FRIDAY, 14 NOVEMBER 2014
STOCKS IN FOCUS:
CEB: Seasonality and weaker peso pull down 3Q14 results,
full year outlook still positive
Seasonality and weaker peso pull down 3Q14 results. Cebu Pacific reported 3Q14 net loss of
Php1.1 Bil, worse than the Php750 Mil loss registered in 3Q13. The loss was largely due to the fact
that the third quarter is a seasonally weak period. Moreover, bulk of the loss was due to the booking
of Php911 Mil worth of forex losses which was a result of the quarter on quarter depreciation of the
peso. Nevertheless, core operating results were actually in line with expectations. 3Q14 EBITDA
reached Php979Mil, almost four times that of 3Q13’s Php225Mil. Revenues were also in line with
expectations, with 3Q14 revenues up by 32.4% and 9M14 revenues higher by 25.7%. Growth was
driven by both higher passenger numbers and yield. Fourth quarter earnings should also benefit
from falling oil prices as CEB will start to benefit from the steep drop in oil price in September
starting October. We are reiterating our BUY rating on CEB with an FV estimate of Php90/sh.
Valuations remain attractive, with a 23% upside potential to our FV as of yesterday’s closing price.
MBT: 9M14 profits miss estimates;
downgrading FV estimate to Php106 but maintaining BUY rating
9M14 profits miss estimates. Metrobank’s 3Q14 profits jumped by 57.4% to Php4.0Bil. This brought
its 9M14 net income to Php13.1Bil, equivalent to only 70.2% of our full year forecast. Earnings
disappointed due to its weaker than expected fee income and profits from the trading business,
partly offset by the booking of significant non-recurring gains. On the positive side, MBT’s core
lending and deposit taking business remained strong with net interest income for the year to
date period rising by 23% to Php34.0 Bil in 9M14. We are lowering our core net income forecast
after as we factor in MBT’s weaker-than-expected non-interest income during 9M14. We are also
downgrading our FV estimate on MBT from Php111.00/sh to Php106.00/sh. Nevertheless, we are
maintaining our BUY recommendation.
TOP STORIES:
AGI: Disappointing results from subsidiaries
RWM: Earnings disappoint yet again
AC: Sustains strong growth in 3Q14
JFC: 9M14 earnings in line with estimates
ICT: 9M14 core profits trail forecasts due to higher than expected operating expenses
EDC: 9M14 earnings beat estimates as revenues exceed forecast
CHIB: Earnings continue to lag on higher expenses
AT: Lower margins and metal prices drag 9M14 earnings
OTHER NEWS:
Economy: FPI declines in October
(As of 13 November 2014)
INDICES
INDICES
PSEi
All Shares
Financials
Holding Firms
Industrial
Mining & Oil
Property
Services
Dow Jones
S&P 500
Nasdaq
Close Points
%
7,198.63 -34.24 -0.47
4,237.06 -16.54 -0.39
1,691.84
-9.10 -0.53
6,281.78 -47.59 -0.75
11,682.76
7.84 0.07
15,186.47 -76.69 -0.50
2,868.32
-1.37 -0.05
2,118.81 -11.70 -0.55
17,652.8
2,039.3
4,680.1
40.6
1.1
5.0
0.23
0.05
0.11
YTD%
22.22
17.23
18.48
15.70
34.43
27.43
30.06
13.55
6.49
10.33
12.06
INDEX GAINERS
INDEX GAINERS
Ticker Company
SMPH SM Prime Hldgs Inc
GTCAP GT Capital Hldgs Inc
BDO BDO Unibank Inc
MEG Megaworld Corp
URC Universal Robina Corp
Price
17.60
1069.00
103.00
4.85
186.40
%
1.73
1.62
1.38
1.25
0.59
INDEX LOSERS
INDEX LOSERS
Ticker
MBT
AGI
GLO
EMP
RLC
Company
Metrobank
Alliance Global Inc
Globe Telecom Inc
Emeperador Inc
Robinsons Land Corp
Price
82.45
24.50
1,650.00
10.72
25.10
%
-4.18
-3.54
-2.37
-2.19
-2.14
TOP 5 MOST ACTIVE STOCKS
TOP 5 MOST ACTIVE STOCKS
Ticker
TEL
BDO
ALI
AGI
MBT
Company
Turnover
Phil Long Distance Co 1,211,082,000
BDO Unibank Inc
Ayala Land Inc
Alliance Global Inc
Metrobank
397,542,400
298,442,200
262,155,300
248,764,900
PHILIPPINE EQUITY RESEARCH
MARKET SUMMARY:
The PSEi made modest gains on Wednesday, lifted by positive corporate earnings results. The
index rose 28.32 points or 0.39% to close at 7,232.87.
Index gainers led decliners 14 to 13 while 3 issues remained unchanged. Apart from Holding Firms
(-0.23%), all other sectors closed higher last trading session with Property (+1.01%) advancing
the most. Notable gainers were RLC (+3.43%), EDC (+3.04%), BLOOM (+2.90%), GLO (+2.80%),
and FGEN (+2.51%). On the other hand, significant decliners were LTG (-2.58%), SM (-1.13%),
and PCOR (-0.79%).
Value turnover decreased to Php8.1Bil from Php12.4Bil the previous session. Foreigners were net
sellers, liquidating Php549Mil worth of shares.
