Alerts

   George Ching

ICT announced that it has already met all required regulatory approvals for the acquisition of 100% of Libra Terminal Rio S.A.(Libra Rio). Libra Rio holds the concession rights to operate and manage the container terminal Terminal de Conteineres 1 (T1Rio) in the port of Rio de Janerio City in Brazil. The concession of T1Rio began in 1998 and will last until 2048. In 2018, T1Rio registered throughput of 135,000 TEUs and has an estimated capacity of 530,000 TEUs. Thte total amount of consideration for the acquisition is at R$740Mil, or US$181Mil. TIRio’s 2018 output represents 1.39% of ICT’s volume while its capacity represents 5.44% of its volume. We are maintaining our HOLD rating on ICT with a FV estimate of Php125.7sh. With the exception of its port in Argentina, we believe the success of ICT’s greenfield ports (Australia, Congo, Papua New Guinea and Colombia) will be the key earnings growth driver for the company in the next few years as these new ports will have a combined capacity of 3Mil TEU, equivalent to 30% of ICT’s total volume in 2018.

   George Ching

Maynilad’s loans amounting to Php42Bil could be called by the banks as a result of MWSS cancelling the 15 year extension of its concession agreement. DMCI Holdings Chairman Isidro Consunji said that Maynilad is currently suspending all its capex on the company pending resolution of issues involving its concession contract. It is still not clear how Maynilad will be affected by this recent development since the government has not yet disclosed how it will compensate Maynilad for its accumulated investments (opening cash position) or if it will even allow the company to recover its investments. Maynilad’s current opening cash position amounts to Php86Bil while total debt stands at Php42bil. Assuming that the government compensates Maynilad on its opening cash position, then this would be more than enough to settle all of Maynilad’s outstanding loans. On the other hand, assuming that the Maynilad will not be compensated by the government, then Maynilad will be bankrupt. However, MPI’s loss will be limited to the size of its investment in the subsidiary. Therefore, the drop in our FV estimate for MPI is limited to 16.3% from Php9.37 to Php7.84/sh. We reiterate our BUY rating on MPI with a FV estimate of Php9.37/sh. While near term sentiment on MPI will most likely remain negative due to the uncertainties on Maynilad, we believe that concerns are overblown given MPI’s depressed valuation.

   Frances Rolfa Nicolas

ABS has filed a complaint at a US federal court in the southern district of Texas against a certain Anthony Brown and 1700 Cuts Technology for alleged content piracy and trademark infringement. ABS noted that Mr. Brown and 1700 Cuts Technology sold illegal set-top boxes that allowed buyers to watch ABS’ live programs without paying fees. The company is seeking over US$4Mil of damages.

   Frances Rolfa Nicolas

Cebu Governor Gwendolyn Garcia has terminated the Cebu government’s contract with MWC over alleged breaches in its joint venture agreement (Cebu Water). Ms Garcia said that MWC failed to improve the distribution of water in the municipality, which is one of the key provisions in the said JV agreement. Nevertheless, the company will continue to supply 35 MLD of water to Metro Cebu while the agreement is being reviewed. Note that Cebu Water accounts for just ~1% of MWC’s consolidated earnings. MWC is currently under review.

   Charles William Ang, CFA

We are downgrading our rating on GTCAP to a HOLD on the back of the increased uncertainties from the water concessionaires. Recall that MWSS recently announced that it has revoked the 2009 board resolution which extended Maynilad’s and MWC’s concession period from 2022 to 2037. This puts into question the ability of the concessionaires to recover their investments. While GTCAP does not have a direct ownership in Maynilad nor Manila Water, it does have a 15.55% stake in MPI. This accounts for 13% of GTCAP’s gross asset value and 18% of its net asset value (NAV). Note that MPI’s share price has dropped significantly since the issue first surfaced earlier this month, falling by 39% over the last 7 trading days. Over the same period, GTCAP’s share price has stayed relatively flat, falling by just 1%. While we are retaining our FV estimate on GTCAP of Php1055/sh given the fluidity of the issue, we are already cutting our buy below price from Php879/sh (20% upside potential to our current FV estimate) to Php772/sh. This price level already provides a 20% upside potential to our GTCAP FV estimate if MPI were to be valued at Php2.69 (yesterday’s closing price) instead of our current FV estimate for MPI of Php9.37/sh

