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Daily Edge Summary - June 29, 2015

Core Content

The Daily Edge report from June 29, 2015, provides an overview of the Philippine economy and stock market, highlighting key financial indicators, economic outlook, and company-specific updates.

Main Points

Economic Outlook

• The Philippine economy is expected to support faster growth in 2015.
• Public spending, particularly in construction, is showing signs of improvement, driven by the upcoming 2016 presidential election.
• The government has fiscal space to increase spending due to declining debt ratios, which have reduced the share of interest payments in total expenditures.
• The government aims for a budget deficit ratio of 2% of GDP, which is much lower than the 4.2% in 2014.

Inflation and Monetary Policy

• Inflation has slowed significantly, averaging 2.2% YoY in 2015 compared to 4.2% in 2014.
• The central bank has maintained a steady monetary policy, with the benchmark 91-day T-bill rate remaining low.
• Domestic liquidity remains ample due to restrictions on special deposit accounts (SDAs), keeping interest rates manageable despite global economic pressures.

Current Account and Currency

• The Philippines has maintained a current account surplus since 2003, supported by remittances and BPO industry growth.
• The current account surplus for 1Q15 was USD3.3b, up 121% YoY, which is 4.8% of GDP.
• The peso has remained relatively stable, with a slight weakness attributed to capital outflows and the anticipation of US rate hikes.

Market Talk

• MER (Manila Electric Co):
  • Contemplating the introduction of storage batteries due to Tesla's Powerwall.
  • Concerned about the impact on its distribution business.
  • Anticipates lower 2H15 profits due to a pending rate cut, but expects volume and customer growth to mitigate this.
• RRHI (Robinsons Retail Holdings Inc):
  • Opening its first Costa Coffee outlet in Eastwood City.
  • Plans to open up to 70 outlets over the next five years.
• GMA7:
  • Clarified the termination of acquisition talks with Ramon Ang after over a year of negotiations and additional proposals.
• ALI (Ayala Land Inc):
  • Deferred the sale of PHP1-2b worth of Homestarter bonds for 2015.
• SMPH (SM Prime Holdings Inc):
  • Purchased two hectares of land near Guadalupe station of MRT Line 3.

Key Information

Market Performance

• PSEi: 7,581.91 with a -0.80% change.
• Turnover (PHPm): 8,092.15 with a 30.71% increase.
• PLDT ADR (USD): 63.32 with a -0.71% change.
• PLDT ADR (PHP): 2,857.95 with a -0.68% change.
• Ave interbank rate: 2.50 with 0 bps change.
• PHP/USD rate: 45.14 with 0.00% change.

Analysts

• Luz Lorenzo (Head of Research / Economist)
• Ramon Adviento
• Michael Bengson
• Rommel Rodrigo
• Lovell Sarreal
• Katherine Tan

The Week Ahead

• June 29: Annual Stockholders’ Meetings for Starmalls, Inc., Rizal Commercial Banking Corporation, MJC Investments Corporation, Max’s Group, Inc., and Del Monte Pacific Limited.
• June 30: Annual Stockholders’ Meetings for Agrinurture, Inc., MRC Allied Incorporated, Century Pacific Food, Inc., Manila Jockey Club, Inc., Megawide Construction Corp., Philippine Realty & Holdings Corporation, and Apex Mining Company, Inc.
• July 1: Ipeople, Inc.
• July 3: EEI Corporation.
• July 9: Top Frontier Investment Holdings, Inc. and Abacore Capital Holdings, Inc.

Earnings and Valuations

• BDO: Target price PHP123.00, Upside 13%, Recommendation BUY.
• BPI: Target price PHP101.00, Upside 5%, Recommendation HOLD.
• CHIB: Target price PHP200.00, Upside 22%, Recommendation BUY.
• JFC: Target price PHP227.00, Upside 14%, Recommendation HOLD.
• PIP: Target price PHP5.10, Upside 5%, Recommendation BUY.
• RFM: Target price PHP5.60, Upside 33%, Recommendation BUY.
• URC: Target price PHP250.00, Upside 27%, Recommendation BUY.
• PF: Target price PHP285.00, Upside 59%, Recommendation BUY.
• RRHI: Target price PHP85.00, Upside 15%, Recommendation BUY.
• CIC: Target price PHP72.00, Upside 27%, Recommendation BUY.
• PGOLD: Target price PHP47.50, Upside 13%, Recommendation BUY.
• EMP: Target price PHP13.00, Upside 44%, Recommendation BUY.

Conclusion

The report suggests that the Philippine economy is poised for growth, supported by improved public spending, low inflation, and a strong current account surplus. While some sectors like utilities face challenges, the overall market remains optimistic. The week ahead includes several important shareholder meetings, and the report provides detailed earnings and valuations for key stocks.