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Philippine Equities:Sustaining the Gains
BDO Research
October 13, 2016
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2
Outline
Executive Summary
Core economic views
What has changed?
What’s next?
Outlook for Philippine equities
Sector views
Appendices
3
Outline
Executive Summary
Core economic views
What has changed?
What’s next?
Outlook for Philippine equities
Sector views
Appendices
4
Executive Summary
Robust domestic economy. Investments pick-up complementing strong
consumption story. Remittances and BPO revenues resilient despite sluggish
global economy.
Accelerating corporate profits. We see core profit growth for our stock coverage
universe accelerating from 5% in 2015 to 10% and 12% respectively in 2016 and
2017.
Pro-active policies. Government plans to address growth bottlenecks (including
poor quality infrastructure) should sustain economic growth.
Supportive liquidity conditions. Interest rates remain low. Government and
private sector balance sheets appear healthy.
What concerns us? The stock market is trading above its historical average of
15x Price to Earnings (PE) Ratio. With valuations no longer cheap, share prices
may be sensitive to bad news or turns in sentiment.
5
Fundamentals support bullish stance on Philippine equities
100
400
700
1,000
1,300
1,600
1,900
1987 1991 1995 1999 2003 2007 2011 2015
PCOMP MSCI World
Rewards outweigh risks for long-term
investors in the Philippines
6
Fig 1: PCOMP up 300% since Global Financial Crisis
Sources: Bloomberg
PCOMP vs MSCI World (1987 to present)
Inflection point post-
Global Financial Crisis
Outline
Executive Summary
Core economic views
What has changed?
What’s next?
Outlook for Philippine equities
Sector views
Appendices
7
Core economic views
Macro outlook remains positive
8
We forecast GDP growth of 6.7% and 6.3% respectively for 2016 and 2017,
helped by expected pro-growth government policies and a continuation of
reforms that encourage more private sector investments.
BPO revenues and remittances should remain resilient despite sluggish global
growth and weak commodity prices
A narrower current account surplus, driven by growth-supportive capital goods
imports is not a significant source of concern.
We see more expansionary fiscal policy going forward, forecasting slightly wider
fiscal deficits (at 2.2% and 2.7% of GDP) in 2016-17. Accompanying tax reform
measures should nonetheless bolster fiscal sustainability.
The BSP has started to increase its mopping up of excess liquidity in the
banking system. We forecast cumulative 50bps of hikes in 1H17.
GDP per capita rising
9
Fig 2: Rising GDP per capita approaching USD3,000
World Bank GDP per capita – Philippines (Constant 2005)
Sources: World Bank, Bloomberg
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15
GDP Per Capita (USD) YoY Growth
Investments augment domestic
consumption story
10Sources: World Bank, BDO, Nomura
Fig 4: Foreign Direct Investment
inflows structurally risingFig 3: Consumption historically
accounts for 70% of GDP
-500
-
500
1,000
1,500
2,000
2,500
1998 2002 2006 2010 2014
Tho
usa
nd
s Consumption
Government
Capital Formation
Net Import and Others
Philippine GDP (constant 2010, PHPbn) FDI inflows, 12 month rolling sum
0
2
4
6
8
10
Jan-06 Jan-09 Jan-12 Jan-15
USDbn
FDI inflows, 12 month rolling sum
Philippines vs ASEAN
11
Fig 5: Philippines a stand out: growing investments complements strong
domestic consumption story
Sources: CEIC, BDO, Nomura
Philippine GDP growth (% YoY) versus ASEAN peers
5.96.7 6.3
6.1 4.8 5.25.6 5.8
5.04.1
3.9 4.2
2.8 2.83.0
3.0
2.0 1.10.7
1.2
-8
-4
0
4
8
20
15
20
16
20
17
20
18
20
15
20
16
20
17
20
18
20
15
20
16
20
17
20
18
20
15
20
16
20
17
20
18
20
15
20
16
20
17
20
18
Net Exports Investment Consumption GDP Growth
% YoY
Philippines MalaysiaIndonesia Singapore Thailand
Philippines vs the World
12Sources: World Bank, BDO, Nomura
Fig 7: Above trend Philippine GDP
performance to continueFig 6: Philippine GDP growth has
outpaced the rest of the world
PH vs World GDP % YoY (constant 2010) GDP CAGR% forecasts (2015-18F)
6.4%
5.3%
4.4%
3.2%
1.7%
0.0%
2.0%
4.0%
6.0%
-2%
0%
2%
4%
6%
8%
World PH
Outline
Executive Summary
Core economic views
What has changed?
What’s next?
