2015-11-10-PH-D

INDICES

INDEX GAINERS

INDEX LOSERS

TOP 5 MOST ACTIVE STOCKS

TUESDAY, 10 NOVEMBER 2015

INDICES

INDEX GAINERS

INDEX LOSERS

TOP 5 MOST ACTIVE STOCKS

Close Points % YTD%PSEi 7,070.19 -48.01 -0.67 -2.22All Shares 4,079.07 -24.40 -0.59 -4.35Financials 1,577.46 -0.15 -0.01 -7.00Holding Firms 6,631.79 -33.18 -0.50 5.27Industrial 11,435.46 -41.97 -0.37 -4.57Mining & Oil 11,265.68 -172.90 -1.51 -28.77Property 3,007.25 -50.77 -1.66 7.01Services 1,595.08 -19.04 -1.18 -24.98

Dow Jones 17,730.48 -179.85 -1.00 -0.52S&P 500 2,078.58 -20.62 -0.98 0.96Nasdaq 5,095.30 -51.82 -1.01 7.59

Ticker Company Price %LTG LT Group Inc 12.40 1.64AEV Aboitiz Equity Ventures 56.80 1.16MER Manila Electric Co 329.60 1.10EMP Emperador Inc 8.95 0.56GLO Globe Telecom Inc 2170.00 0.56

Ticker Company Price %RLC Robinsons Land Corp 29.05 -2.84EDC Energy Dev't Corp 6.26 -2.80BLOOM Bloomberry Resorts 5.63 -2.76MEG Megaworld Corporation 4.53 -2.58GTCAP GT Capital Hldgs Inc 1,325.00 -2.57

Ticker Company TurnoverTEL Phil Long Distance Co 266,418,800RLC Robinsons Land Corp 209,207,200EDC Energy Dev't Corp 195,764,800MER Manila Electric Co 175,541,300BDO BDO Unibank Inc 140,908,300

(As of November 09, 2015)

OTHER NEWS:

TOP STORIES:

MWC: Signs MOU with PDAM Bandung, IndonesiaEconomy: October vehicle sales up 28.7%

CNPF: Outperforms on margin improvementGLO: 9M15 core income above COL estimatesNIKL: Earnings continue to underperformABS: 9M15 earnings up 23% to Php1.9Bil, below estimatesEEI: Downside risk from Saudi Arabia worsensRCB: 3Q15 earnings up 11% to Php1.1Bil, in line with consensus estimatesCEB: September passenger volume up 13.6% to 1.44Mil passengers

ALI: 9M15 income on track to meet estimatesALI disclosed that earnings for 3Q15 grew 18.8% from Php3.74 Bil to Php4.44 Bil driven by a 10.2% improvement in revenues and 260-bps expansion in EBIT margin. ALI’s 3Q15 net income brings its 9M15 income to Php12.83 Bil, 18.9% higher than a year ago and on track to meet COL and consensus full-year estimates. We maintain our BUY rating on ALI with a fair value estimate of Php43.00. We continue to like ALI as it continues to deliver solid earnings every year while maintaining an aggressive growth stance for all its business segments. Outlook remains bright due to its high level of take-up sales and growing level of unbooked revenues. Its pipeline of investment properties under construction also provides visibility on the growth of its recurring business. ALI is the most complete property company in terms of product offering. We believe this diversification puts the company in a good position to capitalize on the numerous growth areas available and at the same time make the company’s operations more sustainable over the long term.

JFC: 3Q15 results show recovery; in line with estimatesJFC reported 3Q15 net income of Php1.3Bil, higher by 7.3% y/y. This brought 9M15 net income to Php3.9Bil, higher by 6.0% y/y. Results were in line with estimates, accounting for 70.1% of COL and 67.9% of consensus full year forecasts, respectively. Revenue growth accelerated to 13.6% in 3Q15 from 9.5% during 1H15, likely due to better volumes from lowered selling prices. Additionally, 3Q15 gross margin was unchanged y/y, better than the 130 basis point decline in 1H15. However, higher spending on IT and advertising led to an 18.3% increase in operating expenses and dragged on net income growth. We currently have a HOLD rating on JFC with a FV estimate of Php194/sh.

