Alerts

   Richard Lañeda, CFA

MEG is allotting Php300Bil in capital expenditures over the next five years given its bullish view on Philippine economy. The property developer will be rolling out this programmes spending from 2020 to 2024 as it expands its residential, office, hotel, and retail projects. For 2019 alone, MEG is looking to spend Php65Bil for its expansion. Approximately 65% of the 5-year capex will be used for the development of residential projects and investment properties like offices, malls, and hotels. Meanwhile, the remaining 35% will be spent on land acquisitions. MEG will be using internally-generated funds to fund this expansion.

   John Martin Luciano, CFA

Foreign portfolio investment transactions for the month of May yielded net outflows of US$750Mil. Outflows were seen across all instruments such as listed securities at the PSE (-US$508Mil); Peso government securities (-US$241Mil); and other Peso debt instruments and other portfolio instruments. Meanwhile, gross inflows rose 25% y/y to Php1.2Bil which can be attributed to the lower inflation for April and the cut on the reserve requirements ratio of universal and commercial banks. However, gross outflows for the month increased faster at 54% y/y to US$2.0Bil as investors were cautious on the renewed trade tensions between the US and China.

   Andy dela Cruz

PIZZA discussed that as a guidance, it will open around five to six new Peri-Peri Charcoal Chicken stores. The company recently acquired the brand and is still learning the brand. One of the new Peri-Peri stores will be located in the soon to be finished Ayala Mall in the Manila Bay Area, while two will be located in Quezon City. The company is still negotiating two more locations inside the SM Group’s malls in Metro Manila.

   George Ching

We are upgrading our rating on NIKL from HOLD to BUY with a FV estimate of Php2.80/sh. The upgrade on our rating is mainly due to NIKL’s increasingly attractive valuation. 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 4.5% in the past 12 months, underperforming the PSEi’s 7.9% rise during the period. At its current price of Php2.10/sh, there is an upside of 33.3% to our FV estimate.

   John Martin Luciano, CFA

The Monetary Board has decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 4.50%, supported by the manageable inflation outlook which is expected to remain within the 2-4% target range for 2019 and 2020, and the firm domestic growth. A pause will also allow the central bank to asses the monetary adjustments made this year. Meanwhile, we are expecting the economic growth to recover supported by the recovery in household spending and the continued implementation of the government’s infrastructure spending program.

   George Ching

We have a BUY rating on MPI with a FV estimate of Php7.98/sh. MPI’s share price has declined by 1.7% since the beginning of this year, underperforming the PSEi which has risen by 7.8% during the same period. We believe that the underperformance was mainly due to regulatory concerns surrounding its water and toll roads businesses. However, we believe that these concerns are overblown. Maynilad has already won its second arbitration case against the government. Meanwhile, MPTC has already secured the first tranche of toll hike this year for the NLEX and SCTEX, and is awaiting approval for the toll hike application for its other toll roads. Moreover, valuations are already very attractive. Based on MPI’s current market price of Php4.56/sh, the company is trading at a 49% discount to its NAV. The toll road business and Maynilad are nearly worthless as investors are only paying for MPI’s 45.5% stake in Meralco (representing 96% of MPI’s market value). MPI is now trading at only 9.6X 2019E P/E, a discount relative to the 14.6X average P/E of its industry peers. Based on its current market price, upside to our FV estimate of Php7.98/sh is significant at 75%.

   George Ching

According to news sources, MPI is preparing for the sale (could be partial or the entire stake) of the hospital business that could value it at more than US$2Bil. The start of the sale process is expected next month and could be completed late 2019 or early 2020. Assuming the hospital business would be valued US$2Bil(implies a 2019E P/E multiple of 76X), this would be significantly higher than the Php25Bil price tag it fetched when MPI sold a 40% stake in the business to GIC of Singapore in 2014. This would also be higher than COL valuation (Php30Bil), consensus estimate (Php50Bil) and MPI’s internal valuation (Php75Bil). We believe that if MPI would be able to sell a portion (or the entire stake) of the hospital business close to US$2Bil, this would help unlock MPI’s value and increase MPI’s FV estimate by 17.5% to Php9.38/sh. Based on our estimates (even assuming the sale of the entire stake), the impact of the sale of the of the hospital business on earnings is limited (5.5% of 2019E earnings), but the amount raised from the sale should be able to fund MPI’s capex in the toll road business for the next 5 years (estimated at Php100Bil).

   Charles William Ang, CFA

The Philippine Competition Commission has approved EW’s purchase of Philippine Bank of Communications’ car loan portfolio as the agency no substantial lessening of competition in the auto loan market. The transaction could potentially add approximately 4% of EW’s 2019 earnings. We have a BUY rating on EW with an FV estimate of Php16.70/sh.However, we remain cautious over the sustainability of the bank’s public school teacher salary loans given the change in regulatory rules, we believe the downside risks have already been priced in.

   Andy dela Cruz

The country’s overall balance of payments (BOP) position in May 2019 reached a surplus of US$928Mil, a reversal of the US$583Mil deficit recorded in the same month last year. Inflows came mainly from the National Government’s net foreign currency deposits and the BSP’s foreign exchange operations and income from its investments abroad. This brought the BOP position for the first five months of the year to a surplus of US$5.19Bil, a turnaround from the US$2.08Bil deficit during the same period last year. The surplus may be attributed partly to remittance inflows from overseas Filipinos during the first four months of the year and net inflows of foreign portfolio, foreign direct and other investments in the first quarter of 2019.

   George Ching

As a result of our lower coal ASP assumption, we are reducing our 2019E earnings forecast for SCC by 11.7% to Php10.7Bil, and our 2020E earnings forecast by 16.4% to Php11.3Bil. Meanwhile, we reduced our FV estimate for SCC by 9.1% to Php 30.16/sh. Despite the reduction in our earnings and FV estimates, we reiterate our BUY recommendation on SCC. 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 27.3% in the past 12 months, underperforming the PSEi’s 6.85% rise. The stock is also the cheapest among all power companies, trading at only 8.7X 2019E P/E based on our revised earnings forecast and capital appreciation potential remains significant at 38.7%, also based on our revised fair value estimate.