Alerts

   George Ching

A notice of service obligation failure was issued to Maynilad by the Metropolitan Waterworks and Sewerage Regulatory Office (MWSS) for not meeting requirements under its concession agreement. MWSS said that there were water service interruptions and low water pressure in large portions of the west zone area which lasted more than 15 days. But, Maynilad argued that the notice lacked basis as the service interruption did not last for 15 days and only affected 12% of their customer base. We believe the underperformance was mainly due to overblown regulatory concerns. Maynilad has also already won its 2nd arbitration case against the gov’t. Hence, we are maintaining our BUY rating with a FV estimate of 7.83/sh.

   George Ching

SMC is planning to submit an unsolicited proposal to build a new water source that will deliver up to 3,800 MLD. Management said that the project would cost around Php35Bil and is expected to be completed within five years. The company is planning to sell the water at only Php5 per cubic meter, much cheaper compared to its Php8.5 per cubic meter bulk water project in Bulacan.

   Frances Rolfa Nicolas

The Cement Manufacturers Association of the Philippines (CeMAP) is pushing for higher definitive safeguard duty on cement imports. Recall that the DTI imposed a preliminary safeguard duty of Php210/MT of cement imports for 200 days last February. Despite having the safeguard duty in effect, cement imports still rose 64% y/y to 1.74Mil tons in 1Q19. CeMAP Executive Director Cirilo Pestaño said that while capacity investments are needed to meet growing demand, the surge in imports and low prices are making investment returns look unappealing.

   Charles William Ang, CFA

UBP is planning to issue Php3.0Bil worth of fixed-rate bonds, with oversubscription option, to raise fresh funds for expansion and lengthen the funding maturity profile. The bonds will have tenor of 3 years and a coupon rate of 6% per annum to be paid quarterly until May 2022. This forms part of the bank’s Php20Bil bond or commercial paper program announced last year.

   John Martin Luciano, CFA

The balance of payments (BOP) position delivered a surplus in April which is a reversal compared from last year’s deficit. Inflows mostly came from BSP’s foreign exchange operations, income from investments abroad and the national government’s net foreign currency deposits, which was offset by the government’s payments on obligations.

   Charles William Ang, CFA

April’s vehicle sales recorded a flat growth as passenger car sales decline 22.7%, but this was partly offset by commercial vehicle sales growing 15.7%. Car sales in April brought the year-to-date figure to 111,187 units, slightly below last year’s 111,620 units. Toyota Motor Philippines Corp. remained the market leader, followed by Mitsubishi Philippines Corp., then Nissan Philippines Inc.

   John Martin Luciano, CFA

The BSP has announced its reduction in the reserve requirement ratio (RRR) to inject more liquidity in the financial system in the middle of improving inflation but slow-moving economic growth. The cut is at 2%, making the RRR stand at 16% after implementing its 3 phases. The 1st 1% cut will be effective on May 31, another 0.5% on June 28, and 0.5% on July 26. We are reiterating our positive outlook on the bank as we believe this will benefit them. The RRR cut will reduce the banks’ funding costs while increasing their net interest margin. This will improve their trading gains and fees.

   Richard Lañeda, CFA

MEG’s upscale residential project in Taguig, Albany Yorkshire Villa, will offer 64 suites with two and three-bedroom units sized from 121 to 133 sqm, respectively. It will also offer four-bedroom units. The project is expected to be finished by 2023 and is estimated to register Php3 Billion in sales.

   George Ching

We have a HOLD rating on JGS with a FV estimate of Php52.1/sh. We like JGS as it is well positioned to capitalize on the favorable growth outlook of the Philippine economy given the market leadership position of its operating subsidiaries, the parent company’s strong balance sheet and the excellent track record of its management team. However, based on its current market price of Php59.50/sh, there is no more upside to our FV estimate.

   George Ching

Due to the reduction in our earnings forecast for DMCI Homes, we are reducing our earnings forecast for DMC by 8.2% to Php13.8Bil for 2019E, and by 7.9% to Php15.9Bil for 2020E. We are also reducing our FV estimate on DMC by 5.7% to Php10.7/sh. We are reiterating our HOLD rating on DMC. We like DMC as it is poised to benefit from its investment in SCC and its construction business will be the key beneficiary of the government’s rising infrastructure spending. However, valuations are unattractive. At DMC’s current market price of Php9.86/sh, upside to our FV estimate is limited at 8.5%.