STOCKS IN FOCUS:

P H I L I P P I N E E Q U I T Y R E S E A R C H

TUESDAY, 10 NOVEMBER 2015 page 2

MARKET SUMMARY:

The PSEi continued its decline yesterday, as positive jobs data in the US fueled sentiments of an imminent interest rate hike by the Federal Reserve. The main index lost 48.01 points or 0.67% to close at 7,070.19.

Index decliners led gainers 18 to 11 while 1 issue closed unchanged. All sectors underperformed, led by Property (-1.66%). Significant decliners were RLC (-2.84%), EDC (-2.80%), BLOOM (-2.76%), MEG (-2.58%), and GTCAP (-2.57%). Meanwhile, notable gainers were LTG (+1.64%), AEV (+1.16%), and MER (+1.10%).

Value turnover decreased to Php3.7Bil from Php5Bil the previous session. After two consecutive sessions of net selling, foreigners became net buyers, accumulating Php66Mil worth of shares.

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ALI: 9M15 income on track to meet estimates9M15 earnings up 18.9% to Php12.83 Bil. ALI disclosed that earnings for 3Q15 grew 18.8% from Php3.74 Bil to Php4.44 Bil driven by a 10.2% improvement in revenues and 260-bps expansion in EBIT margin. ALI’s 3Q15 net income brings its 9M15 income to Php12.83 Bil, 18.9% higher than a year ago and on track to meet COL and consensus full-year estimates.

Exhibit 1. Results Summary

Source: ALI, COL estimates, Bloomberg

Slower residential growth not a concern. ALI’s residential sales grew just 7.6% for 9M15, slower than our forecast of 20%. The slower than expected booking of revenues is most likely due to a combination of buyers opting for longer payment terms and timing of construction of projects. However, we are not concerned given that take-up sales remain high. For 9M15, take-up sales were up 4% to Php82.9 Bil, driving up unbooked revenues by 11.5% from Php122 Bil as of end-FY14 to Php136 Bil as of end-9M15. This is equal to more than two years of residential revenues based on FY14 numbers.

Exhibit 2. Revenue breakdown

Source: ALI

Recurring business remains on track. ALI’s recurring business continues to grow on the back of its expansion plans and improvement in average lease rates. For 9M15, shopping center revenues grew 11.9% on the back of a 4% growth in GLA from the same period last year and 2% improvement in average mall lease rates. Office revenues grew 18.1% y/y as they expanded GLA by 10% and average BPO lease rates by 5%. Lastly, hotel and resorts revenues grew 7.2% as room count grew 8.2% y/y. All segments are on track to meet COL full-year estimates. In addition to strong revenue growth, margin expansion was also seen in most segments brought about by high occupancy, high lease rates, and contribution from new inventory.

STOCKS IN FOCUS:

Richard Lañeda, CFA

Ticker: ALIRating: BUYTarget Price: Php43.00

in Php Mil COL ConsensusOperating revenues 21,889 24,112 10.2% 66,638 73,637 10.5% 67.4% 68.5%EBIT 7,222 8,582 18.8% 20,689 23,873 15.4% 74.9% 80.0%

EBIT margin 33.0% 35.6% 2.6% 31.0% 32.4% 1.4%Core Net income 3,735 4,437 18.8% 10,789 12,825 18.9% 75.7% 73.2%

3Q15 % change 9M15 % of full-year estimate9M14 %

change3Q14

in Php MilResidential development 13,982 14,270 2.1% 40,049 43,079 7.6%Office for sales 1,743 2,006 15.1% 2,570 4,366 69.9%Commerical lots 176 66 -62.5% 4,369 2,843 -34.9%Shopping centers 2,739 3,227 17.8% 8,259 9,238 11.9%Office leasing 1,001 1,231 23.0% 3,097 3,658 18.1%Hotels and resorts 1,274 1,349 5.9% 4,022 4,310 7.2%Gross construction 5,768 10,422 80.7% 19,868 29,634 49.2%Property management 253 218 -13.8% 727 906 24.6%Sub-total 26,936 32,789 21.7% 82,961 98,034 18.2%Intercompany adjustments -5,046 -8,677 72.0% -16,323 -24,398 49.5%Total real estate revenues 21,890 24,112 10.2% 66,638 73,636 10.5%Revenues excluding lot sales 21,714 24,046 10.7% 62,269 70,793 13.7%

3Q14 3Q15 % change 9M14 9M15 % change



Exhibit 3. Commercial leasing EBITDA

Source: ALI

BUY with FV estimate of Php43.00. We maintain our BUY rating on ALI with a fair value estimate of Php43.00. We continue to like ALI as it continues to deliver solid earnings every year while maintaining an aggressive growth stance for all its business segments. Outlook remains bright due to its high level of take-up sales and growing level of unbooked revenues. Its pipeline of investment properties under construction also provides visibility on the growth of its recurring business. ALI is the most complete property company in terms of product offering. We believe this diversification puts the company in a good position to capitalize on the numerous growth areas available and at the same time make the company’s operations more sustainable over the long term.