Outlook for Philippine equities
Sector views
Appendices
13
Strong domestic driven growth
14
Fig 8: Philippine economy not
dependent on exports
Sources: Bloomberg, IT & Business Process Association of the Philippines, CEIC
Fig 9: Increasing share of BPOs and
remittances in GDP
176.5%
89.8%
77.2%71.0%
27.9%21.1%
0%
40%
80%
120%
160%
Exports as a % of GDP BPOs and remittances (USDbn)
0%
5%
10%
15%
20%
$0
$10
$20
$30
$40
$50
$60BPO Revenues
Remittances
Total (in % of GDP)
Evolution of remittances and BPOs
15
Fig 10: OFWs becoming more skilled
Sources: Nomura, CEIC, IT & Business Process Association of the Philippines
Fig 11: BPOs moving up the value chain
OFW distribution by job classification (%) BPO 2014 revenue growth, by sector
0%
5%
10%
15%
20%
25%
30%
35%
40%
44%
48%
52%
56%
60%Professionals and semi-skilled workers
Unskilled workers
Structural support for current account
16
Fig 12: Domestic growth drivers support current account
Sources: BDO, Nomura
Structural sources of current account strength (USDbn)
-5
-3
-1
1
3
5
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
USDbnBPO Remittances
Travel balance Goods trade balance
Current account balance
Low commodity prices reduce inflation risk
17Sources: Bloomberg, CEIC
Fig 13: PH a net food and energy
importer
Fig 14: Benign inflation leaves policy
headroom
$0
$5
$10
$15
$20
$25
$0
$30
$60
$90
$120
$150
2005 2010 2015
US
D/C
WT
US
D/B
bl
Crude Oil Rice
Oil and rice prices CPI vs current account and budget deficits
-8%
-4%
0%
4%
8%
12%
1997 2001 2005 2009 2013
CPI Current Account Budget Balance
External position strengthened
18
Fig 15: Large reserve buffers
Sources: Bloomberg, IT & Business Process Association of the Philippines, CEIC
Fig 16: Low external debt
FX reserves (USDbn) External debt as a % of GNI
0
20
40
60
80
Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16
FX reserves
0
30
60
90
120
Dec-81 Dec-87 Dec-93 Dec-99 Dec-05 Dec-11
External Debt Previous Definition
Scope for government to ramp-up spending
19
Fig 17: Government has underspent since 2010; large fiscal space available
Sources: Bloomberg
Government deficits (actual versus target as a % of GDP)
-4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5
2008
2009
2010
2011
2012
2013
2014
2015
Target Actual
%GDP
2%
4%
6%
8%
10%
2,000
4,000
6,000
8,000
10,000
M3 Money Supply
PDST-R2 10 Year Rate
No debt problem despite boom in Peso liquidity
20Sources: Bloomberg, CEIC, Philippine Dealing Exchange
Fig 18: Money supply at historic highs
while rates are still close to lows
M3 money supply (PHPbn) vs 10 year PDST-R2
Fig 19: Public and private debt
levels remain comfortable
Leverage ratios of the public and private sectors
0%
20%
40%
60%
80% Corp Net Debt / Equity
Gov't Debt % GDP
Outline
Executive Summary
Core economic views
What has changed?
What’s next?
Outlook for Philippine equities
Sector views
Appendices
21
Philippine economy still lags peers
22
Fig 20: PH GDP per capita lags peers
Sources: BDO, Nomura
9,766
5,816
3,3472,899
2,111
0
2000
4000
6000
8000
10000
Fig 21: FDI inflows lag peers
GDP/capita comparison (USD)
15.5
11.811.0
8.0
5.7
0
4
8
12
16
2015 ASEAN FDI comparison (USDbn)
What are the growth bottlenecks?
23Sources: World Economic Forum Global Competitiveness Report 2015-2016
24
30
42
47
77
86
90
0 20 40 60 80 100
Macro-economic environment
Market size
Business sophistication
Overall competitiveness
Institutions
Health & primary education
Infrastructure
Fig 22: Poor quality infrastructure and weak institutions drag on competitiveness
Philippine competitiveness ranking (140 countries, 1 = highest)
Addressing the growth bottlenecks
24
Duterte Administration 10-Point Economic Agenda
1 Continue and maintain the current macroeconomic policies including fiscal, monetary and trade policies.
2Institute progressive tax reform and more efficient tax collection, indexing taxes to inflation. A tax reform package will
be submitted to Congress by September 2016.
3
Increase competitiveness and the ease of doing business. This effort will draw upon successful models used to
attract business to local cities (e.g. Davao), and pursue the relaxation of the Constitutional restrictions on foreign
ownership, except as regards to land ownership, in order to attract foreign direct investment.
4Accelerate annual infrastructure spending to account for 5% of GDP, with Public-Private Partnerships playing a key
role.
5Promote rural and value chain development toward increasing agricultural and rural enterprise productivity and rural
tourism.
6Ensure security of land tenure to encourage investments, and address bottlenecks in land management and titling
agencies.
7Invest in human capital development, including health and education systems, and match skills and training to meet
the demand of businesses and the private sector.
8Promote science, technology, and the creative arts to enhance innovation and creative capacity towards self-
sustaining, inclusive development.
9Improve social protection programs, including the government’s Conditional Cash Transfer program, to protect the
poor against instability and economic shocks.
10Strengthen implementation of the Responsible Parenthood and Reproductive Health Law to enable especially poor
couples to make informed choices on financial and family planning.