FRIDAY, 14 NOVEMBER 2014
page 2
PHILIPPINE EQUITY RESEARCH
STOCKS IN FOCUS:
CEB: Seasonality and weaker peso pull down 3Q14 results,
full year outlook still positive
Seasonality and weaker peso pull down 3Q14 results. Cebu Pacific reported 3Q14 net loss of
Php1.1 Bil, worse than the Php750 Mil loss registered in 3Q13. The loss was largely due to the fact
that the third quarter is a seasonally weak period. Moreover, bulk of the loss was due to the booking
of Php911 Mil worth of forex losses which was a result of the quarter on quarter depreciation of the
peso. Nevertheless, core operating results were actually in line with expectations. 3Q14 EBITDA
reached Php979Mil, almost four times that of 3Q13’s Php225Mil. This brought 9M14 EBITDA to
Php6.0Bil, 27.7% higher y/y, and in line with COL’s estimates at 73.4% of our full-year estimates. (it
was slightly below consensus forecasts at 69.8% of full-year estimates) Revenues were also in line
with expectations, with 3Q14 revenues up by 32.4% and 9M14 revenues higher by 25.7%. For the
year to date period, revenues were equivalent to 75.4% of COL and 73.1% of consensus full year
forecast.
Exhibit 1: Results Summary
in PhpMil
Revenues
EBITDA
EBITDA Margin (%)
Core Income
Core Income Margin (%)
Net Income
Net Income Margin (%)
3Q13
8,855
225
2.5%
(733)
-8.3%
(750)
-8.5%
3Q14
11,728
979
8.3%
(15)
-0.1%
(1,099)
-9.4%
% Change
32.4
335.9
229.1
(98.0)
(98.5)
46.5
10.6
9M13
30,582
4,694
15.3%
1,990
6.5%
664
2.2%
9M14
38,446
5,992
15.6%
2,333
6.1%
2,079
5.4%
% Change
25.7
27.7
1.5
17.2
(6.7)
213.1
149.1
Meredith Hazel Cua
Ticker: CEB
Rating: BUY
Target Price: Php90.00
% Forecast
COL
Consensus
75.4%
73.1%
73.4%
69.8%
78.4%
72.0%
69.9%
64.1%
Source: CEB, COL estimates, Bloomberg
Revenues on track to meet estimates. Revenues for the third quarter grew 32.4% to Php11.7Bil,
bringing the 9M14 total to Php38.4Bil, up 25.7% year-on-year. Growth was supported by an increase
in both passenger volume and average yields, as the company continued to enjoy the benefits of
industry consolidation. Cebu Pacific flew 12.5Bil passengers during the period, 14.7% more than
that in 9M13. This also brings the company well on its way to meet our full year passenger volume
target and the company’s own passenger volume target of 17Mil. Furthermore, average yield per
passenger surged by 9.9% to Php2,895. The said factors increase our conviction that CEB will be
able to meet our full year revenue targets especially since the fourth quarter is a seasonally stronger
period.
9M14 forex loss down to 13% of 9M13’s loss. Cebu Pacific experienced forex losses amounting
to Php911Mil during the third quarter. This is because of the peso’s depreciation from Php43.66 to a
dollar as of end-June 2014 to Php44.96 to a dollar as of end-September 2014. However, for 9M14
forex losses just reached Php193Mil as the peso was only 1.2% weaker from its end 2013 level of
Php44.40 to a dollar.
Low fuel prices to manifest in 4Q14. Part of the reason why we are positive on CEB is falling oil
price. Note that jet fuel price fell by around 5% from end August to end September this year due to
several factors including the strong oil production in the US and slower global economic growth.
According to management, it will benefit from the drop in oil price in the fourth quarter as the booking
of fuel cost is one month delayed. During 3Q14, the cost of its fuel was still flattish on a year on
year basis, explaining why CEB might have performed below consensus expectations. Nevertheless,
CEB can still meet consensus’ full year earnings target assuming that oil prices stay where they are
at US$96.37 per barrel.
FRIDAY, 14 NOVEMBER 2014
page 3
PHILIPPINE EQUITY RESEARCH
Reiterate BUY rating with FV estimate of Php90/sh. Despite CEB’s poor headline net income
for 3Q14, we continue to like the company fundamentally as we still believe that the carrier is a
major beneficiary of the advantages of industry consolidation and falling oil prices. Average yields
have already significantly improved and we expect this trend to continue as CEB further solidifies its
position as the domestic market leader. In addition, declining fuel prices should lead to significant
cost savings for the company, although the benefit may come slightly later than what we originally
expected. We are reiterating our BUY rating on CEB with an FV estimate of Php90/sh. Valuations
remain attractive, with a 23% upside potential to our FV as of yesterday’s closing price.
MBT: 9M14 profits miss estimates; downgrading FV estimate to Php106
but maintaining BUY rating
9M14 profits miss estimates. Metrobank’s 3Q14 profits jumped by 57.4% to Php4.0Bil. This brought
its 9M14 net income to Php13.1Bil, equivalent to only 70.2% of our full year forecast. Earnings
disappointed due to its weaker than expected fee income and profits from the trading business, partly
offset by the booking of significant non-recurring gains. On the positive side, MBT’s core lending and
deposit taking business remained strong with net interest income for the year to date period rising by
23% to Php34.0 Bil in 9M14. Profits for 9M14 translate to an annualized ROE of 12.8%.
Exhibit 1: Results Summary
In PhpMil
3Q13
3Q14 % Change 9M13
Net interest income 10,322 11,656
Non-interest income 4,128 5,420
Provisions
1,231 1,368
Net income
2,542 4,002
12.9
31.3
11.1
57.4
27,595
32,722
3,980
20,690
9M14 % Change
34,015
19,030
3,300
13,077
23.3
-41.8
-17.1
-36.8
Charles William Ang, CFA
Ticker: MBT
Rating: BUY
Target Price: Php106.00
% FY14E
COL Consensus
75.4
NA
71.6
NA
79.5
NA
70.2
80.1
Source: MBT, COL estimates
Core operations remain strong. MBT’s core operations remained strong, with net interest income
expanding by 13% to Php11.7Bil in 3Q14 and by 23% to Php34.0Bil in 9M14. This was driven by
the 21.4% growth in its loan portfolio to Php697.3Bil and the 22.4% jump in interest earning assets
to Php1.5Tril. This in turn was supported by the 23.4% jump in total deposits to Php1.1Tril and the
net issuance of Php21Bil worth of tier 2 capital notes. Despite the rapid growth in assets, net interest
margin was steady at 3.35% for the nine month period and was in line with our estimate.