JFC: 3Q15 results show recovery; in line with estimates3Q15 net income up 7.3%, in line with estimates. JFC reported 3Q15 net income of Php1.3Bil, higher by 7.3% y/y. This brought 9M15 net income to Php3.9Bil, higher by 6.0% y/y. Results were in line with estimates, accounting for 70.1% of COL and 67.9% of consensus full year forecasts, respectively. Revenue growth accelerated to 13.6% in 3Q15 from 9.5% during 1H15, likely due to better volumes from lowered selling prices. Additionally, 3Q15 gross margin was unchanged y/y, better than the 130 basis point decline in 1H15. However, higher spending on IT and advertising led to an 18.3% increase in operating expenses and dragged on net income growth.

Exhibit 1: Results Summary

Source: JFC, COL estimates, Bloomberg

Sales growth bounces back. JFC reported that revenues grew by 13.6% in 3Q15, faster than the 9.5% growth registered in 1H15. The acceleration was largely due to a recovery in same store sales which grew by 7.6% y/y in 3Q15 from 4.0% in 1H15. In particular, the Philippine business appears to be recovering from price competition earlier in the year. Domestic system wide sales grew by 13.6% y/y, faster than the 8.5% growth in 1H15. Foreign sales also grew faster with14.2% growth in 3Q15 from 10.7% in 1H15.

Gross margin stable. 3Q15 gross margin was unchanged y/y at 18.0%, recovering from the 130 basis point decline in 1H15. We believe this is likely due to the impact of lower commodity prices. Operating margins would also have been better y/y if not for IT-related and advertising expenses. Operating expenses grew by 18.3% y/y driving operating margins down 40 basis points to 6.0% in 3Q15.

Jed Frederick Pilarca

Ticker: JFCRating: HOLDTarget Price: Php194.00

9M14 9M15 changeShopping centers EBITDA 63% 69% 6%Office leasing EBITDA 85% 89% 4%Hotels and Resorts EBITDA 28% 28% 0%

COL Consensus

Revenues 22,052 25,052 13.6 65,753 72,907 10.9 72.9 71.7Gross Profit 3,966 4,509 13.7 12,089 12,798 5.9 69.9 68.8

Gross Margin (%) 18.0 18.0 0.0 18.4 17.6 (0.8) - -Operating Income 1,409 1,493 6.0 4,422 4,413 (0.2) 64.9 63.5

Operating Margin (%) 6.4 6.0 (0.4) 6.7 6.1 (0.7) - -Net Income 1,172 1,258 7.3 3,640 3,858 6.0 70.1 67.9

Net Margin (%) 5.3 5.0 (0.3) 5.5 5.3 (0.2) - -

% of full year forecast3Q14 3Q15 % Change 9M14 9M15 % Changein PhpMil

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Maintain HOLD rating. We currently have a HOLD rating on JFC with a FV estimate of Php194/sh. Although same store sales appears to already be recovering, it remains to be seen whether this growth is sustainable. Faster growth in 3Q15 may be partially due to a lower base as JFC had product delivery issues last year. We are also reviewing our estimates to factor in the recent acquisition of 40% of Smashburger. The acquisition will already be reflected by 4Q15 as the transaction was completed in end-October.

TOP STORIES:

CNPF: Outperforms on margin improvement3Q15 net income up 10.2%, above estimates. CNPF reported 3Q15 net income of Php561Mil, higher by 10.2% y/y. This brought 9M15 net income to Php1.5Bil, higher by 21.9% y/y. Results came in above estimates at 79.8% and 79.1% of COL and consensus full year forecasts, respectively. Despite a deceleration in net sales growth to 6.0% in 3Q15 from 17.4% in 1H15, net income still beat expectations due to an unexpected decline in operating expenses.


