Alerts

   Richard Lañeda, CFA

RAISING FV ESTIMATES OF AGI ON HIGHER MEG VALUE Earlier this week, we raised our fair value estimate for MEG to Php7.20 after factoring in recently completed buildings. Also, valuations increased for MEG’s landbank to better reflect market prices of its lang holdings. Hence, we are raising our FV on AGI from Php19.29 to Php21.45 and reiterate a BUY rating as we believe that shares of the company are still undervalued.

   Richard Lañeda, CFA

Parent company FDC purchased 1.27 Billion shares of FLI at Php1.75 per share from Invesco Hong Kong yesterday. This increases FDC’s FLI ownership from 59.58% to 64.82% and decreases the free float level to 33.8%. The Filinvest Group sends a clear message that they view FLI shares as very undervalued given the size of the transaction. We share the sentiment regarding FLI shares as the estimated value of its investment properties alone in more than the current capitalization of FLI.

   Charles William Ang, CFA

BDO, BPI, MBT, RCB, and Land Bank are exploring a two-pronged approach to recoup their US$412Mil exposure to Hanjin. US$149Mil of their exposure has been converted into a 20% stake in Hanjin Korea. According to RCBC Head of Strategic Initiatives John Thomas G. Deveras, the shares of the Philippine banks will be unlocked by December and banks can hopefully sell the shares to recover the US$149Mil. On the other hand, the remaining US$263Mil exposure is tied to the shipyard in Subic and banks are evaluating buyout offers from foreign shipbuilders.

   Andy dela Cruz

S&P Global Ratings has once again cut its Philippine economic growth forecast taking into account the subdued state of spending given the delay of the passage of the 2019 budget. S&P also factored in the larger-than-expected impact of the Sino-US trade disputes on electronics, which accounts for around half of Philippine merchandise exports. The global debt watcher had cut its 2019 growth forecast to 6.1% from 6.4%, while also slashing its 2020 forecast to 6.4% from previously 6.5%.

   Andy dela Cruz

In a briefing, President Spokesperson Salvador Panelo said that the government is studying its options on control of water services. Meanwhile, the House Committee on Metro Manila Development recommended to revisit the concession agreements with Maynilad and Manila Water and introduce amendments, particularly on the sanctions that can be imposed upon the concessionaires when they fail to sufficiently supply water. Another recommendation by the House Committee is for the government to break the duopoly in water supply service in Metro Manila and welcome more players to increase competition.

   Andy dela Cruz

The government recorded a Php2.6Bil budget surplus in May 2019, which is a reversal from the Php32.9Bil deficit in the same month last year. This brought the fiscal deficit for the first five months of 2019 to Php809Mil, much narrower than the Php138.7Bil budget gap during the comparable period in 2018. The contraction was amid a faster growth in revenues compared to public expenditures as the approval for the 2019 budget was delayed. In fact, government revenues grew 22.5% y/y in May to Php317.2Bil, while spending only grew 7.8% y/y to Php314.7Bil.

   Richard Lañeda, CFA

We are raising our fair value estimate on MEG to account their aggressive expansion on leasable space in both the retail and office segment. Furthermore, we are also accounting the strong demand for properties in general and the low interest rates which will lead to rising demand for land in and outside Metro Manila that will then lead to land prices to increase to its all-time highs. Our new FV estimate for MEG is Php7.20 while reiterating a BUY rating.

   Richard Lañeda, CFA

We are upgrading our recommendation on FLI from HOLD to BUY following the increase on our fair value estimate. We believe FLI shares are significantly undervalued as it is trading at a 28% discount to our fair value estimate and 61% discount to our NAV estimate. The estimate value of its investment properties alone is more than the current market capitalization of FLI. If we include net debt and the DCF value of its housing projects, the total value comes out to Php1.91 per share, still higher than the current market price of Php1.73. Moreover, investors would be getting FLI’s stakes in Alabang and GAIA, and landbank for free. At its current price of FLI, it is trading at 6.3X P/E, which we believe is unwarranted given that FLI deserves to be rerated now that it gets 45% of its income from the leasing business which has strong earnings visibility. We are also adding FLI to our COLing the Shots stock pick list given its strong earnings growth prospect driven by its expanding leasing portfolio and cheap valuations.

   Adrian Alexander Yu

EEI has recorded a growth of 29.7% on their 1st quarter earnings, outperforming our estimates. The growth was attributable to the government addressing a multitude of right of way issues for ongoing projects. We expect that EEI will be awarded with the construction contract as well after being awarded the contract to design and construct the Metro Manila Subway System. With this, we are increasing our estimates and upgrading our rating to a BUY with an FV estimate of Php13.30/sh.

   Adrian Alexander Yu

In light of EEI’s stronger than expected 1Q19 results and our rosy outlook on the domestic construction sector, we are increasing our revenue forecast by 15.5% and 14.4% for 2019 and 2020 respectively. Similarly, we are increasing our 2019 and 2020 gross profit forecast by 24.3% and by 23.1% respectively after factoring the higher revenue assumptions and higher GPM. The increase in our net income forecast was tempered though to 5.5% and 3.6% for 2019 and 2020, as we reduced our forecasts on share in net income from associates to factor in EEI’s plans to wind down its business in Saudi Arabia. After factoring in our earnings adjustments, we increased our fair value estimate by 20.9% to Php13.3/sh from Php11.00/sh. We are also upgrading our recommendation on EEI to BUY from HOLD. At its current price of Php10.36/sh, EEI is only trading at 9.3X 2019E P/E, while capital appreciation potential is compelling at 28.7%.