Infrastructure upgrades
25
Infrastructure spend (as a % of GDP)
Sources: BDO, Nomura, National Statistics Office
Government spending (as a % of GDP)
2.2%
1.8% 1.8%2.0%
2.7%2.7%
4.3%
5.0%
0%
2%
4%
6%
-
300
600
900
PH
P B
illio
ns
Infrastructure Budget Allocation % of GDP
Fig 23: Rising infrastructure spending Fig 24: Deficit likely to rise
-6%
-4%
-2%
0%
2%
10%
12%
14%
16%
18%
20%
Expenditure Revenues Deficit
Tax reform
26
Tax reforms in the Philippines
Sources: BDO, Nomura, National Statistics Office
ASEAN Corporate Tax rates vs FDIs
Fig 25: Scope for more reforms? Fig 26: Competitive tax rates needed
Country Tax rateFDI inflows
(% of GDP)
Singapore 17% 17.9%
Cambodia 20% 7.6%
Vietnam 22% 5.4%
Indonesia 25% 1.6%
Thailand 23% 3.0%
Philippines 30% 1.4%
1986: The introduction of a uniform
consumption-based VAT; the consolidation of
corporate tax rates into a single rate; and the
provision of tax incentives to encourage foreign
direct investments.
1997: The Comprehensive Tax Reform Program
gradually reduced the CIT rate from 35% to
32%; the Minimum Corporate Income Tax was
imposed; tax on dividends restored.
2005: The VAT rate increased from 10% to 12%,
and the corporate income tax rate increased
from 32% to 35%.
2009: The corporate income tax rate was
lowered to 30%.
Countryside Development
27
Agriculture productivity per worker (constant
2010 USD, % YoY)
Sources: BDO, Nomura, World Bank, National Statistics Office
2015 tourist arrivals (mn)
Fig 27: PH agricultural productivity
declining
Fig 28: Philippine tourism sector still
under-achieving
-1
0
1
2
3
4
5
6
2000-2007
2008-2009
2010-latest
% YoY
0
5
10
15
20
25
30
35
Outline
Executive Summary
Core economic views
What has changed?
What’s next?
Outlook for Philippine equities
Sector views
Appendices
28
Bull vs Bear barometers
Economy (bullish): economic growth healthy as investments pick-up
complements solid domestic consumption story.
Corporate profit trend (bullish): Despite a weak 1Q16 results season,
consensus estimates maintain gradual acceleration in aggregate YoY profit
growth from 8-10% in 2016F to 10-12% in 2017F.
Liquidity (bullish): Interest rates remain low. Gov’t and private sector balance
sheets healthy.
Investor sentiment (Neutral): Smooth political transition priced in. Collateral
damage from the government’s “all-out” war on drugs and policy U-turns a
concern.
Valuations (bearish): PER multiples at 19.5x look pricey versus historical
average of 15x. Share prices may be sensitive to bad news or turns in sentiment.
29
Philippine economy on a roll
30
Fig 29: Stellar 2Q16 GDP up 7.0% YoY as investments complement consumption
Sources: Philippine Statistics Authority
Quarterly GDP trend
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16GDP Growth 5.0% 5.9% 6.2% 6.5% 6.8% 7.0%
Demand Side Breakdown
Private consumption 6.1% 6.4% 6.1% 11.8% 7.0% 7.3%
Government spending 0.2% 2.4% 15.7% 15.8% 11.8% 13.5%
Gross fixed capital formation 8.8% 12.7% 13.9% 24.2% 28.2% 27.2%
Exports 10.6% 5.1% 9.8% 10.9% 7.3% 6.6%
Imports 12.2% 12.6% 16.2% 14.9% 19.0% 20.9%
Supply-side breakdown
Agriculture, Fishery, Forestry 1.0% -0.1% -0.1% -0.2% -4.4% -2.1%
Industry Sector 5.3% 6.1% 6.1% 6.5% 9.0% 6.9%
Mining & Quarrying -2.5% -8.6% 0.5% 14.0% 11.2% -9.7%
Manufacturing 6.0% 4.7% 5.8% 6.1% 8.0% 6.3%
Construction 3.9% 16.6% 7.8% 8.2% 12.4% 11.0%
Utilities 5.0% 4.6% 7.0% 5.2% 9.9% 9.8%
Services Sector 5.5% 6.7% 7.2% 7.8% 7.6% 8.4%
Corporate profits accelerating
31Sources: BDO, Bloomberg
Fig 30: Corporate profits appear to be trending higher once again
YoY EPS growth %
11.1%
4.2%
5.2%
9.9%
11.5%12.3%
0%
4%
8%
12%
16%
2013A 2014A 2015A 2016F 2017F 2018F
Rates remain low; liquidity down from peak but still plentiful
32Sources: Bloomberg, Bangko Sentral ng Pilipinas
Fig 32: Significant sidelined cashFig 31: Php and USD rates still at lows
PDST-R2 and 10 year US treasury rates
0%
2%
4%
6%
8%
10%
12%
10Yr US 10Yr PH
(1.98)
(0.78)
(2.50)
(2.00)
(1.50)
(1.00)
(0.50)
-
Sep-11 Sep-12 Sep-13 Sep-14 Sep-15
SDAs/ODFs (Php trillions)
Investor sentiment bears watching
33
Fig 33: Investors are still OW on
Philippine equities as of July
Sources: Nomura, Bloomberg, Philippine Stock Exchange
Relative investor weightings vs MSCI Asia ex-Japan
-5%
-3%
-1%
1%
3%
5%Jan 2016
Jul 2016
-500
-300
-100
100
300
500
Foreign Net Buy/Sell (USD)
Value Turnover (USD)
Fig 34: Foreign funds exposed
to shifts in sentiment however
PSE turnover vs net foreign buying (USDmn)
Valuations no longer cheap
34
Fig 35: PCOMP trading at a significant premium versus 15x historical average
Sources: Bloomberg
Market rolling PERx
5
10
15
20
25
Sep-06 Sep-08 Sep-10 Sep-12 Sep-14
Outline
Executive Summary
Core economic views
What has changed?
