APS Daily Market Insights July 27

 Fed Holds Rate Steady. The US Fed kept its policy rates unchanged, taking note of the weakness of the US economy which only grew 0.7% last 1Q17, and benign inflation which is still below the target of 2.0%. The more dovish tone of the Fed could sustain the rally of the PSEi which broke out of its resistance of 8,000 yesterday.

 VAT on Low-Cost Housing to Worsen Backlog. The first tax reform package includes the removal of VAT exemption on low-cost housing. If passed, it would worsen the housing backlog in the Philippines which is estimated at 5.6 Mn units as of end-2016, and projected to balloon to 12.3 Bn in 2030. Property developers that offer low-cost housing are HOUSE, VLL, CLI, and FLI.

 Multinational Firms Asked to Hike Salaries. DOF asked ROHQ of multinational companies in the Philippines to increase salaries for the managerial position to offset the effect of the proposed removal of the 15% preferential tax treatment under the CTRP. Currently there are 158 ROHQs in the country, employing more than 50,000 workers with a combined $2 Bn employee wages and benefits. PTRs are part of the fiscal and non-fiscal incentives given to ROHQs to entice them to locate in the Philippines. DOF wants to remove the 15% PTR under the first package of the tax reform, which could affect the attractiveness of the Philippines as a location for ROHQs.

 PERC Sees 33% More Profit . With its shift to renewable energy from oil and gas exploration, PERC estimates its earnings to grow 33% for 2017. By our estimates, attrib. earnings could reach $ 2.4 Mn (P 117.9 Mn) this year. This translates to a BVPS of P 8.23 for PERC. At 1.2x P/BV (ave. of regional peers based on Bloomberg consensus), the price target for PERC is P 9.50 / share. We like PERC because around 85% of its earnings are now sourced from its RE portfolio, with total capacity at 106 MW. The company is also set to launch another four RE projects with total capacity of 48 MW which costs P 6.8 Bn. PERC is currently in talks with potential off-takers for the projects capacity. However, we note that our key concern on the company is the lack of liquidity.

 CLI Acquired 4.6-ha Property in Cebu. Cebu Landmasters (Buy, P 6.10) purchased a 4.6-hectare property in Bogo, Cebu for P 21.29 Mn to be developed into a socialized housing project under the Villa Casita brand. The land acquisition is in line with the company’s expansion plan in the Visayas-Mindanao region.  Federal Land JV With Japanese Giants Gets Go Signal. The Philippine Competition Commission has given its go signal for Federal Land to form a joint venture with Isetan Mitsukoshi Holdings Ltd. And Nomura Real Estate Development Co. Ltd. for the P 20 Bn Sunshine Fort Project. The project will have a commercial complex at the base of 4 high-rise residential towers targeted for completion in 2025, with a 60-40 partnership in favor of Federal Land (GTCAP, Buy on Dips, P 1,378*).