Source: CNPF, COL estimates, Bloomberg

Export business drags on sales growth. CNPF’s net sales growth slowed down in 3Q15 to 6.0% from 17.4% in 1H15. This was largely due to the non-branded export business which reported negative sales growth in 3Q15. According to CNPF, its customers had loaded on tuna in 1H15, when tuna prices were low, in anticipation of rising tuna prices. Meanwhile, the branded business registered sales growth of 15% in 9M15, in line with our estimates.

But margins still expanding. CNPF registered operating margin of 13.4% in 3Q15 and 12.1% in 9M15, above our estimate of 11.4% for the full year. According to CNPF, the improvement in margins was due to a better sales mix in non-branded exports. In addition, CNPF was likely able to pass on the impact of lower tuna prices. Margins of the branded business, meanwhile, was flat y/y. Gross margins declined by 150 and 110 basis points in 3Q15 and 9M15, respectively. However, this was due to a change in accounting treatment that reallocated expenses from operating expenses to cost of sales.

Maintain BUY rating. We are maintaining our BUY rating on CNPF. The slower sales growth due to non-branded exports is not a major concern as CNPF is able to pass on the impact of lower tuna prices and preserve margins. Additionally, we believe there is upside risk to our estimates once we factor in the acquisition of the coconut product business. At current prices, upside to our FV estimate of Php21.80/sh is significant at 23%.

Jed Frederick Pilarca

Ticker: CNPFRating: BUYTarget Price: Php21.80

3Q14 3Q15 % Change 9M14 9M15 % Change COL Consensus

Net Sales 5,546 5,877 6.0 15,178 17,185 13.2 73.3 73.3Gross Profit 1,532 1,536 0.2 4,160 4,521 8.7 73.0 73.3

Gross Margin (%) 27.6 26.1 (1.5) 27.4 26.3 (1.1) - -Operating Income 712 787 10.4 1,757 2,087 18.7 77.9 79.0

Operating Margin (%) 12.8 13.4 0.5 11.6 12.1 0.6 - -Net Income 509 561 10.2 1,228 1,497 21.9 79.8 79.1

Net Margin (%) 9.2 9.6 0.4 8.1 8.7 0.6 - -

% of Forecastin PhpMil



GLO: 9M15 core income above COL estimates9M15 core income above COL estimates. GLO’s reported 3Q15 core income reached Php4.1Bil. This brought 9M15 core income to Php12.7Bil, 9.8% higher y/y. However, these results include the consolidation of Bayantel which is not yet factored in our estimates. Excluding this, 9M15 core income is at Php12.6Bil, above COL estimates at 93.2% of the full-year but in line with the consensus at 74.1%. Core net income outperformed our estimates mainly due to strong revenues and lower-than-expected costs.

Service revenues outperform COL estimates. GLO’s service revenues excluding Bayantel grew 12.7% y/y to Php82Bil, outperforming our estimate at 77.5% of the full-year. GLO’s combined revenues from mobile data, broadband, and fixed line data (also excluding Bayantel) continued to drive growth, showing a 36.6% y/y increase to Php31.8Bil in 9M15. This was attributed to the persistent expansion of mobile data traffic (up 89% y/y to 108petabytes) and growth in the number of mobile data users (up 126% y/y to 18.6Mil).

Even with the falling demand for voice calls, GLO’s fixed line voice revenues still grew 19.6% y/y to Php2.5Bil in 9M15. In the third quarter alone, the said segment’s revenues grew 31% to Php999Mil compared to 2Q15’s Php762Mil. Management attributed this growth to strong demand for bundled broadband plans that include a landline connection aside from internet access.

Subscriber growth continues, ARPU declines. GLO shared that its subscriber base continued to grow in 9M15, with prepaid subscribers increasing 17.3% y/y to 47.8Mil and postpaid subscribers growing 9.2% y/y to 2.4Mil. Growth on a q/q basis was also positive at 3.7% for prepaid and 1.6% for postpaid. However, competition remained intense as reflected in lower ARPUs, with prepaid ARPU declining 5% y/y and postpaid by 3.2%.