Non-interest income lag estimates on weaker-than-expected fee income, slower activity in
bond market. While MBT’s lending business was in line with estimates, its non-interest income
trailed our forecasts. During 9M14, total non-interest income fell by 57.1% to Php19.0Bil. The decline
was primarily due to the 90% drop in trading gains to Php1.5Bil. Although we already expected
trading gains to drop given the peak in bond prices last year, the decline was much larger than
our forecast. MBT attributed the steeper than expected decline to weaker trading activity in the
secondary bond market. This in turn negatively affected the spreads earned by MBT on bonds sold
to clients. Note that in our forecast, we assumed a normalized trading income of about Php4-6Bil per
year arising from the spreads earned from client transactions.
Also hurting non-interest income was the slower-than-expected growth in fee-based revenues. For
the year-to-date period, fee-based income increased by just 3.2% to Php6.6Bil. We were expecting
fee income to grow in line with the increase in assets and deposits as bulk of the fees are transaction
based. According to MBT, the slower growth in fee-based income was due to the decline in rates
charged on banking services as competition is becoming more intense.
FRIDAY, 14 NOVEMBER 2014
page 4
PHILIPPINE EQUITY RESEARCH
Shift to HTM investments continues. Investment securities still account for a large part of MBT’s
asset base at Php409.4Bil or 27.2% of total assets as of end September. However, MBT continued
to take steps to increase the share of held to maturity (HTM) investments in its books which should
make it less vulnerable to mark to market losses. As of end September, MBT had Php104.5Bil worth
of HTM investments, up from Php82.2Bil as of end June. The said amount is also equivalent to
25.5% of its investment portfolio, up from 21.0% as of end June. MBT said that it aims to continue
reducing its investments in available for sale (AFS) securities in favor of HTM investments.
Lowering 2014 core income forecast. We are lowering our core net income forecast after we factored
in MBT’s weaker-than-expected non-interest income during 9M14. With the more conservative
estimates on fee-based revenues and normalized trading income, our net income forecast will drop
from Php18.6Bil to Php17.3Bil in 2014; from Php20.7Bil to Php19.1Bil in 2015; and from Php23.6Bil
to Php22.5Bil in 2016.
However, we believe that MBT will still deliver strong headline numbers for the full year of 2014.
Last October, MBT sold a portion of its investment properties (ROPA) to Federal Land for Php6.3Bil,
resulting in a gross gain of Php5.2Bil. Based on our estimates, this could lead to a one-time gain of
Php3 to 4Bil (net of taxes) in 4Q14. Including this one-time gain, MBT’s headline net income for 2014
could reach as much as Php20.6Bil.
Exhibit 2: MBT Earnings Revisions
in Php Mil
Fee based income
Trading and FX gains
Net inc before one-off in 4Q14
One-off gain in 4Q14
Net income
2014
10,100
5,041
18,636
Old
2015
11,192
5,103
20,655
2016
12,511
5,380
23,615
2014
9,060
2,795
17,261
3,321
20,582
New
2015
9,798
3,126
19,194
2016
10,779
3,524
22,835
So urce: COL estimates
Downgrading FV estimate to Php106/sh but maintaining BUY rating. We are downgrading our
FV estimate on MBT from Php111.00/sh to Php106.00/sh (based on 1.8X 2015E P/BV) after factoring
in the lower core income forecast. Nevertheless, we are maintaining our BUY recommendation.
Despite the reduction in our FV estimate, capital appreciation potential based on the stock’s market
price remains significant at 23%. Moreover, Metrobank is still expected to be one of the major
beneficiaries of the growing demand for loans given its size, and highly liquid and healthy balance
sheet.
FRIDAY, 14 NOVEMBER 2014
page 5
PHILIPPINE EQUITY RESEARCH
TOP STORIES:
AGI: Disappointing results from subsidiaries
Disappointing 9M14 earnings from subsidiaries. AGI’ recurring net profit rose 21.3% to Php3.90
Bi, bringing 9M14 recurring net income to Php11.4 Bil, which is flat versus 9M13. Although AGI’s
9M14 net income reached 75.1% of our full-year estimate, we focus more on the results of AGI’s
major subsidiaries, which were mostly weaker than expected with the exception of Megaworld which
performed in line with expectations.
Richard Lañeda, CFA
Ticker: AGI
Rating: BUY
Target Price: Php31.60
Exhibit 1. Core Earnings summary
3Q13
3Q14
Megaworld
Emperador
Travellers
Golden Arches
2,270
1,322
1,265
136
2,461
1,520
1,119
84
y/y
change
8.4%
15.0%
-11.5%
-38.2%
AGI
3,215
3,900
21.3%
in Php Mil
9M13
9M14
6,458
4,496
3,574
516
7,187
4,578
4,000
406
y/y
change
11.3%
1.8%
11.9%
-21.3%
11,473
11,400
-0.6%
% of estimates
COL
Consensus
74.9%
73.9%
70.0%
71.0%
67.4%
61.6%
57.3%
N/A
75.1%
68.1%
Source: AGI, COL estimates, Bloomberg
MEG 9M14 core profits up 11.3%. MEG’s net income for the third quarter grew 8.4% to Php2.46
Bil driven by higher realized gross profit and rental revenues. Realized gross profit for 3Q14 rose
35.52% on higher completions of projects. Total realized gross profit for 9M14 rose 26.23% to
Php6.84 Bil and is ahead of our full-year estimate of Php8.69 Bil. For the first nine months, MEG’s
core net income (excluding a total of Php11.62 Bil in one-off gains) was Php7.2 Bil, 11.3% higher
than a year earlier. Take up sales remained healthy in 3Q14, growing by 16% overall for the group
including GERI. Take-up sales of GERI is noteworthy as it grew 75% y/y from Php2 Bil to Php3.5 Bil.