What’s next?
Outlook for Philippine equities
Sector views
Appendices
35
Sector views
Banks (Neutral). Loan growth driven by GDP activity. Industry attractive in thelong-term. Near-term valuations expensive though. Gordon Growth methodologyfavors BPI.
Conglomerates (OW). Scale, footprint, and diversified businesses benefit frombroadening growth. Stocks at a discount versus NAV. To picks AC, MPI, and SM.
Consumer (Neutral). Valuations pricey relative to broader market. Near-termsector earnings growth prospects unspectacular. Top pick RRHI.
Industrials (OW). Cash flows and balance sheets at positive inflection point. Toppicks CHP, CEB, and PCOR.
Property (OW). Sector supported by GDP growth, possible infrastructureupgrades. Quality land bank and rental income key. Favor ALI, RLC, and SMPH.
Telecoms (UW). Industry undergoing structural shift. Capex elevated. Marginsunder pressure. GLO preferred over TEL.
Utilities/Power (Neutral). Focus on cost competitive gencos and cleardevelopment pipeline. Beware regulatory risks. Top pick AP.
36
ConsumerSolid macro fundamentals underpin the positive long-term outlook for the
consumer sector especially since bulk of household income is spent on food.
Sources: Philippine Statistics Authority, Bangko Sentral ng Pilipinas, Bloomberg
Fig 36: Upbeat consumer confidence
BSP Consumer Expectations Survey
43.8
27.3
2.5
(60)
(40)
(20)
-
20
40
Next 12 Months
Next Quarter
Current Quarter40.1%
11.5%10.0%
5.4%
5.2%
27.8%
Food and Non-alcohol
Housing, water, elec., gas, etc.
Transport
Communication
Furnishings, household equip.
Others*
Fig 37: Bulk of income spent on food
1H2016 Household Consumption Breakdown
*Alcoholic Beverages & Tobacco, Clothing & Footwear, Health, Recreation & Culture, Education, Restaurants & Hotels, Miscellaneous
Banks
38
Fig 38: Healthy economy translates to
loan growth
Sources: BDO, Philippine Statistics Authority, Bangko Sentral ng Pilipinas, World Bank
Loan growth vs GDP
0
5
10
15
20
GDP growth (%) Loan growth (%)
0
40
80
120
160Credit to GDP (%)
Banked Population (%)
Fig 39: Financial service penetration
ASEAN Banking Comparisons
We forecast 16% 2015A-18F loan CAGR especially with annual GDP growth
above 6%. Philippines attractive as a long-term market for financial services.
Property
39
Fig 41: Philippines still catching up
Sources: BDO, World Bank
GDP per capita and urbanization comps
Fig 40: Revenues on growth trend
ALI, MEG, RLC, SMPH data
Real estate to benefit from strong economy, favorable demographics, and the
push to upgrade infrastructure. Urbanization a key growth driver.
0
20
40
60
80
0
2,000
4,000
6,000
8,000
10,000
12,000
GDP per capita (USD)
Urban Population (% of total)
-
2,000
4,000
6,000
8,000
10,000
0
50
100
150
200
250
Reservation sales (PHPbn)
Residential revenues (PHPbn)
Rental revenues (PHPbn)
Retail GLA (000'sqm)
Office GLA (000'sqm)
Power
40
Fig 42: Comfortable Supply-demand?
Sources: BDO, Nomura, Department of Energy
Supply-demand forecast (MWs)
Fig 43: Aging plants need to be
retiredAverage age of power plants in the Philippines
-
5,000
10,000
15,000
20,000
25,000
2013 2014 2015 2016 2017 2018 2019 2020
Grid Power Supply
Peak Demand
Reserve Requirment
Power supply-demand tighter than it looks given the fragmented Philippine
grid network and reliance on aging and non-baseload power plants for
supply.