9M15 subsidies below expectations but 3Q15 figure picks up. GLO reported EBITDA for 9M15 reached Php34.7Bil. Excluding Bayantel’s consolidation, EBITDA reached Php34.1Bil. The latter is above our forecast (at 82.2% of the full-year) mainly because of lower-than-expected subsidies. Subsidy expenses grew 8.1% y/y to Php5.3Bil in 9M15, representing only 63.9% of our full-year assumption. The figure is below our expectations mainly due to the lower-than-expected result in the first half (1Q15 subsidies settled at 19.6% of the full-year while the 2Q15 figure ended at 19.9%). However, this expense is already picking up, with the 3Q15 figure accounting for 24.4% of our 2015 estimate. Management attributed the increase to the expansion of mobile and nomadic subscriptions

Angelo Lecaros

Ticker: GLORating: HOLDTarget Price: Php1,792.00


9M14 9M15 % Change 9M15 % Change COL ConsensusService revenues 72,701 83,356 14.7 81,961 12.7 77.5 71.3EBITDA 29,758 34,678 16.5 34,101 14.6 82.2 74.8

EBITDA margin (%) 40.9 41.6 - - - -Core net income 11,578 12,708 9.8 12,598 8.8 93.2 74.1

Core margin (%) 15.9 15.2 - - - -source: GLO, Bloomberg, COL est imates

% of forecastsAs reported ex-Bayantelin PhpMil

Exhibit 2: Cellular segment results9M14 9M15 % Change

Subscribers (Mil)Prepaid 40.7 47.8 17.3Postpaid 2.2 2.4 9.2ARPU (monthly)Prepaid 103 98 -5.0Postpaid 1,174 1,137 -3.2source: TEL

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Angelo Lecaros

Ticker: NIKLRating: HOLDTarget Price: Php7.22

such as pocket WiFis, as well as higher re-contracting costs as subscribers shift to mid/high-end plans. We expect this to further pick up by the fourth quarter as GLO launches more programs, including the iPhone 6S and 6S Plus in postpaid.

Depreciation expenses lower than expected. Another reason why 9M15 core earnings outperformed our estimate was due to lower-than-expected depreciation expenses. GLO reported Php14.2Mil in depreciation expense, 21.1% higher y/y but accounted for only 70% of our forecast. However, this has also been picking up since 1Q15, with the 2Q15 figure 4.9% higher q/q and 3Q15 18.4% higher q/q. We expect depreciation to further increase moving forward as GLO continues to invest in infrastructure. Currently, only Php22.9Bil of its 2015 capex has been disbursed. Management guided that it expects to spend US$800Mil or around Php35.6Bil in capex for 2015. GLO also stated that the capital expenditures for 2016 may be slightly higher, though no final figure has been disclosed.

Reiterating EBITDA margin guidance. GLO reiterated its EBITDA margin guidance of 40%. GLO also added that it will perform slightly better than the said target this year. Note that EBITDA margin has been settling within 41% to 42% for the past three quarters and that 9M15 EBITDA margin ended at 41.6%.

Estimates under review. We are reviewing our estimates in light of GLO’s outperformance as well as the consolidation of Bayantel in its books. We currently have a HOLD rating on GLO with a FV estimate of Php1,792/sh.

NIKL: Earnings continue to underperform9M15 income down 68.8% y/y, below estimates. NIKL’s 3Q15 income declined 87.8% y/y to Php1Bil. This brought 9M15 net income to Php2.5Bil, 68.8% lower y/y and below both COL and consensus forecasts at 42.5% and 60.9% of the full-year figures, respectively. Earnings missed our estimates due to lower-than-expected revenues and higher-than-expected costs for the period.

Revenues underperform on lower nickel prices. NIKL reported that 9M15 total revenues declined 38% y/y to Php13.1Bil, accounting for only 65.2% of COL and 78.5% of consensus full–year forecasts. Revenues underperformed our estimates due to the persistent decline in nickel prices. Exports of ore for 9M15 reached an average contract price of US$22.65/WMT, 51.7% lower compared to US$46.85/WMT a year ago. This is 30.1% lower than our full-year estimate. In addition, ore shipped to NIKL’s processing plants which are linked to LME prices reached an average of US$5.74/lb, 27.1% lower than the US$7.87/lb realized in 9M14. This is also 11.7% lower than our 2015 forecast. Note that total shipment volume was in line with our estimates at 15.96Mil WMT in 9M15, accounting for 82.7% of the full-year estimate. Due to seasonal factors, results for the first nine months of the year typically account for about 81% of the full year.