Revenue growth still a challenge for EMP. Emperador’s 3Q14 net income rose 14.6% y/y and 13%
q/q to Php1.51 Bil. This was mainly driven by lower costs and expenses. Gross profit and EBITDA for
the quarter improved 10.7% and 13.7% y/y respectively despite disappointing sales. Sales in 3Q14
were just up 0.9% to Php6.64 Bil in 3Q14. A positive development for EMP this year is the margin
improvement. For the first nine months of this year, gross margin stood at 36.2%, expanding from last
year’s level of 33.7%. However, growing net income by expanding margins will not be sustainable as
margins will peak at some point. Revenue growth is still our main concern with EMP.
RWM earnings disappoint yet again. RWM’s net income for 3Q14 dropped 11.5% y/y to Php1.12
Bil to Php1.27 Bil. This brings RMW’s net profit for 9M14 to Php4 Bil, an improvement of 11.9%
compared to 9M13. This accounts for only 67.4% and 61.6% of COL and consensus full-year
estimates respectively. We believe the reason for the disappointing income was the weaker than
expected gaming revenues, which was brought about by a weak hold rate.
Golden Arches income disappoints. Net income of Golden Arches in 3Q14 dropped 38.2% y/y to
Php84 Bil, brining 9M14 income to Php406 Mil or 21.3% lower y/y. This is very disappointing as this
is only 57.3% of our full-year estimates. Details on Golden Arches were not yet disclosed therefore
we are unaware of the reason for the underperformance.
Downside risk on current FV estimate. Given the underperformance of RWM, Emperador, and
Golden Arches, we will be reviewing our earnings and fair value estimates with downside risk.
Despite this, we maintain our BUY rating on AGI as we believe the market has priced in much of
the negatives. We should point out though that AGI shares may continue to underperform given the
negative sentiment on RWM, EMP, and Golden Arches.
FRIDAY, 14 NOVEMBER 2014
page 6
PHILIPPINE EQUITY RESEARCH
RWM: Earnings disappoint yet again
3Q14 earnings down 11.5%. RWM’s net income for 3Q14 dropped 11.5% y/y to Php1.12 Bil to
Php1.27 Bil. This brings RMW’s net profit for 9M14 to Php4 Bil, an improvement of 11.9% compared
to 9M13. This accounts for only 67.4% and 61.6% of COL and consensus full-year estimates
respectively. We believe the reason for the disappointing income was the weaker than expected
gaming revenues, which was brought about by a weak hold rate. Other details of RWM’s 9M14
results have not yet been disclosed.
Richard Lañeda, CFA
Ticker: RWM
Rating: BUY
Target Price: Php12.40
Earnings and fair value estimates to be reviewed. In light of RWM’s weaker than expected net
income, we will be reviewing our growth assumptions for the succeeding years. We see downside
risk on our current fair value estimate of Php12.40
AC: Sustains strong growth in 3Q14
3Q14 income surges on ALI, GLO and BPI earnings. AC’s net income grew 36% in 3Q14, driven
by the growth of ALI, GLO, and BPI. AC’s consolidated core net income for 9M14 is up 17.5% and is
slightly lagging estimates due to BPI’s and MWC’s underperformance. Other non-core businesses
also contributed to the slight underperformance of AC.
Exhibit 1. Results summary
3Q13
3Q14
% change
9M13
9M14
% change
3,129
3,129
4,254
4,254
36.0%
36.0%
10,432
10,432
14,053
12,253
34.7%
17.5%
% of estimates
COL
Consesnsus
82.4%
82.0%
71.8%
71.5%
Core earnings of sub sidiaries
ALI
2,979
GLO
3,100
BPI
3,739
MWC
1,382
3,735
3,989
4,700
1,391
25.4%
28.7%
25.7%
0.7%
8,602
9,526
15,763
4,293
10,789
11,578
12,800
4,549
25.4%
21.5%
-18.8%
6.0%
77.0%
88.9%
70.6%
67.7%
in Php Mil
AC reported income
AC core income
Richard Lañeda, CFA
Ticker: AC
Rating: BUY
Target Price: Php816.00
75.6%
88.3%
69.3%
78.3%
Source: AC, COL estimates, Bloomberg
ALI 9M14 income better than expected. ALI’s net income in 3Q14 surged 25.42%, sustaining the
25.45% growth it registered in 1H14. Growth was driven by a combination of revenue growth and
margin expansion. 3Q14 operating revenues grew 12.4% while EBIT jumped 30.2% on strict cost
controls. For the first nine months of the year, net income was better than expected due to higher
than expected earnings before interest and tax. Strict cost control by the company enabled it to
register higher than expected margins.
BPI 9M14 earnings slightly miss on higher operating expenses. BPI reported Php4.8 Bil in net
income for 3Q14, up 27.6% y/y. BPI’s net interest income grew 15% in 3Q14 to Php8.9Bil, sustaining
its 15% rise in 1H14. Interest income was buoyed by a 28% expansion of net loans, backed by a 17%
increase in deposits. BPI’s trading performance continued to normalize during the period. Based on
our estimates, income attributable to securities and FX trading during the third quarter totaled around
Php400Mil, largely flattish compared to the Php416Mil booked in 3Q13.Despite the strong 3Q14,
9M14 profits are still 18.8% lower y/y to Php12.8 Bil due to the extraordinary trading performance
recorded in 1Q13. 9M14 earnings slightly missed our forecast due to higher than expected operating
expenses.