0
2500
5000
7500
10000
0 to 10 11 to 20 over 20
0 to 10 11 to 20 over 20
Telecom
41
Fig 44: Margins shrinking, capex
rising
Sources: PLDT, Globe Telecom, Nomura, BDO
Industry EBITDA margin, revenue, and capex
42.3%
39.9%
38.7%
37.9%
37.2%
34%
37%
40%
43%
-
70
140
210
280
350 Revenues (PHP B)Capex (PHP B)EBITDA M
30.0%
40.0%
50.0%
60.0%
70.0%
GLO Market Share
TEL Market Share
EBITDA under pressure due to competition as well as consumers shifting
away from voice and SMS to data. Elevated capex is also a concern.
Fig 45: GLO supported by market
share gains
Mobile subscriber market share (%)
Industrials
42
Fig 46: CHP cement sales rising
Sources: BDO, Nomura
CHP key metrics
91.9%
96.4%95.7%
101.0%
85%
90%
95%
100%
105%
-
2
4
5
7 CHP Cement Sales Volumes (Mtonnes)
CHP Net Income (PHP B)
Cash flows and balance sheets for listed companies at positive inflection
point. Scale and first mover advantages translate to competitive strengths
and improving bottom-line.
81.9% 83.9% 82.6% 84.7% 85.7%
-15.0%
10.0%
35.0%
60.0%
85.0%
-
30,000
60,000
90,000
Revenues (PHP B)
Passenger Yield Change (YoY)
Seat Load Factor
CEB key metrics
Fig 47: CEB yields bottoming out
Conglomerates
43
Fig 48: Economic role of conglomerates
Sources: Philippine Statistics Authority, Bloomberg, Nomura, BDO
Philippine Conglomerate market cap vs GDP
0%
5%
10%
15%
20%
25%
-
50
100
150
200
250
300
350 PH GDP (USDbn)
Congl mkt cap(USDbn)
Fig 49: NAV discounts
Conglomerate premium (discount) vs NAV
Philippine conglomerate market capitalization as a % of GDP has been rising.
Conglomerates’ ease of access to capital, diverse businesses, and national
footprints allow them to track the evolving Philippine economy.
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
Outline
Executive Summary
Core economic views
What has changed?
What’s next?
Outlook for Philippine equities
Sector views
Appendices
44
Appendix 1: Data Summary
Share price performance
Valuations and estimates
Economic forecasts
45
46Sources: Bloomberg
Fig 50: Share price performance (as of 07 October 2016)
1 Week 1 Month 3 Months YTD YOY 1 Week 1 Month 3 Months YTD YOY
PCOMP Index PCOMP -0.7% -1.8% -2.9% 10.9% 7.4%
Ayala Corp AC PM 0.4% 0.6% 0.3% 14.1% 13.0% 1.02 2.41 3.28 3.24 5.54
Aboit iz EV AEV PM 1.7% 4.9% 0.7% 37.0% 34.9% 2.32 6.73 3.60 26.14 27.50
Alliance Global AGI PM -0.6% -6.1% 5.3% 0.8% -1.6% 0.05 -4.24 8.20 -10.12 -8.97
Ayala Land ALI PM -2.9% -2.9% -1.7% 13.2% 10.3% -2.26 -1.10 1.24 2.31 2.89
Aboit iz Power AP PM 0.1% 0.8% 1.6% 15.3% 8.2% 0.78 2.60 4.50 4.40 0.80
BDO Unibank BDO PM -0.7% -2.2% -2.4% 7.9% 1.3% -0.05 -0.42 0.53 -3.01 -6.16
Bank of Phil Islands BPI PM -1.6% -2.5% 4.2% 25.3% 25.9% -0.94 -0.72 7.13 14.42 18.51
Cebu Air CEB PM -4.4% -11.0% 9.5% 33.5% 25.5% -3.75 -9.14 12.48 22.62 18.13
Cemex Philippines CHP PM -1.7% -1.7% N/A N/A N/A -0.99 0.16 N/A N/A N/A
Century Pacific CNPF PM 0.7% -3.8% 1.6% 50.2% 47.7% 1.41 -1.95 4.55 39.28 40.26
DMC Holdings DMC PM 5.3% 8.5% -0.3% -0.4% 4.4% 5.98 10.37 2.63 -11.28 -3.06
D&L Industries DNL PM 1.2% 4.9% 21.9% 32.4% 12.2% 1.90 6.73 24.80 21.50 4.82
Energy Dev' t Corp EDC PM -0.2% 4.0% 7.5% 1.7% 3.7% 0.50 5.82 10.46 -9.24 -3.69
Emperador Inc EMP PM -0.1% -4.1% -0.1% -17.7% 5.9% 0.54 -2.28 2.88 -28.62 -1.46