COL ConsensusRevenues 11,808 5,135 (56.5) 21,146 13,107 (38.0) 65.2 78.5Operating income 7,889 1,963 (75.1) 12,971 4,713 (63.7) 50.0 104.4

Operating margin (%) 66.8 38.2 - 61.3 36.0 - - -Net income 8,182 1,002 (87.8) 7,978 2,492 (68.8) 42.5 60.9

Net margin (%) 69.3 19.5 - 37.7 19.0 - - -source: NIKL, Bloomberg, COL est imates

% Change % of forecastsin PhpMil 3Q14 3Q15 % Change 9M14 9M15



Cost of sales per WMT higher y/y but showing signs of decline. NIKL’s cost of sales per WMT reached Php309/WMT in 9M15, 5.7% higher y/y. This is also 2.7% higher than our estimate. However, cost has been decreasing since the start of the year, from Php361/WMT in 1Q15 (24.9% higher y/y) and Php311/WMT in 2Q15 (0.9% higher y/y). For the third quarter alone, cost of sales per WMT declined 1.2% y/y to Php278/WMT. NIKL stated that the decline in costs and expenses were due to stringent cost cutting measures it implemented at the mine sites. We expect that costs will go down further as NIKL returns to normal operations. Recall that NIKL previously mentioned that there were delays in repairing its conveyor system, which transports ore from the Taganito mine to its HPAL plant. This prompted the use of third party contractors in the mean time. The conveyor system was expected to resume operations by October.

Estimates under review. We are reviewing our estimates given the downside risk that low nickel prices continue to pose to NIKL’s earnings. We currently have a HOLD rating on NIKL with a FV estimate of Php7.22/sh.

ABS: 9M15 earnings up 23% to Php1.9Bil, below estimates9M15 earnings up 23% y/y, below estimates. 3Q15 earnings from ABS grew 27.7% to Php696Mil from Php545Mil during the same period last year. This brought 9M15 earnings to Php1.9Bil, up 23% y/y. Earnings for the 9M15 period were below COL and consensus estimates, representing 70% and 66.1% of full-year forecasts, respectively. This was due to the slower than expected revenue growth and higher than expected operating expenses from new initiatives.


9M15 revenues grew 11.1%, slower than expected. ABS’ revenues for 3Q15 grew 16.3% to Php10.1Bil from Php8.7Bil driven by higher airtime revenues. Higher airtime revenues was largely due to an improvement in ratings. This in turn increased the ad rates based on the new pricing model (CPIRP), which rewards increases in ratings points. As a result, 9M15 revenues increased 11.1% to Php27.8Bil from Php25.1Bil in 9M14.

Despite the increase, net revenues for the 9M15 period were below COL estimates, accounting for 68.5% of full year estimates, as PayTV segment (Sky Cable) revenue growth was slower than expected. In 9M15, PayTV revenues grew 4% to Php6Bil, accounting for only 69% of COL estimates.

Operating expenses weighed on profits. Higher operating expenses also caused profits for 9M15 to lag behind COL estimates, accounting for 67.1% of full year forecast. Operating expenses in 3Q15 increased by 16.7% to Php9Bil from Php7.7Bil. This brought 9M15 expenses to Php25Bil, up 9.8%y/y as higher cost of sales and services and GAEX offset the 1.3% decline in production costs for the period. For 9M15, cost of sales and services rose by 20.1% y/y to Php8.4Bil due to higher operational costs of Sky Cable. Meanwhile, GAEX climbed 12.7% to Php8.3Bil due to costs from the selling and marketing of digital boxes and operational costs for Kidzania.

Nevertheless, ABS expressed confidence that higher costs associated with the sales of digital boxes will translate to higher ratings and higher revenues by next year. As of end-September, ABS has sold 800,000 boxes, which is 80% of their full year target. It also expressed confidence that Kidzania would already breakeven next year as the number of patrons have been very strong.

COL Consensus

Revenues 8,679 10,090 16.3 25,057 27,826 11.1 68.5 72.5Operating income 969 1,092 12.7 2,256 2,786 23.5 67.1 72.6

Operating margin (%) 11.2 10.8 - 9.0 10.0 - - -Net income 545 696 27.7 1,540 1,894 23.0 70.0 66.1