MWC 9M14 earnings disappoint on weaker-than-expected revenues. Manila Water reported
3Q14 earnings of Php1.4Bil, slightly higher by 0.7% than 3Q13 earnings. 3Q14 earnings brought
the 9M14 year-to-date total to Php4.5Bil, increasing by 6% y/y. Earnings for the period accounted for
only 67.7% of COL full year estimates, as revenues missed estimates on lower-than-expected noncore revenues and higher-than-expected interest expense. Net interest expense reached Php1.1Bil
in 9M14, significantly higher than our estimate of Php664Mil. However, 9M14 profits were above
consensus estimates, accounting for 78.3% of full year forecasts.
FRIDAY, 14 NOVEMBER 2014
page 7
PHILIPPINE EQUITY RESEARCH
GLO core earnings outperform on lower than expected depreciation. Globe’s 3Q14 core
earnings grew by 28.7% y/y to Php4Bil due to a decline in depreciation expense and an improvement
in revenues. Service revenues for the quarter were up 10%. Net profit for third quarter brought 9M14
core earnings to Php11.6 Bil, up 21.5% y/y. Core earnings for the period exceeded estimates on
lower than expected depreciation expense.
Maintain BUY and FV estimate of Php816. We maintain our BUY rating and FV estimate of
Php816.00 on AC. Its major subsidiaries continue to exhibit strong income growth and outlook of
each business remains positive. We also like AC for its growing exposure in the power generation
sector. We believe AC’s value will be enhanced going forward as more of AC Energy’s investments
start operations, making AC more than a parent company for listed companies ALI, BPI, GLO, and
MWC but also a play on the power and infrastructure sector.
JFC: 9M14 earnings in line with estimates
9M14 earnings up 16.5%, in line with estimates. JFC booked earnings of Php1.2Bil in 3Q14,
higher by 15.0% year-on-year. This brought 9M14 earnings to Php3.6Bil, higher by 16.5% from last
year. Results were in line with expectations, with 9M14 net income equivalent to 67.2% of COL and
67.7% of consensus full year estimates. Although revenue growth was stronger than expected, this
was offset by the slight drop in 9M14 margin.
Jed Frederick Pilarca
Ticker: JFC
Rating: HOLD
Target Price: Php143.00
Exhibit 1: Results Summary
in PhpMil
Revenues
Operating Income
Operating Margin (%)
Net Income
Net Margin (%)
3Q13
3Q14
19,766 22,052
1,209 1,409
6.1
6.4
1,019 1,172
5.2
5.3
% Change
11.6
16.5
0.3
15.0
0.2
9M13
9M14
57,834 65,753
3,935 4,422
6.8
6.7
3,124 3,640
5.4
5.5
% Change
13.7
12.4
(0.1)
16.5
0.1
% of Forecast
COL Consensus
75.4
71.3
62.8
65.1
67.2
67.7
-
Source: JFC, COL estimates, Bloomberg
Sales growth still strong. In 3Q14, JFC’s system wide sales grew by 12.2% to Php28.4Bil with the
Philippine business growing by 13.0% and the international business growing by 9.6%. According to
JFC, growth was driven by the 7% to 8% increase in same store sales and the 5.7% expansion in
store network. 3Q14 results brought 9M14 system wide sales to Php85.5Bil, 13.7% higher from last
year. Sales growth was faster than expected with 9M14 revenues already accounting for 75.4% of
our full year forecast. Note that the fourth quarter is a seasonally strong period, accounting for more
than 25% of full year revenues.
Margins expand in 3Q but still flattish year to date. JFC’s operating margin showed a 30 basis
point improvement in 3Q14 from last year, partially offsetting the margin decline reported in 1H14.
Recall that higher raw material prices, the upgrade of IT systems, and expenses related to JFC’s
compensation plan hampered margins during 1H14. We believe the improvement in margins is due
to the impact of price increases that JFC implemented during the first half of the year. However,
operating margin for the year-to-date period is still flattish at 6.7%.
Hikes capex for 2015. JFC said that it has approved a capital expenditure budget of Php9.1Bil for
2015. This is significantly higher than the Php6.3Bil that JFC expects to spend for the whole of 2014.
The capex programmed for 2015 will be used largely for store openings and renovations as well
as to expand commissary capacity. Broken down, JFC plans to spend Php6.7Bil for the Philippine
business, Php1.7Bil for China, and Php700Mil for US and Southeast Asia and the Middle East.
FRIDAY, 14 NOVEMBER 2014
page 8
PHILIPPINE EQUITY RESEARCH
Maintaining HOLD rating. We maintain our HOLD rating on JFC with a FV estimate of Php143/sh.
We continue to like JFC for being dominant in the domestic quick service restaurant sector as well
as for its plans to expand its foreign business. However, valuations are unattractive with the stock
trading at 32.6X 2015E P/E, a significant premium to the 22.6X average multiple for the consumer
sector.
ICT: 9M14 core profits trail forecasts due to higher than expected operating expenses
9M14 core profits trail forecasts due to higher than expected operating expenses. ICT
reported that 3Q14 net income declined 25.9% to US$34Mil. The decline in the 3Q14 earnings was
primarily due to the booking of a one-time US$38.1Mil impairment charge on its investment in the
Argentina port project. This brought 9M14 net income to US$135.7Mil, up 5.3% y/y, representing
only 68.8% of our full year forecast. However, net income in 9M14 included a net non-core gain of
US$9.4Mil. Excluding the said amount, ICT’s net income for 9M14 declined 2% to US$126.3Mil,
representing only 64% of COL and 77.6% of consensus full year forecasts. Core net income missed
our estimates due to higher than expected expenses. Revenues were in line with estimates, rising
by 27.4% to US$268.9Mil during 3Q14. This brought 9M14 revenues to US$779.2Mil which reached
76% of our full year forecast. Volume of container handled rose 16.9% to 5.41Mil TEU representing
only 69.2% of our full year forecast. However, this was offset by the higher than expected yield/TEU
of US$145.8.
