assumed the worst-case scenario where Maynilad would become worthless, capital appreciation potential based on DMC’s current price is still 77% to Php9.36/sh.

   Richard Lañeda, CFA

WalterMart General Manager Rosemarie Caalam announced that the company is planning to open four to six more stores to the existing 35 Luzon-based stores by the end of 2020 because of the growing opportunity for network expansion in Luzon. According to management, the company is growing at a healthy double-digit rate due to their increased assortment of products and company rebranding. The WalterMart Group of Companies is under a joint venture deal with SM Investments Corp.

   Richard Lañeda, CFA

We have a BUY rating on BLOOM with a fair value estimate of Php15.32. We like BLOOM for being the leader in the local gaming sector and the only listed pure gaming operator in the PSE. The exceptionally high hold rate of the VIP segment this year has been a welcome surprise but we also like the sustained uptrend in the grind segment which is more sustainable over the longer term.

   Adrian Alexander Yu

MWIDE is increasing the value of its share buyback program to Php5Bil from the initial Php3Bil approved earlier this week. In addition, the company is switching the duration for the execution to be open-ended. MWIDE started buying back Php2Bil worth of shares last October 2018, to be executed within a two-year period, because they believed that shares were grossly undervalued.

   Frances Rolfa Nicolas

House Speaker Alan Peter Cayetano announced that the House Committee on Legislative Franchise will take up the 11 pending bills seeking to renew the franchise of ABS on March 10. Mr. Cayetano noted that they are going to focus on the National Telecommunications Commission (NTC) to make sure that ABS won’t go off the air yet. Moreover, the Senate has adopted a resolution extending the validity of franchises that will expire this year. The resolution will allow NTC to issue a provisional authority for companies to continue operating while their franchise renewal is pending in Congress.

   John Martin Luciano, CFA

Preliminary data from the BSP showed that domestic liquidity (M3) grew by 11.9% y/y to Php12.8Tril in January 2020, faster than the 11.3% growth registered in December 2019. On a m/m seasonally-adjusted basis, M3 increased by 1.3%. Domestic claims grew by 11.7% in January, mainly due to the sustained growth in credit to the private sector. Likewise, net claims on the central government rose by 31.9%, faster than the 23.8% growth in December 2019. Net foreign assets (NFA) in peso terms increased by 8.7% y/y in January, from 8.9% in the previous month. The BSP’s NFA position expanded, supported by foreign exchange inflows coming mainly from overseas Filipinos’ remittances, business process outsourcing receipts. Similarly, the NFA of banks increased due to the sustained expansion in banks’ foreign assets resulting from the growth in foreign loans and deposits with other banks.