TUESDAY, 21 OCTOBER 2014 STOCKS IN FOCUS: Property and Banking Sectors: BSP set to cap property loans to 60% of collateral Lower cap for real estate loans eyed. According to reports, the central bank is set to cap banks’ real estate loans to 60% of their collateral values, a significant reduction from the average of 80% currently. While the 60% limit is reportedly not a hard cap, banks that lend more than that amount would have to set aside provisions immediately to cover the excess. The anticipated move is part of BSP’s broad measure of reforms to prevent the formation of a property bubble in the country. Local banks will be given a two-year adjustment period to fully comply with the regulation once the official circular is released. Cap expected to curtail real estate loan growth. The new banking policy will be negative for both property companies and banks as this will lower the affordability of homes for buyers. Assuming that currently on average, houses are 20% paid upon turnover , the new policy of requiring 40% will effectively double the monthly payments of consumers during the construction period, which will make housing purchases less affordable. This would lead to lower sales volume for developers and weaker growth rates for banks’ real estate loans. On a brighter note, the new policy acts as a precaution for future bubbles forming in the real estate sector. This will ensure a more sustainable long term growth of the property sector. (As of 17 October 2014) INDICES INDICES PSEi All Shares Financials Holding Firms Industrial Mining & Oil Property Services Dow Jones S&P 500 Nasdaq MARKET SUMMARY: The PSEi closed higher yesterday, following in the footsteps of US markets which made significant gains last Friday. The S&P 500 gained 24 points or 1.3% last Friday after the release of upbeat corporate earnings and economic data. The local index gained 54.31 points or 0.78% yesterday to close at 7,057.53. Index gainers led decliners 21 to 8, while 1 issue remained unchanged. Most sectors closed higher led by Industrial (+1.41%) and Property (+1.23%). Significant gainers were JFC (+3.98%), EDC (+3.97%), SMPH (+3.76%), SM (+3.65%), and SCC (+2.07%). On the other hand, notable decliners were SMC (-2.01%), MBT (-1.97%), and MPI (-1.89%). Value turnover decreased to Php6.0Bil from Php28.6Bil the previous session. Foreigners remained net sellers, liquidating Php154Mil worth of shares. 19.3 17.3 57.6 0.12 0.91 1.35 -1.07 3.01 3.34 INDEX GAINERS Ticker JFC EDC SMPH SM SCC Company Jollibee Foods Corp Energy Dev't Corp SM Prime Hldgs Inc SM Investments Corp Semirara Mining Price 188.20 7.60 17.12 780.00 118.50 % 3.98 3.97 3.76 3.65 2.07 INDEX LOSERS AP: Davao Coal Plant 90% complete AC: SEC approves Php15Bil preferred share sale UBP: Secures BSP approval to triple authorized capital PCOR: Commences Php10 Bil preferred shares offering COSCO: To develop commercial center in Marikina Economy: September posts US$98 Mil BOP surplus 16,399.7 1,904.0 4,316.1 YTD% 19.83 15.48 15.67 13.17 30.05 31.55 24.76 14.49 INDEX GAINERS TOP STORY: OTHER NEWS: Close Points % 7,057.53 54.31 0.78 4,173.75 23.47 0.57 1,651.75 2.42 0.15 6,144.65 53.87 0.88 11,301.74 157.40 1.41 15,677.88 -6.71 -0.04 2,751.59 33.48 1.23 2,136.44 -1.96 -0.09 INDEX LOSERS Ticker SMC MBT MPI AGI TEL Company Price San Miguel Corp 73.00 Metrobank 82.00 Metro Pacific Inv Corp 4.66 Alliance Global Inc 24.90 Phil Long Distance Co 3,172.00 % -2.01 -1.97 -1.89 -0.60 -0.31 TOP 5 MOST ACTIVE STOCKS TOP 5 MOST ACTIVE STOCKS Ticker EDC TEL BDO MBT MEG Company Energy Dev't Corp Phil Long Distance Co BDO Unibank Inc Metrobank Megaworld Corp Turnover 410,993,500 381,500,100 373,289,100 342,244,900 318,695,900 PHILIPPINE EQUITY RESEARCH STOCKS IN FOCUS: Property and Banking Sectors: BSP set to cap property loans to 60% of collateral Lower cap for real estate loans eyed. According to reports, the central bank is set to cap banks’ real estate loans to 60% of their collateral values, a significant reduction from the average of 80% currently. While the 60% limit is reportedly not a hard cap, banks that lend more than that amount would have to set aside provisions immediately to cover the excess. The anticipated move is part of BSP’s broad measure of reforms to prevent the formation of a property bubble in the country. Local banks will be given a two-year adjustment period to fully comply with the regulation once the official circular is released. Richard Lañeda, CFA Charles William Ang, CFA Cap expected to curtail real estate loan growth. The new banking policy will be negative for both property companies and banks as this will lower the affordability of homes for buyers. Assuming that currently on average, houses are 20% paid upon turnover , the new policy of requiring 40% will effectively double the monthly payments of consumers during the construction period, which will make housing purchases less affordable. This would lead to lower sales volume for developers and weaker growth rates for banks’ real estate loans. On a brighter note, the new policy acts as a precaution for future bubbles forming in the real estate sector. This will ensure a more sustainable long term growth of the property sector. TOP STORY: AP: Davao Coal Plant 90% complete Davao Coal Plant 90% complete. AP said its 300MW Davao Coal Plant Project is now 90% complete and will be ready for testing and commissioning in the next few months. Commercial operation of the plant is expected in 1H15. The Davao Coal Plant Project is comprised of two150MW units. We expect the first unit to begin commercial operations in 1Q15 and the second unit in 2Q15. This