Net margin (%) 6.3 6.9 - 6.1 6.8 - - -Source: ABS, Bloomberg, COL est imates

% Change

% of forecastsin PhpMil 3Q14 3Q15 % Change

9M14 9M15

Michelle Angeline Yu

Ticker: ABSRating: BUYTarget Price: Php72.00

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Reviewing forecasts. We are reviewing our earnings forecast and FV on ABS in light of its weaker than expected 9M15 results. Our main concern is its Pay TV business which continues to disappoint. We are not too concerned about the increase in costs brought about by the sales of digital TV and Kidzania as these should only be temporary. Note that ABS’ digital TV service should boost the company’s audience share in traditionally weak areas once sales reach a critical mass. ABS’ improving audience shares is especially relevant in light of the upcoming 2016 presidential elections, which is expected to generate more advertising revenues and add upward pressure on recurring ad rates as airtime supply becomes tighter. Meanwhile, as discussed earlier, Kidzania should already breakeven next year as the number of patrons is very strong.

EEI: Downside risk from Saudi Arabia worsensSaudi Arabia prospects grow even dimmer. ARCC, EEI’s 49% owned subsidiary that operates in Saudi Arabia, is facing even more challenges. According to EEI, ARCC has not won any new projects this year which does not bode well for its future profits. Note that equity earnings from ARCC have already declined substantially since the start of the year. As of 1H15, equity earnings have dropped 57.7% y/y to Php93.8Mil. This is also below our downgraded Php360Mil 2015 estimate, accounting for only 26% of the total.

About Php2.7Bil in claims filed for two projects in Saudi Arabia. Aside from the absence of new projects, EEI disclosed that it has filed claims of around Php838Mil and Php1.9Bil in two major projects due to client-related delays as well as manpower and productivity issues. These include the Petro-Rabigh II Mitsubishi Hitachi Power Systems, Ltd. (MHPS) and the Naphtha and Aromatics (SAIPEM). EEI also disclosed that ARCC has made immediate provisions in its financial statements for possible cost overruns and shortfall in collection in these projects. Because of this, 3Q15 results of EEI will be adversely affected. Note that EEI has a 49% stake in ARCC.

Taking precautions on existing projects. Management said that it is aware that similar issues may happen in its other projects in Saudi Arabia. As a precaution, the company is taking a two-pronged approach including reducing overhead costs by managing fees and scaling down manpower. Management is also being proactive in its current projects to ensure that issues are dealt with immediately and that construction is finished in the most optimal time.

Domestic construction at an all-time high. On a more positive note, EEI stated that its construction backlog as of August reached Php44.6Bil, with Php34.9Bil coming from domestic projects and the remaining Php9.7Bil from ARCC in Saudi Arabia. Prospects for domestic projects continue to be bright, with EEI having won around Php20Bil worth of local projects in 2015 alone. This includes the Finance Centre worth Php1.1Bil as well as the first package of the Pagbilao Power Plant project worth Php1Bil, among others. In fact, EEI sees elevated revenues in 2016 because of the amount of domestic work to be done and the corresponding revenues it will book. Management also added that it is now working to win projects for 2017 onwards given that it already has a full plate for next year.

Estimates under review. We are reviewing our estimates on EEI given the ever-increasing challenges its Saudi Arabian operations. Although the outlook for its local operations is still positive, the impact of a slowdown in its foreign operations is still significant given that ARCC still accounted for 46.2% and 21.6% of EEI’s earnings for FY14 and 1H15, respectively.

Angelo Lecaros

Ticker: EEIRating: Under reviewTarget Price: N/A



RCB: 3Q15 earnings up 11% to Php1.1Bil, in line with consensus estimates3Q15 earnings in line. RCBC reported Php1.11Bil in profits during the third quarter, up 11% year-on-year amidst a strong lending income and lower (estimated) provisions. Net interest income during the quarter rose 10% to Php4.0Bil. For the year-to-date period, total profits reached Php3.6Bil, up 21% from the comparable period last year. Earnings ended in line with consensus estimates, accounting for 73% of the full-year forecast. RCB’s 9M15 performance translates to an annualized ROE of 9.0%

Net interest income recovers in 3Q15. After posting lackluster growth during the past 3 quarters, RCB’s net interest income finally rebounded in 3Q15. During the period, net interest income grew 10% year-on-year to Php4.0Bil, a significant improvement over the 3%, -6% and 1% growth recorded in the previous 3 periods. We believe that the pickup in growth was mainly due to stabilizing margins. Note that volume growth has been generally strong. In 3Q15, we estimate that net interest margin averaged 3.5%, just ~5 basis points lower year on-year. In contrast, net interest margin for 1H15 averaged 3.4%, about 40 basis points lower year-on-year. Meanwhile, loan and total asset growth remained healthy at 19% and 13% respectively.