Filinvest FLI PM -2.2% -3.2% -10.5% 4.4% 8.7% -1.51 -1.42 -7.56 -6.47 1.32
First Gen FGEN PM -2.4% -0.2% -0.8% 11.9% 6.2% -1.72 1.59 2.11 1.03 -1.23
Globe Telecom GLO PM -10.7% -12.0% -21.9% 3.7% -18.8% -10.06 -10.20 -18.97 -7.15 -26.23
GT Capital GTCAP PM -2.1% -6.3% -3.4% 7.3% 5.0% -1.41 -4.42 -0.48 -3.62 -2.44
ICTSI ICT PM 3.9% 2.6% 25.9% 20.0% 4.4% 4.57 4.39 28.83 9.12 -3.05
Jollibee Foods JFC PM -0.5% -0.1% 0.4% 15.6% 26.1% 0.19 1.74 3.35 4.72 18.65
JG Summit JGS PM 0.8% -2.2% -10.6% 7.1% 5.9% 1.48 -0.39 -7.65 -3.76 -1.47
LT Group LTG PM -5.5% -14.9% -9.4% 0.5% 32.7% -4.82 -13.12 -6.45 -10.35 25.31
Metrobank MBT PM -1.5% -2.2% -5.4% 6.9% 1.4% -0.85 -0.39 -2.46 -4.00 -5.99
Megaworld MEG PM -4.7% -5.3% -5.1% 10.2% -0.5% -3.99 -3.44 -2.12 -0.75 -7.86
Manila Electric MER PM -0.6% -1.4% 2.9% 5.6% 11.1% 0.09 0.42 5.80 -5.28 3.70
Metro Pacific MPI PM 4.2% 4.2% 9.5% 43.3% 48.1% 4.90 6.05 12.41 32.41 40.71
Manila Water MWC PM 5.3% 6.4% 13.6% 26.4% 36.8% 5.96 8.20 16.57 15.45 29.43
Petron Corp PCOR PM 4.1% 7.1% -0.6% 53.5% 58.5% 4.80 8.90 2.38 42.58 51.07
Puregold PGOLD PM -1.2% -6.6% -1.9% 23.9% 32.2% -0.50 -4.74 1.07 12.99 24.79
Robinsons Land RLC PM 0.6% 1.1% 3.1% 19.7% 7.8% 1.32 2.96 6.08 8.79 0.43
Robinsons Retail RRHI PM 1.3% -6.4% -10.1% 19.4% 2.1% 1.94 -4.58 -7.12 8.51 -5.28
Semirara Power SCC PM 5.8% 6.2% -3.6% -8.9% -11.6% 6.47 7.99 -0.66 -19.82 -18.98
Security Bank SECB PM -7.7% -1.3% 16.3% 56.9% 61.1% -7.02 0.50 19.21 45.97 53.67
San Miguel Corp SMC PM 0.2% 0.3% 4.2% 66.3% 76.4% 0.86 2.13 7.15 55.43 68.98
SM Invesments SM PM 0.2% -0.5% 2.3% 21.7% 16.4% 0.90 1.31 5.22 10.83 8.99
SM Prime SMPH PM 0.2% 0.7% 2.4% 33.4% 35.7% 0.85 2.54 5.30 22.54 28.25
SSI Group SSI PM 0.7% -10.3% -18.0% -14.8% -47.2% 1.38 -8.49 -15.06 -25.74 -54.65
PLDT TEL PM -6.0% -10.9% -22.6% -14.6% -25.9% -5.28 -9.03 -19.69 -25.49 -33.27
Universal Robina URC PM 3.5% -0.3% -8.7% 0.2% -3.4% 4.21 1.50 -5.73 -10.72 -10.85
Vista Land VLL PM -1.5% -7.7% -2.6% 6.2% -0.6% -0.81 -5.83 0.37 -4.70 -7.97
% Change Relative vs Index
BB Code
47Sources: BDO, Nomura
Fig 51: Valuations and estimates (as of 07 October 2016)Shares TP Upside
Company Rating O/S (mn) (PHP) % 2015A 2016F 2017F 2016F 2017F 2016F 2017F
Ayala Corp Buy 620.15 990.00 15% 25.4 21.8 20.0 16% 9% 0.7% 0.7%
Aboit iz EV Neutral 5,633.79 69.30 -10% 24.5 21.0 18.1 17% 16% 1.7% 1.7%
Alliance Global Buy 10,269.83 19.60 24% 11.5 10.2 10.2 13% 0% 2.2% 2.2%
Ayala Land Buy 14,712.68 44.20 16% 31.5 26.6 23.2 18% 14% 1.3% 1.5%
Aboit iz Power Buy 7,358.60 50.50 11% 18.3 17.1 15.8 7% 9% 3.6% 3.6%
BDO Unibank No rat ing 3,648.15 119.08 9% 15.7 15.2 13.5 4% 12% 1.6% 1.7%
Bank of Phil Islands Buy 3,929.09 119.38 16% 22.3 19.3 16.9 16% 14% 1.8% 2.3%
Cebu Air Buy 605.86 159.00 47% 8.0 5.6 6.8 45% -18% 3.6% 3.0%
Cemex Philippines Buy 5,195.40 14.70 25% 20.3 19.7 16.4 3% 20% - -
Century Pacific Neutral 3,541.03 17.70 8% 29.9 22.5 19.6 33% 15% 0.9% 1.2%
DMC Holdings Neutral 13,277.47 12.78 1% 13.1 13.8 12.3 -5% 12% 3.2% 3.2%
D&L Industries Neutral 7,142.86 12.20 6% 36.1 30.9 27.5 17% 12% 1.7% 1.9%
Energy Dev' t Corp Buy 18,737.01 6.50 10% 12.6 13.2 12.4 -5% 6% 3.5% 3.5%
Emperador Inc Neutral 16,120.00 7.70 6% 16.8 16.3 14.4 3% 13% 2.5% 2.8%