Meanwhile, 9M14 EBITDA grew 14.2% to US$326.1Mil, representing 71.1 of COL
forecast. Cash operating costs grew by a faster rate of 31% compared to revenues, amounting to
US$334.1Mil in 9M14.
George Ching
Ticker: ICT
Rating: HOLD
Target Price: Php121.50
Exhibit 1: 3Q14 Results Summary
in US$Mil
3Q13
3Q14
%Change
9M14
Revenue
EBITDA
EBITDA margin (%)
Net Income
Net margin (%)
211.0
97.4
46.2
45.9
21.8
268.9
113.9
42.4
34.0
12.6
27.4
16.9
-3.8
-25.9
-9.1
779.2
326.1
41.9
135.7
17.4
% of FY Forecast
COL
Consensus
76.0
73.6
71.1
68.7
-2.9
-3.0
68.8
83.3
-1.8
2.0
Source: ICT, COL estimates, Bloomberg
Exhibit 2: 3Q14 Revenue Breakdown
Revenue
3Q13
3Q14
% change
Asia
115.9
136.8
17.9
Americas
73.4
106.9
45.6
EMEA
21.6
25.2
16.8
Total
211.0
268.9
27.5
Container volume
3Q13
3Q14
% change
978.5
937.6
-4.2
419.3
672.7
60.4
203.4
233.9
15.0
1,601.1
1,844.2
15.2
3Q13
118.5
175.1
106.2
131.8
Implied yield
3Q14
% change
145.9
23.1
158.9
-9.2
107.9
1.6
145.8
10.7
Source: ICT, COL estimates, Bloomberg
Revenues in line with forecast despite weaker than expected volume. 9M14 revenues were in
line with both COL and consensus estimates. Container volume grew by a slower than expected
pace of only 16.9% to 5.41Mil TEU, representing only 69.2% of our full year forecast. This was
brought about by a decline in the volume of flagship Manila International Container Terminal (MICT)
due to the truck ban in Manila, as well as the persistent weakness in ICT’s port in Davao and Portland.
The weakness of the three ports was partially mitigated by the strong recovery of ICT’s port in Poland
which saw volume growing by 23%. Furthermore, ICT’s lower than expected volume throughput was
offset by ICT’s higher than expected yield as blended yield/TEU increased 10.7% to US$145.8/TEU,
11.3% above our forecast. Yield/TEU rose due to higher volume mix and ancillary services booked
by MICT. Management indicated despite MICT’s decline in volume during 9M14, the revenue of the
port actually grew y/y as it was able to book additional ancillary service revenue as a result of the
truck ban. Going forward, management expects the recovery of volume in MICT as the truck ban
ended in October 2014.
FRIDAY, 14 NOVEMBER 2014
page 9
PHILIPPINE EQUITY RESEARCH
EBITDA margin lower than expected due to higher operating costs. Cash operating profits as
measured by EBITDA grew 14.2% in 9M14 to US$326.1Mil, equivalent to only 69.2% of our full
year forecast. This was caused by higher than expected increase in ICT’s cash operating expenses
which grew by 31% to US$334.1Mil, mainly due to the first nine months of expenses related to the
new terminals in Mexico and Honduras. This led to a decline 390 basis points reduction in EBITDA
margin to 41.9% from 45.7%. Margin was also lower than our forecast of 44.7%. Looking forward,
management expects EBITDA margin to improve as revenues of the port in Honduras increase (due
to more port services offered to customers) and as the utilization rate of the port of Mexico continue
to rise.
Outlook deteriorates for port in Argentina. Management said the US$38.1Mil asset write-off in
3Q14 was due to the deterioration in the economic outlook in Argentina as a result of the recent
sovereign default. Due to the restriction in imports imposed by the government, container volume
was down 22% in Argentina. Management now expects ICT’s port in Argentina( with an annual
capacity of 400,000 TEU) to begin operations in 1H15. This is later than our forecast that the port
will begin operations in 4Q14. Furthermore, due to the economic condition in Argentina, the port’s
utilization rate will likely be disappointing going forward.
Reviewing forecasts and FV estimate. We currently have a HOLD rating on ICT with a FV estimate
of Php121.5/sh, We will be reviewing our forecasts on ICT in light of the weaker than expected
9M14 results. While we still like the company’s long term outlook given its successful track record
of growing its port portfolio through acquisitions and greenfield projects, and its focus on emerging
economies which have a favorable long term growth outlook compared to overall global economy,
valuations are not compelling at this point. Based on ICT’s current price of Php/sh, upside to our FV
estimate of Php121.5/sh is limited at 9.0%.
EDC: 9M14 earnings beat estimates as revenues exceed forecast
9M14 earnings beat estimates as revenues exceed forecast. EDC’s 3Q14 core net income rose
49% y/y to Php2.4Bil. This brought 9M14 earnings to Php7.8Bil, up 33.9% y/y, representing 93.3%
and 100.8% of COL and consensus forecast, respectively. Earnings increased mainly due to the
first year operation of the Bacman and Nasulo (part of Palinpinon-Tongonan) plants, and higher
revenue contribution from the Mindanao plants. Meanwhile, earnings beat estimates due to the
higher than expected revenue contribution from the Bacman, Palinpinon-Tongonan and Mindanao
plants. Furthermore, 9M14 operating expenses was also lower than expected.
