Alerts

   Justin Richmond Cheng, CFA

Nov. 16, 2020. Downgrading to HOLD. Despite DNL’s strong 3Q20 performance and the slight increase in our FV estimate, we are downgrading our rating on DNL from BUY to HOLD. We continue like DNL given its positive long-term growth prospects. The company is also clearly on a path to recovery alongside the economy. However, DNL’s share price has increased significantly, rising by 50% from its March low. Based on its current price of Php6.63/sh, the stock is already fairly valued. In fact, it is trading at par with its historical average P/E of around 24X.

   Richard Lañeda, CFA

November 16, 2020. We expect sequential growth in income to continue in 4Q20 as the recovery gains further momentum going into the holiday season. We could also see an easing in quarantine restrictions soon as the daily new cases of COVID-19 has been declining. This would further accelerate the recovery momentum. Despite our positive outlook on earnings, we are maintaining our HOLD rating on AC as it currently trading at a 12.9% premium to our fair value estimate of Php739.

   April Lynn L. Tan, CFA

Third quarter GDP fell by 11.5%. Although the decline was slower than the 16.9% drop registered in the second quarter, the improvement was slower than expected as the decline was worse than consensus forecast of -9.6% Household consumption, gross capital formation and exports remained weak, falling by 9.3%, 41.6% and 21.7% in the third quarter respectively. The decline in the third quarter was slower than the pace registered in the second quarter of -15.3% for household consumption, -53.7% for gross capital formation and -35.8% for exports. However, the quarter-on-quarter improvement was already expected as the government loosened mobility restrictions allowing most businesses to resume operations (albeit below full capacity). Gross capital formation fell sharply largely due to the lackluster construction activity. Construction fell by 43.5% in the third quarter, faster than the 31.4% decline registered in the second quarter as both the private and the public sectors pulled back on construction activities. Government expenditure continued to grow in the third quarter. However, the increase was disappointing as it was only 5.8%, much slower than the 7.0% and 21.8% growth registered in the first and second quarters of the year. Broken down according to industry, only the agriculture, forestry and fishing industry grew in the third quarter by 1.2%. Industry and services were down by 17.2% and 10.6% respectively. Broken down, the sharpest declines were registered by the accommodation and food service activities (-52.4%), construction (-39.8%), transportation and storage (-28.1%), real estate and ownership of dwellings (-22.5%) and education (-21.4%). Excluding construction, the sharp decline registered by the said industry sub-groups was expected given their sensitivity to mobility restrictions that were in place during the period. Combined, the five sub-groups accounted for around 20.6% of GDP. Net primary income from the rest of the world fell by a faster pace of 28.2% in the third quarter compared to 21.7% in the second quarter. As such, Gross National Income or GNI decreased by 13.0%, faster than the 11.5% drop of GDP. Given the disappointing third quarter results, year to date GDP contracted by 10.8%. As such, the government would have to further reduce its full year forecast as GDP would most likely contract by more than its 6% target this year.

   Richard Lañeda, CFA

We are slightly reducing our FV estimate from Php38.30 to Php38.00 due to the reduction in our earnings forecasts in the short term. The recovery is still underway and we expect easing of restriction soon given the declining number of new COVID-19 cases. Our long term view remains positive for ALI as we expect the company to return to a growth trajectory starting next year. However, given that the current market price provides little upside to our fair value estimate, we are downgrading our recommendation to a HOLD from a BUY.

   Richard Lañeda, CFA

November 09, 2020. We are reducing our FV estimate on RLC slightly from Php19.10 to Php19.00 to factor in the reduction in estimates in the short term but this was partly offset by a decline in the company’s net debt. Nevertheless, we still believe the recovery is underway and should accelerate once mobility restrictions are eased, which we believe will happen soon given the declining daily new cases of COVID-19. We maintain our BUY rating on RLC. Despite the lower FV estimate, capital appreciation potential is still 13% based on its current price of Php16.80.

   John Martin Luciano, CFA

November 09, 2020. We are downgrading our FV estimate to Php65.6/sh based on a 0.85X 2021E P/BV and maintaining our BUY rating. Although net interest margin is expected to be pressured next year as loans gradually re-price and asset quality is expected to deteriorate, we believe most of the negatives have already been priced in. We continue to like MBT as we expect it to be one of the major beneficiaries of the economic growth after the effect of pandemic eases. At its current price, the bank is only trading at 0.55X 2021E P/BV.

   Adrian Alexander Yu

November 06, 2020. Following the weaker than expected 3Q20 earnings results, we are decreasing our earnings estimates on GLO for 2020 and 2021. We reduced our revenue forecast by 4.2% and 3.7% for 2020 and 2021, respectively, after factoring in the softer performance of mobile data revenues. Likewise, we reduced our EBITDA forecast by 4.6% and 3.6% for 2020 and 2021 and our core net income forecast by 7.2% and 5.0% for 2020 and 2021, respectively. After factoring in our earnings adjustment, we reduced our FV estimate on GLO by 5.9% to Php2,250/sh from Php2,390/sh, and downgraded our recommendation on the stock to a HOLD due to valuations. Nevertheless, over the long term, we continue to like GLO because of its a) dominant position in the wireless business; b) strong growth of its fixed line business; c) resiliency of demand for data during the lockdown and COVID-19 pandemic. Its mobile wallet GCash is also currently the most popular mobile wallet in the country with 26 million customers and could someday be a significant growth driver for the company.

   Ed Martinez

November 06, 2020. In light of the reduction in our estimates for AP, we are reducing our 2020E earnings forecast by AEV by 3.2% to Php11.9Bil. Our FV estimate on AEV is slightly reduced by 0.2% to Php38.5/sh. We are maintaining our HOLD rating on AEV. We continue to like AEV given the expansion plans of its power subsidiary AP. AEV is also well positioned to participate in the government’s infrastructure projects owing to its investment in republic cement as well as its strong balance sheet and excellent track record in acquiring businesses. However, based on its current market price of Php44/sh, there is no more upside to our FV estimate.

   George Ching

November 06, 2020. In light of AP’s weaker than expected 9M20 results, we are reducing our 2020E earnings estimate by 5% to Php10.1Bil. This resulted to a slight 0.4% reduction in our FV estimate to Php33.50/sh. Despite the lower than expected results, we believe that bulk of the negatives have been priced in. AP’s share price has declined by 22% in the YTD period, underperforming the PSEI’s 17% decline. AP’s valuation has also become increasingly attractive with the stock trading at 11.2X 2021 P/E, below its 10-year historical average of 12.7X. Based on AP’s current market price of Php26.6/sh, upside to our FV estimate is at 25.3%.

   John Martin Luciano, CFA

November 5, 2020. We are revising our earnings forecasts following the stronger than expected 9M20 results. Overall, our net income forecasts for 2020 and 2021 increased by 34% and 16% to Php11.0Bil and Php10.1Bil, respectively. This was driven by higher net interest income from lower funding cost, stronger trading gains, and lower operating expenses. This was partially offset by the increase in our provisions following the bank’s 2020 guidance of 125 bps credit cost. In addition, we decided to be more conservative in our fee income forecasts. In light of the changes in our earnings, we are raising our FV estimate to Php27/sh based on 0.65X 2021E P/BV and maintaining our BUY rating. CHIB’s earnings will be hurt by the COVID-19 pandemic and the ECQ as these are expected to slow economic activity which will inevitably curtail loan demand and financial transactions. More importantly, we expect some deterioration in asset quality amidst the suspension of business operations in various locations. Nevertheless, we believe that the negatives have already been priced-in. At its current price, the bank is only trading at 0.5X 2021E P/V.