Filinvest Buy 24,249.76 2.52 41% 8.5 7.7 7.4 11% 4% 3.3% 3.6%
First Gen Neutral 3,660.94 25.50 4% 14.9 14.3 10.5 4% 36% 1.6% 1.6%
Globe Telecom Neutral 133.27 2,100.00 15% 16.0 15.0 14.3 7% 5% 4.9% 5.3%
GT Capital Neutral 174.30 1,485.00 5% 20.3 14.6 16.0 39% -9% 0.2% 0.2%
ICTSI Buy 2,046.61 91.75 15% 25.1 29.1 23.2 -14% 25% 1.1% 1.2%
Jollibee Foods Neutral 1,075.00 230.00 -6% 53.6 43.2 36.6 24% 18% 0.8% 1.0%
JG Summit Neutral 7,162.84 73.80 -2% 23.8 20.3 20.0 17% 1% 0.5% 0.5%
LT Group Neutral 10,821.39 15.75 9% 23.7 16.5 16.0 44% 3% 1.0% 1.0%
Metrobank Neutral 3,180.17 89.86 7% 14.3 12.9 10.3 11% 25% 1.4% 1.6%
Megaworld Neutral 32,239.45 4.89 9% 14.0 12.4 11.8 13% 5% 1.3% 1.4%
Manila Electric Neutral 1,127.10 310.00 0% 17.9 18.5 17.9 -3% 3% 5.1% 5.1%
Metro Pacific Buy 31,501.83 8.50 15% 21.0 19.3 16.9 9% 14% 1.1% 1.1%
Manila Water Neutral 2,053.95 31.50 2% 12.8 12.2 11.7 5% 5% 2.7% 2.7%
Petron Corp Buy 9,375.00 14.18 34% 72.8 17.4 10.1 319% 72% 0.6% 0.9%
Puregold Buy 2,765.38 49.00 17% 23.2 20.9 18.6 11% 13% 0.8% 0.9%
Robinsons Land Buy 4,093.83 34.51 11% 22.4 19.0 16.6 18% 14% 1.2% 1.2%
Robinsons Retail Buy 1,385.00 95.00 25% 24.2 22.1 19.4 10% 14% 0.4% 0.5%
Semirara Power Buy 1,066.56 142.00 18% 15.2 12.4 10.4 22% 20% 3.3% 3.3%
Security Bank Neutral 753.54 219.83 -1% 19.0 19.9 15.8 -5% 26% 0.9% 0.9%
San Miguel Corp Neutral 2,386.00 81.60 0% 32.6 10.1 9.8 221% 3% 1.7% 1.7%
SM Investments Buy 1,204.58 765.00 13% 28.4 25.7 22.1 11% 16% 1.3% 1.3%
SM Prime Neutral 28,879.23 28.88 2% 38.9 31.8 29.2 22% 9% 1.2% 1.1%
SSI Group Neutral 3,312.86 3.25 13% 9.9 13.7 11.4 -28% 20% - -
PLDT Reduce 216.07 1,650.00 2% 9.9 12.4 12.3 -20% 1% 6.0% 6.1%
Universal Robina Neutral 2,181.50 200.00 9% 32.5 28.1 26.8 15% 5% 1.7% 1.8%
Vista Land Buy 12,892.52 6.43 21% 8.6 8.9 7.9 -3% 12% 2.1% 2.3%
PERx EPS chg % Div Yield (%)
48
Fig 52: Economic forecasts (as of 07 October 2016)
Sources: BDO, Nomura
% YoY growth unless otherwise stated 1Q16A 2Q16A 3Q16F 4Q16F 1Q17F 2Q17F 2016F 2017F 2018F
Real GDP (sa, % QoQ, annualized) 5.1 7.4 4.6 8.2 5.4 4.8
Real GDP 6.8 7.0 6.5 6.3 6.4 5.8 6.7 6.3 6.1
Private consumption 7.0 7.3 6.8 5.5 6.0 6.1 6.6 6.0 6.5
Government consumption 11.8 13.5 5.3 5.6 4.1 3.6 9.2 5.3 5.8
Gross fixed capital formation 28.2 27.2 30.5 22.2 19.6 15.2 26.7 13.5 16.8
Exports (goods & services) 7.3 6.6 5.6 4.8 5.4 6.4 6.1 5.1 2.5
Imports (goods & services) 19.0 20.9 17.0 14.0 8.6 7.6 17.6 7.4 7.5
Contribution to GDP growth (ppts)
Domestic final sales 12.6 12.1 12.4 10.1 10.0 8.2 11.7 8.4 10.0
Inventories 0.9 1.5 1.1 1.0 -1.2 -1.6 1.1 -0.3 -0.8
Net trade (goods & services) -6.6 -6.6 -7.0 -4.8 -2.4 -0.9 -6.2 -1.8 -3.1
Exports -8.4 -6.6 -8.8 -7.2 -3.7 -0.3 -7.8 -0.5 0.5
Imports 8.8 27.3 10.0 13.3 12.8 7.1 14.4 9.0 6.0
Merchandise trade balance (USDbn) -5.5 -6.4 -7.1 -8.0 -8.4 -7.9 -27.1 -34.6 -39.7
Current account balance (USDbn) 0.7 0.1 1.2 1.9 0.1 0.2 3.9 1.5 1.5
Current account balance (% of GDP) 1.0 0.1 1.7 2.2 0.2 0.3 1.3 0.5 0.4
Fiscal balance (% of GDP) -2.2 -2.7 -2.5
Consumer prices (2016= 100) 1.1 1.5 2.0 2.1 3.3 3.3 1.7 3.3 3.7
Unemployment rate (sa, %) 5.8 6.1 5.4 4.9 5.3 5.3 5.6 5.0 4.8
Reverse repo rate (%) 4.00 3.00 3.00 3.00 3.25 3.50 3.00 3.50 3.50
Exchange rate (USD/PHP) 46.0 47.2 47.1 47.3 47.5 47.7 47.3 48.0 48.0