Exhibit 1: EDC 3Q14 Results Summary
in PhpMil
3Q13
Revenue
6,349
Operating expenses
3,188
Finance and other expense
-863
Net Income (Core)
1,610
Net margin (%)
25.4
3Q14
7,755
4,298
-833
2,400
30.9
% Change
22.1
34.8
-3.5
49.0
5.6
9M14
22,982
11,620
-2,587
7,800
33.9
George Ching
Ticker: EDC
Rating: HOLD
Target Price: Php8.20
% of FY COL Forecast
82.2
69.2
77.2
93.3
N/A
Source: EDC and COL estimates
Bacman revenue contribution to exceed full year forecast. The Bacman contributed to a total of
Php2.15Bil in revenues during its first full period contribution in 9M14, representing 74.8% of our full
year forecast. Revenues met our full year forecast despite the disruption caused by Typhoon Glenda
on unit 1 and 2 in July and the planned outage of unit 2 for the installation of a brand new turbine.
Given that all three units of the Bacman will be operational in 4Q14, we believe that revenues from
the Bacman will likely exceed our full year forecast.
FRIDAY, 14 NOVEMBER 2014
page 10
PHILIPPINE EQUITY RESEARCH
Pal-Tong and Mindanao plants’ revenues also exceeded forecast. Revenues from both
Palinpinon-Tongonan (Including the newly commissioned Nasulo plant) and the Mindanao plants
exceeded forecast. The Pal-Tong contributed a total of Php9.3Bil in revenues during 9M14, 11.1%
higher y/y, representing 80.6% of our full year forecast. This was mainly due to better than expected
sales volume of 1,762GWH, representing 79.7% of our full year forecast. Meanwhile, the Mindanao
plants’ revenues rose 26.5% to Php1.74Bil, representing 84.9% of our full year forecast. Sales
volume for the Mindanao plants rose 13.4% to 591GWH, representing 83.3% of our full year forecast,
as EDC added two steam wells to boost the capacity of the Mindanao plants this year.
Hydro plant disappoints due to low water level. The Pantabangan-Masiway hydro plant posted
a 6.1% decline in 9M14 revenues to Php1.71Bil, representing only 60.4% of our full year forecast.
Revenues declined after the ERC re-computed the plant’s November and December 2013 WESM
selling price, as well as a 22.7% decline in the plant’s sales volume due to lower water level in the
plant’s dam. Ancillary service revenues amounted to Php593Mil, 19.1% higher y/y, but representing
only 37.3% of our full year forecast. Coupled with the income tax holiday expiration in April of this
year, the Pantabangan-Masiway’s net income declined 18.04% to Php886.5Bil, representing 62.4%
of our full year forecast.
Operating expenses lower than expected. Total operating expenses rose 18.1% in 9M14 to
Php11.6Bil, primarily due to higher purchased services and personnel expense, as well as higher
expense for restoration activities as a result of typhoon damages. However, this represents only
69.2% of our full year forecast.
Reviewing earnings and FV estimates. We are reviewing our earnings and FV estimates of EDC
in light of the better than expected 9M14 results. We currently have a HOLD rating on EDC with a FV
estimate of Php8.20/sh. Fundamentally, we continue to like EDC given it is a pure play on renewable
energy while 80% of its power generation capacity is secured with long-term take-or-pay contracts,
valuations are no longer attractive. The stock has risen by 52% YTD, outperforming PSEi’s 22.2%
gain. At its current price of Php8.1/sh, upside to our FV estimate of Php8.20/sh is limited at only
1.2%.
CHIB: Earnings continue to lag on higher expenses
Earnings lag estimates. China Bank booked Php1.15Bil in earnings during the third quarter, up
19% year-on-year. Nevertheless, 9M14 net income still fell 14% year-on-year to Php3.37Bil primarily
due to the extraordinary trading income in 1Q13. Compared to expectations, the year-to-date
performance trailed both COL and consensus estimates, representing just 66% of 2014 forecasts.
The underperformance was due to higher-than-expected operating expenses, which expanded 29%
year-on-year during the 9 month period. The 9M14 earnings translate to an annualized ROE of
8.94%.
Exhibit 1: Results Summary
In PhpMil
3Q13
Net interest income 2,655
Non-interest income 916
Provisions
204
Net income
963
3Q14 % Change 9M13
3,592
1,076
113
1,145
35.3
17.5
-44.5
18.9
9M14 % Change
7,084 10,381
4,383 3,039
314
300
3,913 3,370
46.5
-30.7
-4.6
-13.9
Charles William Ang, CFA
Ticker: CHIB
Rating: HOLD
Target Price: Php48.50
% FY14E
COL Consensus
74.3
NA
75.9
NA
66.7
NA
65.8
65.8
Source: CHIB, COL estimates
FRIDAY, 14 NOVEMBER 2014
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PHILIPPINE EQUITY RESEARCH
Lending business grows in line with expectations. In 3Q14, CHIB reported Php3.6Bil in net
interest income, 35% higher year-on-year. This brought its 9M14 total to Php10.4Bil, up 47% from the
same period last year. The strong growth is attributable to both an expanded asset base and higher
margins. As of end September, its loan portfolio grew 33% from last year while interest earnings
assets rose 26%. More importantly, net interest margin continued to improve, rising by ~20 basis
points to 3.3%. This marks the fifth straight quarter where CHIB’s margins improved year-on-year.
Lending operations during the first 9 months of the year were in line with our expectations, with net
interest income accounting for 74% of our full-year estimate.
