Papa Securities Corp. (Morning Huddle - Daily News) - August 7, 2017

August 7, 2017   Morning Huddle Daily Summary

 

US Tracker US stocks rise on strong jobs data. DOW 22,092.81 +66.71 +0.30% EPHE 36.31 +0.23 +0.64% PHI 32.73 +0.45 +1.39% Peso 50.16 TEL Par 1,642 vs 1,630 TEL   Economic News July headline inflation was at 2.8%, slightly faster than 2.7% in June. This is in line with market expectation of 2.6%-3.0% for the month. YTD average is at 3.1%, in line with the BSP’s 2%-4% target range. The higher inflation is attributed to the PNR fare increase, increase in electricity rates due to higher generation charges, and higher rental rates for housing. Food prices eased on ample supply.     Corporate News NIKL books PhP1.5bn earnings in 1H17. Despite being a turnaround from just PhP24mn last year, this is slightly below consensus, accouting for 46% of the full year estimate. NIKL sold 4.4% more NIKL ore in 1H17 at an ASP of US$4.4/lb, 12.2% higher YoY. A stronger dollar (+6.8%) helped boost earnings as well. Last 6.20.   MPI 1H17 core net income grew to Php7.8bn (+17.4% YoY), above our full-year estimate of Php14.2b (54.9%) and consensus estimate of Php13.4bn (58.1%). In 2Q17 alone, core net income grew to Php4.6bn (+49.0% YoY) driven by robust traffic growth on all managed toll roads, expanded power portfolio through increased investment in Beacon Electric, and continuing growth in the Hospital Group. Meanwhile, better-than-expected operations of the logistics and other operating segments drove the outperformance in this quarter. MPI moved the IPO of the Hospital Group from 2018 to 2019 as they look for various options to fund its expansion. MPI also submitted an unsolicited proposal to build a 4.6-kilometer expressway connecting Cavitex to Sangley Point in Cavite City. We have a BUY recommendation on MPI with a 12-month TP of 8.10 for a potential upside of 21.0%. Last 6.69.

APS Daily Market Insights August 7

 Ayala’s IMI Revenues Up 22%. IMI (Buy, P 15.10*) recorded 22% increase in 1H2017 revenues to $ 501 Mn, mainly driven by robust international operations. Revenues from Europe and Mexico grew by 12% on the back of ongoing capacity expansions and new programs. IMI’s recent acquisitions Via Optronics GmbH (VIA) and Surface Technology International, Ltd. (STI Ltd.) delivered $73 Mn, accounting for 14% of the total 1H2017 revenues. We reiterate our positive outlook for IMI amid its recent won businesses, with aggregate value of $ 475 Mn, in Bulgaria, Czech Republic, China and Philippines. Full year contribution of its recent acquisitions and expansions will drive higher earnings growth this year.

 MPI Core Income Rises to P7.8 Bn. MPI reported 17% increase in its core net income for 1H2017, amounting to P7.8 Bn. The increase in the core net income of MPI was mainly attributed to its acquisition of the remaining 25% in Beacon Electric amounting to P21.8 Bn, along with the strong volume growth of its tollroads and hospital segments. In addition, the power, tollroads, water, and hospital segment of MPI contributed P5.3 Bn, P2.1 Bn, P1.8 Bn, and P0.93 Bn respectively.

APS Daily Market Insights August 4

 Senators Still Undecided on Tax Reform. Yesterday, the ways and means committee had a meeting to tackle the Tax Reform Acceleration and Inclusion Bill. However, the team did not reach any decision according to committee chairman Juan Edgardo Angara. Discussions in the meeting included the proposed taxes on petroleum, sweet beverages, and ways to cushion the impact to the poor. The proposed tax on the sugar sweetened beverages poses a risk for consumer stocks like URC, LTG, JFC, and PIP as it will definitely affect the margins of these companies when the additional tax measures are passed.

 Logistics Faults to Surface in Shift to E-commerce. With Singapore taking over the chairmanship of the ASEAN next year, plans to focus on e-commerce initiative to improve regional trade, and the possibility of exposing infrastructure and technology gaps in the Philippines arises. According to PSBC chairman Loh Chin Hua, the Philippines are lagging in terms of infrastructure and technology which are essential factors for the success of the logistics industry; this poses a threat for logistic companies in the Philippines such as 2GO, LBC, and CLC which is to conduct its IPO listing on August 8. However, the growing e-commerce trend is also an opportunity for SSI which has the largest brand portfolio among retail companies.

