Alerts

   John Martin Luciano, CFA

November 5, 2020. We are revising our earnings forecasts upwards following the stronger than expected 9M20 results. Our 2020 net income increased by 52% on higher net interest income and non-interest income, partly offset by higher provisions. Meanwhile, our 2021 earnings increased by 27% largely on higher net interest income. The increases in our net interest income and non-interest income are driven by lower interest cost and higher trading gains, respectively. In light of the changes in our earnings forecasts, we are raising our FV estimate to Php60/ sh based on a 0.75X 2021E P/BV (adjusted for goodwill). However, we are maintaining our HOLD rating as upside to our target remains limited. We expect earnings to be hurt by the COVID-19 pandemic and 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 given that its consumer loans account for higher portion of its total loans (~32%) compared to most banks.

   Justin Richmond Cheng, CFA

November 5, 2020. We are maintaining our BUY rating on CNPF with a FV estimate of Php20.4/sh. CNPF remains well positioned to capitalize on the growth opportunities in the consumer sector, given its strong brand equity, successful new product launches, and proven track record of growing revenues and profits. It is also one of the most resilient companies amidst the COVID-19 pandemic due to its basic, shelf-stable food products, which have enjoyed resilient demand despite the more challenging economic backdrop.

   George Ching

November 5, 2020. After factoring in an increase in our earnings contribution from MER, offset by higher MPI’s higher than expected interest expense, we are reducing our 2020E earnings forecast for MPI by 7.5% to Php10.9Bil. Meanwhile, we are raising our FV estimate for MPI by 2% to Php7.05/sh due to the increase in FV estimate for MER. We are maintaining our BUY rating on MPI. While near term sentiment on MPI will most likely remain negative due to the uncertainties on Maynilad, we believe that concerns are overblown given MPI’s depressed valuation. Based on MPI’s current market price of Php4/sh, the company is trading at a 49% discount to its NAV which implies that Maynilad and its toll road business are already worthless. MPI is trading at par to its 46% stake in Meralco, and 20% stake in the hospital business (equivalent to 100% of MPI’s current market capitalization). Even if we assumed the worst-case scenario where Maynilad would become worthless, capital appreciation potential based on MPI’s current price is still 62% to Php6.50/sh.

   George Ching

November 5, 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%.

   George Ching

November 5, 2020. We are downgrading our rating on ICT from BUY to HOLD. We continue like ICT given the success of ICT’s greenfield ports in Australia, Congo, and Papua New Guinea as these ports will be the key earnings growth driver for the company in the next few years. Despite the headwinds brought about by the COVID-19 pandemic on 2020 earnings, we believe that the company’s earnings is set to rebound next year following the recovery in global trade and the company’s cost reduction initiatives. However, following the stock’s rally in the past six months, ICT’s share price is now only down by 10.2% YTD, outperforming the PSEi’s 17.3% decline during the period. Based on its current market price of Php115.5/sh, upside to our FV estimate is limited at 0.8%.

   John Martin Luciano, CFA

October 28, 2020. In light of the minimal change in our forecasts, we are maintaining our BUY rating on BDO with a FV estimate of Php129/sh based on a 1.35X 2021E P/BV. Although net interest margin is expected to be pressured next year as loans gradually re-price amid the low interest rate environment, we believe most of the negatives have already been priced in. We continue to like BDO as we expect it to be one of the major beneficiaries of the economic growth after the effect of pandemic eases.

   John Martin Luciano, CFA

October 30, 2020. We currently have a BUY rating on CHIB with a FV estimate of Php26/ sh based on 0.65X 2021E P/BV. 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.

   George Ching

October 27, 2020. As a result of management better than expected outlook for sales volume recovery, we are increasing our sales volume forecast by 1.6%, leading to a 3.2% increase in our 2020E earnings estimate to Php19.3Bil. We are also raising our FV estimate by 3.4% to Php275.7/sh in light with the increase in our earnings estimates. We are maintaining our HOLD rating on MER. Although MER’s long term outlook remains positive, the company faces numerous risks in the short term. Aside from weaker demand brought about by the COVID19 outbreak, MER faces a looming distribution tariff cut in the next regulatory period, the magnitude of which could be much steeper than expected given that the SC last year ordered the ERC to review MER’s distribution tariff which it believes to be too high. Based on its current price of Php298/sh, there is no more upside to our FV estimate.

   George Ching

As a result of management better than expected outlook for sales volume recovery, we are increasing our sales volume forecast by 1.6%, leading to a 3.2% increase in our 2020E earnings estimate to Php19.3Bil. We are also raising our FV estimate by 3.4% to Php275.7/sh in light with the increase in our earnings estimates. We are maintaining our HOLD rating on MER. Although MER’s long term outlook remains positive, the company faces numerous risks in the short term. Aside from weaker demand brought about by the COVID19 outbreak, MER faces a looming distribution tariff cut in the next regulatory period, the magnitude of which could be much steeper than expected given that the SC last year ordered the ERC to review MER’s distribution tariff which it believes to be too high. Based on its current price of Php298/sh, there is no more upside to our FV estimate.

   Justin Richmond Cheng, CFA

October 26, 2020. Downgrading to HOLD amid limited capital appreciation potential and downside risks. Since we last upgraded our recommendation on URC to a BUY, its share price has risen by 15%. As such, capital appreciation potential to our FV estimate of Php147/sh is limited at 5%. Furthermore, weak consumer sentiment and market spending in 3Q is a key risk that could persist going into 4Q20. Despite the reopening of the economy, the trajectory of consumer demand for URC’s products was relatively flat across July to September. Furthermore, management said there was still no significant pick-up in demand in October. Finally, both government (social amelioration program) and corporate assistance (advanced 13th month pay) were mostly given out in 2Q. Hence, there is a risk that we could see weaker Christmas spending this 4Q20 amid the ongoing pandemic and the absence of social gatherings. Considering these factors, we are downgrading our recommendation on URC to a HOLD.