CHIB’s fee-based revenues and trading income also met our projections. For 3Q14, fee-based
income rose 21% year-on-year. Meanwhile, trading and FX gains continued to normalize at Php202Mil
for the quarter. Total non-interest income for 9M14 ended up at 76% of our full-year forecast.
Earnings disappoint on higher-than-expected expenses. Nevertheless, earnings disappoint as
expenses grew 34% in 3Q14 and 29% in 9M14, faster than our projected increase of 25% for 2014.
We believe that the bank’s expenses may have been inflated by the integration of the 78 branches
of Plantersbank in 2Q14 as well as the rapid expansion of its asset base. The sharp rise in expenses
resulted in a cost-to-income ratio of 65%, above the industry average of 60%.
Maintaining HOLD rating in light of 3Q14 results. At its current price of Php48.50/sh, CHIB is
trading at 1.25X 2015E P/BV. This is significantly below our FV estimate of Php61.00/sh based on
a target multiple of 1.6X. However, despite the 26% upside potential, we are maintaining our HOLD
rating in light of the weaker-than-expected 3Q14 results. We will be reviewing our estimates to see
whether upgrading to BUY on attractive valuations is warranted.
AT: Lower margins and metal prices drag 9M14 earnings
Core earnings down 52% y/y, below consensus estimates. Atlas’ 3Q14 core net income declined
by 71.4% to Php267 Mil, brining 9M14 earnings to Php1 Bil, down 51.9% y/y. Core earnings for the
period fell below expectations as it represented only 47.4% of consensus estimates. Core earnings
declined mostly due to depressed metal prices, higher cash costs and financing costs, and higher tax
provisions due to the expiration of Carmen Copper’s income tax holiday.
Exhibit 1: Results Summary
in PhpMil
3Q13
3Q14
% Change
9M13
9M14
% Change
Revenues
EBITDA
EBITDA margin (%)
Core net income
Net margin (%)
3,924
1,785
45.5
934
23.8
3,921
1,559
39.8
267
6.8
(0.1)
(12.7)
(71.4)
-
10,977
4,528
41.2
2,102
19.1
12,590
4,658
37.0
1,011
8.0
14.7
2.9
(51.9)
-
Garie Ouano
Ticker: AT
Rating: HOLD
Target Price: Php8.20
% of forecasts
COL
Consensus
68.1
55.4
47.4
-
Source: AT, Bloomberg, COL estimates
Lower metal prices offset increase in production. 3Q14 revenues were flat y/y at Php3.9 Bil.
This brought 9M14 revenues to Php12.6 Bil, up 14.7% y/y. Revenues for the 9M14 period fell
below estimates as it represented 68.1% of consensus estimates. Revenues underperformed as an
increase in sales volume was offset by depressed copper and gold prices.
For 9M14, total production volume rose by 13% y/y to 13.5 Mil DMT. Sales volumes also increased
by 15% y/y to 78.1 Mil lbs of copper, and 25% y/y to 17,676 payable ounces of gold. However, the
increase in tonnage was met with a 5% y/y decrease in copper prices to US$3.16/lb, and a 10%
decrease in gold prices to US$1,290/oz.
FRIDAY, 14 NOVEMBER 2014
page 12
PHILIPPINE EQUITY RESEARCH
Higher operating cash costs squeeze EBITDA margin. EBITDA declined by 12.7% in 3Q14 to
Php1.6 Bil, bringing 9M14 EBITDA to Php4.7 Bil, up 2.9% y/y. EBITDA also fell below expectations,
representing 55.4% of consensus estimates, as higher operating cash costs added to the negative
effects of lower metal prices.
Total operating cash costs for the period rose by 25% y/y to Php8.1 Bil. According to
management, the higher cash costs for the period were due to the higher level of production and
shipment. Cash operating cost on a per-unit basis also increased, with operating cash costs growing
by 13% y/y to US$1.86/lb of copper, significantly higher than management’s initial target of US$1.50/
lb for the full-year. Higher operating cash costs led to a lower EBITDA margin for the period of 37%
from 41.2% a year ago.
Core net margin declines on higher tax provisions and finance costs. Net margin for the 9M14
period reached 8%, versus a core net margin of 19.1% seen the same period last year. Net margin
was lower y/y primarily due to an increase in tax provisions, which was due to the expiration of
Carmen Copper’s income tax holiday in October 2013. Higher finance costs also drove Atlas’ net
margin down as capitalized finance charges from the recent expansion project were accrued in the
period. Management has yet to disclose the specific y/y increase in finance charges for the period.
Consensus BUY rating. Consensus has a BUY rating on AT with an FV estimate of Php19.03/sh.
OTHER NEWS:
Economy: FPI declines in October
The BSP reported that foreign portfolio investments fell to US$1.8Bil in October from US$2.1Bil in
the previous month. According to the BSP, the decline in investments was due to investors reacting
to the IMF’s downgrade of its 2014 global growth forecast as well as to unrest in Hong Kong. Foreign
portfolio investments also showed a significant decrease year-on-year as a result of the US Fed’s
QE program ending this October. Net outflows for the month amounted to US$180Mi, turning around
from the US$969Mil net inflows reported in the same month last year. (source: BSP)
Jed Frederick Pilarca
Garie Ouano
Meredith Hazel Cua
SUMMARY OF CHANGES IN SHAREHOLDINGS OF DIRECTORS/OFFICERS:
Summary of Changes in Shareholdings of Directors/Officers
Stock
Volume
Acquired or
Disposed
Price per
share
Person (Designation)
BDO
5,000
D
102.30
Rebecca Torres (SVP)
source: PSE
FRIDAY, 14 NOVEMBER 2014
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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
FRIDAY, 14 NOVEMBER 2014
28
page 14
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
FRIDAY, 14 NOVEMBER 2014
Fax: +632 635-4632
Website: http://www.colfinancial.com
page 15