is in line with management’s guidance. George Ching Ticker: AP Rating: BUY Target Price: Php44.90 Reiterate BUY rating. We reiterate our BUY rating on AP with a FV estimate of Php44.90/sh. Over the long term, we like AP because it is one of the biggest power generation and power distribution companies in the country with strong cash flow generating capacity and a bright earnings growth outlook brought about by plans to boost its attributable power generation capacity by 46% from its end 2013 level by 2019.Although AP’s earnings are still expected to decline this year given the expiration of the Pagbilao’s income tax holiday and lower ancillary service revenues from its hydroelectric plants, the company’s long term earnings outlook has improved with its decision to further expand its coal power generation portfolio. At AP’s current market price of Php39.00/sh, potential upside to our FV estimate is significant at 15.1%. TUESDAY, 21 OCTOBER 2014 page 2 PHILIPPINE EQUITY RESEARCH OTHER NEWS: AC: SEC approves Php15Bil preferred share sale AC has received approval from the SEC to sell as much as Php15Bil in preferred shares. AC is offering 20Mil class “B” series 2 preferred shares at Php500/sh to raise Php10Bil. Additionally, there is an oversubscription option for another 10Mil preferred shares. AC also has the option to redeem the shares during the rate setting date and on any quarterly dividend date. The company plans to use the proceeds from the offer to refinance Php13Bil in debt as it expands its infrastructure and power holdings. (source: Inquirer) Jed Frederick Pilarca Garie Ouano Meredith Hazel Cua UBP: Secures BSP approval to triple authorized capital In a disclosure to the PSE, UnionBank said it has received regulatory approval from the BSP to increase its authorized capital from Php6.7Bil to Php23.1Bil. At the proposed authorized capital level, the bank will have 1.3Bil common shares having a par value of Php10/sh and 100Mil preferred shares with a par value of Php100/sh. The mandate from the BSP also includes that 65% of the stock dividends earlier approved be used to fund the 25% subscription required for the increase in capital. Fractional shares will be paid in cash at Php120/sh. The bank’s move to increase its authorized capital is in line with its goal to become one of the country’s top three banks by 2020. (source: Inquirer) PCOR: Commences Php10 Bil preferred shares offering The week-long offer period for Petron’s preferred shares commenced yesterday. Petron seeks to raise Php7-10 Bil from the preferred shares offer. The proceeds will be used to redeem the currently outstanding preferred shares of the company which are callable starting March 5, 2015. The preferred shares which were offered at the start of the week were priced at Php1,000/sh, and are non-participating and non-convertible to common stock. (source: Inquirer) COSCO: To develop commercial center in Marikina COSCO has signed a lease for 7,168sqm of land in Marikina City where it intends to develop and operate a commercial center. We expect Puregold to serve as the anchor tenant in this establishment, similar to COSCO’s other commercial projects. Earlier in the year, COSCO said that it plans to add eight community malls to its portfolio within the next three years. (source: COSCO) Economy: September posts US$98 Mil BOP surplus For the month of September, the Balance of Payments (BOP) posted a US$98 Mil surplus, down from the US$114 Mil surplus recorded the month prior. However, this still narrowed the BOP’s deficit position to US$3.43 Bil for the first nine months of the year. The month’s surplus was driven by higher exports, lower imports, and steady income from remittances and outsourcing firms. The year-toSeptember deficit was driven by massive outflows in 1Q14 due to the Fed’s decision to taper asset purchases starting late last year. For the full-year, the BSP still expects the BOP to post a US$1.1 Bil surplus. (source: Inquirer) TUESDAY, 21 OCTOBER 2014 page 3 PHILIPPINE EQUITY RESEARCH Calendar of Key Events OCTOBER MON TUES WED THURS FRI SAT 29 30 1 2 BCOR: Annual Shareholders Meeting 3 4 6 7 8 9 11 15 EDC: Ex-date Php0.10 Cash Dividend 16 10 SECB: Ex-date Php1.00 Cash Dividend PHES: Annual Shareholders Meeting 17 18 22 TBGI: Annual Shareholders Meeting CMT: Annual Shareholders Meeting 29 23 MBC: Annual Shareholders Meeting SGP: Annual Shareholders Meeting 30 24 25 31 1 13 14 IPO: Ex-date Php0.06 SMC: Ex-date Php0.35 Cash Dividend Cash Dividend RFM: Ex-date Php0.0328 STI: Ex-date Php0.02 Cash Dividend Cash Dividend FGEN: Ex-date Php0.35 DMC: 400% Stock Cash Dividend Dividend 20 21 27 TUESDAY, 21 OCTOBER 2014 28 page 4 PHILIPPINE EQUITY RESEARCH Investment Rating Definitions BUY HOLD SELL Stocks that have a BUY rating have attractive fundamentals and valuations, based on our analysis. We expect the share price to outperform the market in the next six to twelve months. Stocks that have a HOLD rating have either 1.) attractive fundamentals but expensive valuations; 2.) attractive valuations but near term earnings outlook might be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely inline or underperform the market in the next six to twelve months. We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to twelve months. Important Disclaimers Securities recommended, offered or sold by COL Financial Group, Inc.are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report. 2401-B East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City 1605 Philippines Tel: +632 636-5411 TUESDAY, 21 OCTOBER 2014 Fax: +632 635-4632 Website: http://www.colfinancial.com page 5