Equity Research

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Global Growth Jitters

Global Growth Jitters

March 8, 2019

 

The PSEi may trade sideways this week amid mounting worries over global growth slowdown and dearth of domestic catalysts.  So far, corporate earnings have failed to excite the market as results were mixed.  Out of the 26 companies that have released their earnings, nine outperformed consensus, eight were in line and 10 were behind. 

Easing Cycle in the Horizon

Easing Cycle in the Horizon

March 8, 2019

 

Former Budget secretary-turned Bangko Sentral (BSP) governor Benjamin Diokno signaled that monetary policy should be in sync with the Duterte administration’s expansionary fiscal policy -- aside from economic data considerations -- and that there is room for easing given that: 1) local inflation is trending down and heading back towards the government’s target band of 2%-4%; 2) Fed’s dovish signals; and 3) weaker global growth outlook.

Cement Sector

Cement Sector: Turning the Corner

March 8, 2019

 

 

Eagle and Cemex are at an inflection point and may have seen the worst in 2018. Both have announced sales volume growth last year, a sign demand is picking up after a huge market share loss in 2017 due to cheaper imports that gained market share of 15% since 2015 or 4.5mn of last year’s total supply of 30mn tons.

BDO

BDO: Strong Franchise and the Priciest

March 8, 2019

 

 

BDO had a very strong finish in 2018. It only made Php21.6bn in net profits as of 9mos 2018 and in the fourth quarter the full year number was a higher Php32.7bn, up 17% and beating the Php31bn profit guidance set early in the year. It’s an additional net income of Php11.2bn in 4Q18 alone, coming from a weak start this year of 1Q, 2Q and 3Q net profits of Php5.9bn, Php7.3bn and Php8.4bn, respectively; far from the guidance of Php31bn.

 

ALI

Ayala Land, Inc. (ALI): Double income by next year from 2016

March 5, 2019

 

“Amazing” was how Ayala Land Inc. (ALI) President and CEO Bernard Vincent “Bobby” Dy described ALI’s 2018 earnings, up 16% on reported basis to Php29.2bn and even higher at 20% on recurring basis. Budgeted residential project launches were Php110bn early in the year but ended higher (based on actual) on strong demand with total full year launches of Php139.4bn. Margin headwinds didn’t show, instead EBIT margin expanded to 33% from 32%. Residential sales reservations were up 16%, average of Php12b monthly.

DNL

D&L Industries, Inc. (DNL): Election-related bounce

March 5, 2019

 

DNL is guiding for net earnings of 10%-15% this year to Php3.5bn to Php3.7bn after making Php3.2bn last year, up 10% and in line with consensus estimates. Results were pushed higher by record 4Q18 gross profit margin (GPM) of 22%. Full year GPM stood at 19.1%, better than 17% in 2017. Net profit margin improved to 12% from 11.5% in 2017.

Meralco

Meralco (MER) FY18 Review: Toppish

March 4, 2019

 

We expect flattish earnings growth this year; just up by 4% to Php23.4bn (revised upward by 13% from Php20.6bn) as San Buenaventura (SBPL) will come online in 3Q19. We expect profit of about Php500mn in a quarter’s worth of commercial operations from the plant (MER share: Php250mn) and Php600mn from organic growth, but we note that a lower rebased rate (if it pushes through in 4Q19) is a risk to profit growth. Our earnings estimate translates to a 2019E P/E of 18x, right at MER’s 5-yr historical average.

Inflation downtrend raise odds of rate cut

Inflation Downtrend Raise Odds of Rate Cut

March 1, 2019

 

 

Local inflation last February was a nice surprise, hitting 3.8% which was lower than consensus expectation (4.0%) and January’s 4.4%, mainly driven by food and non-alcoholic beverages, alcoholic beverages and tobacco, and transport. This dislodged the peso from strength from almost a year-low of Php51.710 to back to above Php52 on hopes of lower interest rates. This also boosted the odds for a reserve requirement cut. Meanwhile, the Bangko Sentral (BSP) expects inflation to trend lower for the rest of Duterte’s term, which could apply downward pressure on the yield curve.

Rebalancing Fallout

Rebalancing Fallout

March 1, 2019

 

The PSEi is on an upward mode this week as investors digest the slower-than-expected February inflation print (3.8% vs consensus of 4.1%) and renewed optimism over US-China trade deal. So far, earnings results have failed to lift the market. Out of 20 companies that have released their full year earnings, six were ahead of consensus, seven were in-line and seven were behind. This week, earnings releases to watch out for are MPI and DNL (March 6); EAGLE (March 7); TEL, DMC and ICT (March 8); and AEV and AP (March 9).

Rangebound

Rangebound

February 22, 2019

 

The PSEi may hover between 7,900-8,000 on lack of clarity on the progress of US-China trade talks despite Pres. Trump waiving the deadline for the tariff hikes on Chinese goods originally scheduled on March 1. On the local front, full year 2018 earnings results were mixed -- two were ahead of consensus (GLO, BDO), three were in-line (JFC, ALI and SMPH) and two were behind (CHP, IMI). This week, MER (February 26) and SM (February 28) will also release their full year results.

Yields up on RTB Sale

Yields up on RTB Sale

February 21, 2019

 

The market braced for the Php30bn 5-yr retail treasury bond (RTB) auction which was priced yesterday (February 26) and will settle on March 12. The Bureau of the Treasury (BTr) instead raised Php113.8 bn, a bit over four times its intended offering amid strong demand with tenders totaling Php121.8bn. We expect significant upward bias on the yield curve as the paper is expected to sell within the range of 6.125%-6.25%, at least 150bps higher than the last auction in November 2017. The 5-yr benchmark closed at 6.127% last week.

IMI

Integrated Micro-Electronics (IMI): Margin Recovery

February 15, 2019

 

Despite healthy topline growth of 24% to $1.3bn, Integrated Micro-Electronics’ (IMI PM) recurring income in 2018 fell by 25% to $28.4mn, behind consensus estimate of 14% growth to $39mn, due to: 1) higher costs of materials due to global component shortage; 2) higher expenses to expedite deliveries driven by the aforementioned shortage; 3) reconfiguration costs and operational difficulties in IMI’s Mexico facility. As a result, gross profit margin compressed by 180bps to 10.1%, down from 9M18’s 10.3% as margins in the fourth quarter plunged down to 8.4%. Headline income was buoyed by one-off gains from the Shenzhen plant relocation and STI acquisition, up by 33.8% YoY to $45.5mn. Minus revenues from new acquisitions STI and VIA, the core business still grew by 16%.