EDC Tender Offer at P7.25/share Materials

BPI Trade Buy Recommendation

Papa Securities Corp. (Morning Huddle - Daily News) - August 4, 2017

August 4, 2017   Morning Huddle Daily Summary

 

US Tracker US stocks end flat after an intensifying probe on Russian involvement in US elections. DOW 22,026.10 +9.86 +0.04% EPHE 36.08 +0.02 +0.06% PHI 32.28 -0.11 -0.34% Peso 50.27 TEL Par 1,623 vs 1,610 TEL   Corporate News Philippines Renewable Energy Holdings Corp. (PREHC) is acquiring 23.5%-31.7% of EDC’s outstanding voting shares at 7.25/sh (22% premium to market price and 7.6% to PAPA’s fair value). FGEN will sell 10.6% of its existing stake in EDC, while the remaining 21.1% will be sourced from public ownership through a tender offer. In the event that all minority shareholders choose to sell their shares, the scale back provision will apply, where the number of tendered shares will be pro rated. If PREHC is able to acquire the full 8.9bn common shares during the tender offer, FGEN’s proceeds could range from PhP11.4bn-14.4bn, depending on the amount of shares the public minority is willing to sell.   MER reported core earnings of PhP5.5bn in 2Q17, 4.8% lower YoY. This brings 1H17 core profit to PhP10.1bn (-2.6% YoY), in line with both PAPA (53%) and consensus (53%) estimates. Lower income was recorded as revenue growth (+9.5%) failed to outpace greater expenses (+11.1%). Volume growth for the first half came in at 3.1%, while distribution revenue grew by 2.9%. We have a BUY rating on MER with TP at PhP319.00/sh. Last MER 279.60.     PX records 3.4% decline in 1H17 core profit. Core income during the period came in at PhP748mn, below consensus estimate (40%). In 2Q17, the level of ore mined continued to fall by 10% as the deeper draw points affected PX's ability to mine while terrain in newer draw points were harder to operate in. Consequently, revenue and core profit in 2Q17 fell 7.7% and and 24.8% respectively despite better copper and silver ASP. Last 8.86.     BPI 1H17 down 7.7% to PhP11.7bn, in line at 51% of FY17E consensus of PhP23.1bn. We estimate 2Q17 is down 27.9% to PhP5.5bn. Loan growth of 16.9% came in lower than the industry’s 19% pace, while deposits inched up just 8%.  Net interest income rose 13.5% to PhP23.5bn. As expected, non-interest income dropped 18.4% to PhP11.8bn in the absence of hefty PhP4.8bn trading gains in 2Q16 last year as BPI sold some HTM securities. Opex growth was managed at just 5%, while provisions for credit losses declined 19% to PhP2.5bn. CET 1 of 12.8% is near the regulatory minimum of 9.33% (8.5% min + 0.83% for D-SIB). Last 105.4

APS Daily Market Insights July 28

 Eastern Visayas Leads Growth in Household Spending. According to the data released by the PSA, Eastern Visayas posted the highest per capita household final consumption expenditure growth for 2016 at 8.1%. Among the top 5 are Central Luzon, Davao, Ilocos, and Central Visayas Regions. To add to that, the population growth of Eastern Visayas slowed down, but the economy of the region still grew by 12.4% during that period, proving that the growth in consumer spending bolstered growth. This is positive for RRHI (HOLD, P91.60) and PGOLD (HOLD, P49.40), but most especially from MRSGI (BUY, P4.80) since they have a strong brand equity in the area.

 Cement Battle Cuts CHP profit. CHP reported a -46% drop in earnings for 1H17, accounting for only 16% of full year Bloomberg consensus estimates. CHP attributed this to weak demand and pricing challenges during the period. However, CHP expects demand to recover in 2H17 as economic activity picks up, guiding a +3% volume growth in 2017 (+12% volume growth in 2H17 for this to happen). At the closing price of P 6.30, CHP is trading at an EV/EBITDA of 7.5x, compared to HLCM (7.9x) and EAGLE (9.4x). Recommendation to avoid the stock for now as we think earnings will take time to recover.  EAGLE 2Q17 Results Preview. EAGLE said their 2Q17 revenues grew by around +6%, a significant slowdown from 1Q17’s +19%. While this can be viewed as positive since revenues of HLCM (- 21%) and CHP (-12%) both had a steep drop in 2Q17, we are now expecting EAGLE’s earnings growth to taper from 1Q17’s 30% to single-digits for 2Q17. We reiterate our expectations that EAGLE will outperform other local manufacturers in terms of market share, volume and revenues. But at this point, we are more inclined to think that cement stocks have to bear the negative sentiment in the coming months unless there is an improvement in supply dynamics (and pricing) which will be more beneficiary to sector earnings, rather than keeping expectations that there will be an uptick in construction activity by 2H17.