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Daily Edge Summary - August 19, 2015

Core Content Overview

This document provides a detailed summary of financial performance and market insights for several companies and sectors in the Philippines, as of August 19, 2015. It includes key financial metrics, analyst views, and market highlights.

Key Financial Metrics

Analysts

• Luz Lorenzo: Head of Research / Economist, Contact: (632)849 8836, Email: luz_lorenzo@maybank-atrke.com
• Ramon Adviento: Contact: (63) 28498845, Email: ramon_adviento@maybank-atrke.com
• Michael Bengson: Contact: (63) 28498840, Email: michael_bengson@maybank-atrke.com
• Rommel Rodrigo: Contact: (632) 849 8839, Email: rommel_rodrigo@maybank-atrke.com
• Lovell Sarreal: Contact: (632) 849 8841, Email: lovell_sarreal@maybank-atrke.com
• Katherine Tan: Contact: (632) 849 8843, Email: kat_tan@maybank-atrke.com

Top Idea: Consumer Sector

RRHI (PHP72.95)

• Rating: BUY (Unchanged)
• Key Points:
  • Net income grew by 36% in 1H15 to PHP1.86b, driven by interest income.
  • Net sales increased by 12% to PHP41.4b in 1H15, with a blended same-store-sales growth of 2.9%.
  • Gross profit rose by 14.3% to PHP9b, with a GPM increase of 50bps.
  • EBIT grew by 5.7% in 1H15 to PHP1.96b.
  • EBITDA increased by 12.7% to PHP2.76b in 1H15.
  • Store expansion slowed, with 100 new stores added and 28 underperforming stores closed.
  • Net additions of 72 stores had a GFA of 13k sqm.
  • Capital expenditures for the full year are expected to be around PHP5b, lower than initial guidance of PHP6b.
  • Supermarkets remained the largest segment, contributing 48% of net sales, 52.1% of EBIT, and 48.3% of EBITDA.
  • EBITDA growth slowed in 2Q15 to 21.1% from 3.4% in 1Q15 due to competitive pressures.
  • Store closures and a high base from the previous year affected SSSG.

Market Talk

Utilities: EDC

• Rating: BUY (Unchanged)
• Key Points:
  • Net income and target price reduced due to weak 2Q15 performance and lumpy "typhoon proofing" costs.
  • Billed volumes reduced by 5% due to a 17% cut in Unified Leyte.
  • "Typhoon proofing" costs are expected to continue in 2H15, increasing operating expenses.
  • NAV discount widened to 20% from 10%.
  • EDC's Burgos wind project (150 MW) is expected to contribute ~PHP1b in profit in 2016 once transmission issues are resolved.
  • Tongonan Rehab Phase II and Bac-Man 3 greenfield project are expected to incrementally increase revenue.

Conglomerates: DMC

• Key Points:
  • DMC-HOLD reported a 29% increase in 1H15 net profit to PHP6.6b.
  • SCC-BUY contributed 40.5% of total net profit, with a 78% YoY increase in income due to full operation of Sem-Calaca.
  • Property division saw a 4% increase in net income.
  • Maynilad Water Services Inc's net earnings contribution rose 22% to PHP1.1b.
  • DMCI Mining's net income increased to PHP0.45b from a net loss in 1Q15.
  • DMCI Power's net income increased by 72% due to the addition of a 15MW bunker-fired power plant in Oriental Mindoro.
  • Earnings from DM Consunj Inc declined by 44% due to delayed infrastructure projects and lower variation orders.

Mining: SCC

• Key Points:
  • SCC's SLPGC is expected to supply 300MW to the grid next month.
  • SLPGC's two 150-MW facilities are projected to add PHP7.5b in annual revenues and PHP2b in net profit.

Consumer: PIP

• Key Points:
  • PIP-BUY's net income reached PHP368m in 2Q15, up 6.9% YoY.
  • Net sales amounted to PHP8.7b in 2Q15, up 5.2%.
  • Gross profit was flat YoY at PHP1.83b, with GPM of 24.8%.
  • EBIT rose by 3.3% to PHP504m.
  • EBITDA grew by 11.8% to PHP1.57b in 2Q15.
  • Net sales in 1H15 reached PHP13.6b, up 9% YoY.
  • The company's performance was slightly lower than expectations due to a slowdown in sales growth.

Market Highlight

EDC (PHP7.35): ST pain for LT gain

• Rating: BUY (Unchanged)
• Key Points:
  • Recurring net income reduced by 19–24% due to higher operating expenses and lower billed volume assumptions.
  • Billed volumes reduced by 5% due to a 17% cut in Unified Leyte.
  • "Typhoon proofing" costs are expensed rather than capitalized.
  • NAV and TP reduced by 10% and 20%, respectively.
  • The company is positioned to benefit from the government's push for renewable energy development.
  • EDC's Burgos wind project is expected to contribute ~PHP1b in profit in 2016.
  • Other projects like Tongonan Rehab Phase II and Bac-Man 3 greenfield are expected to increase revenue.

The Week Ahead

• Aug 22: Far Eastern University
• Aug 26: Double Dragon Properties Corp.
• Aug 28: Vista Land and Lifescapes, Inc
• Sept 4: Federal Resources Investment Group, Inc
• Sept 10: IRC Properties, Inc, Mabuhay Holdings Corporation, Annual Stockholders' Meeting (multiple entries)

Valuation Table

Main Views

• RRHI: Maintained a BUY rating with a target price of PHP85, citing strong performance and strategic store rationalization.
• EDC: Maintained a BUY rating despite short-term pain from typhoon proofing costs, highlighting long-term benefits from renewable energy development.
• Consumer Sector: PIP's performance was slightly below expectations, but the company's outlook remains positive.
• Market Outlook: The week ahead features key events including earnings reports and annual stockholders' meetings for several companies.

Key Information

• Financial Performance: Companies like RRHI and DMC-HOLD showed strong net income growth.
• Market Risks: "Typhoon proofing" and other one-time costs impacted short-term results.
• Strategic Moves: PLDT's acquisition of Paywhere and legal actions against GLO's Bayantel acquisition highlight strategic and regulatory developments.
• Sector Trends: Renewable energy growth is a key theme in the utilities sector, with EDC positioned to benefit.
• Valuation Metrics: Various financial ratios and metrics are provided for each company to assist in investment decisions.