Trading gains remain weak; though other income continues growth. Similar to the other banks that have reported 3Q earnings, RCB also posted weak trading income during the period. Based on our estimates, the bank most likely booked a small trading loss during the period, a reversal from the Php0.5Bil gain in 3Q14. For 9M15, trading gains reached Php1.44Bil, down 15% year-on-year. Nevertheless, other operating income remained strong during the period, with fee-based and miscellaneous income growing by 25% and 24% in 3Q15 and 9M15 respectively. For the year-to-date period, total non-interest income ended at Php5.5Bil, 24% higher year-on-year despite the weaker trading gains.

Consensus BUY rating. The consensus rating on RCB is a BUY with an FV estimate of Php44.38/sh.

CEB: September passenger volume up 13.6% to 1.44Mil passengersSeptember passenger volume up 13.6%. CEB disclosed that it flew 1.44Mil passengers in September, 13.6% more than the 1.27Mil passengers flown in the same month last year. The increase came on the back of a seat capacity expansion of 15.3% for the month. The September figure brought the year-to-date tally to 13.65Mil passengers, an improvement of 9.0% compared to 12.53Mil passengers in 9M14. Additionally, seat capacity for the nine-month period grew by 12.6%.

Reiterate BUY rating. CEB’s year-to-date passenger volume currently represents 75.8% of both management guidance and COL estimate of 18Mil passengers for the year. This is in line with targets, as the nine-month volume for the past three years accounted for 73.7-76.0% of the full-year volume. Seat capacity growth is also on track with management’s goal of having low-double digit growth for the year and COL estimates of 12.4% growth. We reiterate our BUY rating on CEB with a FV estimate of Php140/sh.

Charles William Ang, CFA

Ticker: RCBRating: N/ATarget Price: N/A

Exhibit 1: Results Summary% FY15E

ConsensusNet interest income 3,658 4,008 9.6 11,246 11,460 1.9 N/ANon-interest income 1,525 1,158 -24.1 4,401 5,460 24.1 N/AOperating expenses 3,487 3,664 5.1 10,374 11,100 7.0 N/ANet income 995 1,110 11.6 3,010 3,635 20.8 73.0%Source: RCB, Bloomberg

% Change3Q14 3Q15 % Change 9M14 9M15

Meredith Hazel Cua

Ticker: CEBRating: BUYTarget Price: Php140.00

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MWC: Signs MOU with PDAM Bandung, IndonesiaAccording to a disclosure in the PSE, Manila Water Asia Pacific Pte. Ltd (“MWAP”), the Singapore unit of Manila Water Company, Inc. (MWC), signed a Memorandum of Understanding (“MOU”) with the PDAM Tirtawening Kota Bandung, a water utility company owned and controlled by the regional government of Bandung City, Indonesia. Under the MOU, MWAP will conduct a demonstration project for non-revenue water reduction in Bandung City. MWAP would begin the mobilization for the project within three months, followed by a physical implementation period of 9 to 12 months. MWC said that the demonstration project may lead to more collaborations with PDAM Bandung which is in line with the company’s objective to expand outside of the East Zone service area. (source: MWC, PhilStar)

Economy: October vehicle sales up 28.7%According to a joint report by the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and the Truck Manufacturers Association, vehicles sales reached 28,667 units in October, 28.7% more y/y and 5.9% up compared to September. Broken down, commercial vehicle sales reached 17,432 units, up 31.0%, while passenger cars sales totaled 11,235 units, up 25.2%. For the month of October, Toyota Motor Philippines Corp. was the top seller, cornering 43.3% share of the market followed by Mitsubishi Motors Philippines Corp. (19.1%) and Ford Motor Co. Philippines Inc. (8.3%). October results brought the year-to-date tally to 234,951 unit sales, 22.4% more than the 192,005 vehicles sold in the first ten months of 2014. According to CAMPI President Rommel Gutierrez, the industry expects to hit its sales target of 310,000 units for 2015. (source: BusinessWorld, PhilStar)

Jed PilarcaMeredith Hazel CuaAngelo LecarosMichelle Yu

OTHER NEWS:

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Investment Rating Definitions

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.

BUY HOLD SELL

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.

Important Disclaimers

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Documents

2015-11-10-PH-D