   Justin Richmond Cheng, CFA

Korean conglomerate Lotte, currently with a 42.2% stake in Pepsi-Cola Products Philippines Inc. (PIP), announced its plan to acquire the remaining 57.78% of PIP’s total outstanding capital stock, equivalent to 2.13B common shares, through a tender offer. At Php1.95/sh, this is a 39.3% premium compared to the stock’s last traded price of Php1.40/sh. Should all shareholders accept this offer, the equity deal would amount to Php4.2Bil. The tender offer will begin at 9:00am today and end at 5:00pm on January 15, 2020. Should the acceptance of the tender offer cause the company’s public ownership to shrink below 10%, which is the current minimum public float in the Philippines, the PSE will automatically suspended trading of the company’s shares for six months. If the company is still unable to comply with the requirement after said period, then PIP will be delisted and its common shares will no longer be traded in the PSE. (Source: Bworldonline)

   Frances Rolfa Nicolas

MWC announced that it would no longer pursue the Php7.4Bil indemnification that the Singapore Permanent Court of Arbitration granted last month. Moreover, the company agreed not to impose the Php2.0 per cubic meter price hike in 2020. Furthermore, according to news, the Metropolitan Waterworks and Sewerage System (MWSS) has revoked its decision to extend the concession deals of the water firms. Recall that in 2009, the government extended the concession agreement of MWC by 15 years from its original expiration of 2022 to 2037. It remains to be seen how MWC’s decision will affect the government’s other concerns on the water concession agreement, such as the corporate income tax issue, concession duration and other concession related items. As such, we await for further details to determine the impact of these developments on the company. Note that the Manila Concession (East Zone) accounts for ~90% of MWC’s earnings. We currently have a HOLD rating and FV estimate of Php18.0/sh on MWC.

   George Ching

According to news sources, both Maynilad and Manila Water said they will no longer demand payment from the government from their arbitral tribunal win. For Maynilad, the arbitral tribunal win amounts to Php3.4Bil and we estimate this to represent only 3% of Maynilad’s NAV. It remains to be seen how Maynilad’s decision to forgo this arbitral tribunal win will affect government’s other concerns on the water concession agreement, such as the corporate income tax issue, concession duration and other concession related items. MPI currently owns 52.8% of Maynilad, and Maynilad accounts for 26% of MPI’s 2019E earnings and 18% of MPI’s NAV. Assuming a bear case scenario where MPI would be forced to give up the Maynilad concession without any form of indemnification, our 2020E earnings for MPI will be reduced by 25% to Php13.6Bil while our FV estimate for MPI will decline by 16.3% to Php7.84/sh. In light of the 16% decline in MPI’s share price since December 3, we believe that any softening in the stance by the government on Maynilad following this development will be viewed positively by the market. We reiterate our BUY rating on MPI with a FV estimate of Php9.37/sh. While near term sentiment on MPI will most likely remain negative due to the uncertainties on Maynilad, we believe that concerns are overblown given MPI’s depressed valuation.

   Richard Lañeda, CFA

Robinsons Land and Double Dragon has formed a joint venture to acquire and develop a 10,032sqm commercial lot along E. Rodriguez Jr. Avenue in Libis, Quezon City, adjacent to RLC’s Bridgetown development. The plans for the 1-ha. lot include the construction of Robinsons DoubleDragon Square where the land and building (which will consist of both office and retail components) will be jointly owned by RLC and DD. The property will also include a Hotel 101, which will be solely developed by DD. The property will be part of RLC’s Bridgtowne township project and will serve to complement Bridgetowne’s current offerings

   Richard Lañeda, CFA

Robinsons Land and Double Dragon has formed a joint venture to acquire and develop a 10,032sqm commercial lot along E. Rodriguez Jr. Avenue in Libis, Quezon City, adjacent to RLC’s Bridgetown development. The plans for the 1-ha. lot include the construction of Robinsons DoubleDragon Square where the land and building (which will consist of both office and retail components) will be jointly owned by RLC and DD. The property will also include a Hotel 101, which will be solely developed by DD. The property will be part of RLC’s Bridgtowne township project and will serve to complement Bridgetowne’s current offerings