Alerts

   George Ching

We have a BUY rating on SCC with a FV estimate of Php30.16/ sh. While near term sentiment may not improve in the near term due to the weakness in coal price, we believe that much of the negative news is already priced-in, as SCC’s share price has declined by 28.2% in the past 12 months, underperforming the PSEi’s 5.2% rise. The stock is also the cheapest among all power companies, trading at only 9.2X 2019E P/E based on our revised earnings forecast and capital appreciation potential remains significant at 31.7%, also based on our revised fair value estimate.

   April Lynn L. Tan, CFA

Just in! GDP for the 2nd quarter 2019 is at 5.5%. This is lower than the 6.2% from last year. The slower GDP growth is mainly due to the delay in the passage of the 2019 budget for government spending. BSP is expected to cut interest rates following the inflation and GDP results. Notwithstanding the disappointing GDP growth numbers, focus should be on improving outlook for the second half of the year. Although government spending growth was disappointing in the first half, the government finally passed the 2019 budget last April which should pave the way for the rebound of government spending growth in the second half of the year. Meanwhile, inflation continues to go down. Coupled with the weak first half GDP numbers, the continuous decline in inflation also gives the BSP more reason to reduce interest rates and banks’ reserve requirement ratio. Lower inflation should also help boost consumer spending.

   George Ching

Maynilad and MWSS has been ordered by the Supreme Court (SC) to jointly and severally pay Php922 Million in fines for non-compliance of the Clean Water Act, which requires MWSS and its concessionaires to provide wastewater treatment facilities and to connect sewage lines in all establishments. Current sewerage coverage of Maynilad is only at 26% of its concession area, and 100% will only be attained at the end of the concession in 2036. Assuming that Maynilad will be solely liable, the Php922 Million represents 11.8% of Maynilad’s 2019E net income, and could potentially reduce MPI’s earnings by 2%. We are maintaining a BUY rating on MPI and FV estimate of Php8.19/sh.

   Frances Rolfa Nicolas

   Frances Rolfa Nicolas

We are upgrading our rating on EAGLE from HOLD to BUY with FV estimate of Php17.3/sh. The upgrade in our rating is mainly due to EAGLE’s increasingly attractive valuation. EAGLE’s share price has already declined by 10.1% over the last month but its fundamentals remain intact. The company remains well positioned to benefit from the growing construction industry with its superior margins and ongoing capacity expansions. At its current price of Php14.0/sh, upside to our FV estimate is at 23.8%.

   George Ching

We are reiterating our BUY recommendation on NIKL with a FV estimate of Php3.0/sh. Investor sentiment on NIKL has been weak as the relaxation of Indonesia’s ore export ban continue to put downward pressure on nickel ore negotiated contract prices and LME prices. However, we believe that these factors have largely been priced-in. NIKL’s share price has declined by 2.3% in the past 12 months, underperforming the PSEi’s 0.6% decline during the period. At its current price of Php2.50/sh, there is an upside of 20% to our FV estimate.

   April Lynn L. Tan, CFA

Headline inflation dropped to 2.4% y/y in July 2019 from 2.7% in June, in line with consensus expectations. Core inflation, which excludes selected food and energy items, also fell to 3.2% in July from 3.3% in June. For the first seven months of the year, average headline inflation was 3.3%, well within the BSP’s 2% to 4% target range. Inflation should remain benign for the rest of the year given the rice tariffication law (which was largely responsible for lower rice prices), lower oil prices, the stronger peso and the high base last year. Lower inflation should give the BSP more room to cut interest rates and banks’ reserve requirement ratio (RRR) which should help boost economic growth.

   Richard Lañeda, CFA

RLC’s Board of Directors approved the declaration of a property dividend consisting of up to 100 Million common shares of Altus San Nicolas Corp. (ASNC) with a par value of Php1.00 to all eligible shareholders as of record date August 15, 2019. This shall be paid at a ratio of 1 share of ASNC for every 51.9384 shares of RLC. We believe ASNC (to be renamed Altus Property Ventures, Inc) will be used for RLC’s REIT listing when they decide to do one. We currently have a BUY rating with a FV estimate of Php26.78.

   Andy dela Cruz

The Department of Finance is targeting to have the tax reform on alcohol and electronic cigarettes passed before 2021. According to Finance Secretary Dominguez, they are pushing the Congress to approve this tax reform within the next 15 to 18 months. Mr. Dominguez added that this would be the most productive time given that everyone would start focusing on something else when the election season starts.

   Adrian Alexander Yu

Despite GLO’s flattish growth in the 2nd quarter of 2019, core profits for the 1st half were still up 18%, ahead of COL and consensus estimates. Revenue growth remained strong, but core profits fell due to higher depreciation expenses and non-operating charges booked in the 2nd qtr. More details after the analyst’s briefing.