Appendix 2: Trends to Watch
Decentralization
Transition and competition
Emergence of the Filipino millennial
49
Trend 1: Decentralization
50
Fig 53: NCR (Metro Manila) <1% of
total land area but = 36% of GDP.
Fig 54: Growth accelerating faster
outside Metro Manila, however
6.5%
6.5%
7.5%
9.0%
9.3%
0% 2% 4% 6% 8% 10%
NCR
DAVAO REGION
CENTRAL LUZON
CENTRAL VISAYAS
CARAGA
Sources: BDO, Nomura, National Statistics Office
Map of the Philippines GDP CAGR% (2010-2015)
Fig 55: Provinces offer larger scope
for growth
GDP per capita (US$)
4,416
983
1,009
947
- 2,500 5,000
NCR
Luzon (Ex-NCR)
Visayas
Mindanao
National
Capital
Region
Trend 2: Transition and competition
51
Market cap evolution from 2006 to 2016
(PHPbn)
Sources: BDO, Nomura, National Statistics Office
GDP per capita comparison (USDmn)
Fig 56: Sectors undergoing transition
0%
5%
10%
15%
20%
25%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
2005 2010 2015
Gross Profit (USDmn) Revenues (USDmn)
ROE (%)
Fig 57: Profits rising but ROEs declining
-
2,000
4,000
6,000
8,000
10,000
Ten Years Ago PresentConsumer Conglomerates
Financials Power/Infra
Property Telecom
Others
Trend 3: Emergence of the Filipino millennial
52Sources: Philippine Statistics Authority, BDO
Qualities of Filipino Millennials
Philippine corporates need to tailor their products and marketing activities to
the Philippine millennial (born 1981 – 1999).
Relatively more optimistic, no politicalbaggage
Tech savvy (Millennials make up 70%of internet users)
Community focused (social mediarepresents 49% online activity, opento volunteerism)
Considerable purchasing power(make up 50% of all workers)
Values convenience and quality of life;experiences over physical goods.
6,000,000 3,000,000 0 3,000,000 6,000,000
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80+
Male Female
Philippine population by age (as of June 2015)
Fig 58: Under 25 = 50% of population
BDO Research Team
53
Angelo Torres covers the Consumer sector. Prior to joining BDO, Angelo worked for BDO Capital
& Investment Corporation under the Mergers & Acquisitions division and for BPI Asset
Management under the investment management division. He graduated from the Ateneo de
Manila University with a BA in Management Economics and took his MBA at the Singapore
Management University.
Dante Tinga, Jr. covers the conglomerate and utility sectors. Prior to joining BDO, he was Head of
Research for the PEP-BofAML JV. He also served stints as HOR at Credit Suisse Securities
Philippines and Head of Investment Banking and Special Assets with the Land Bank of the
Philippines. He has a BA from the University of the Philippines and an MBA from the University of
Pennsylvania’s Wharton School.
Abigail Chiw covers the Banking and Property sectors. She has 14 years experience in the
financial services industry. Abi received her BS in Business Administration and Accountancy (Cum
Laude) from the University of the Philippines. She is a Certified Public Accountant (CPA) as well
as a Chartered Financial Analyst (CFA).
Thomas Earll Huang covers the Philippine industrial and telecommunication companies. Prior to
joining BDO, he was with BPI Securities covering the Philippine consumer, telecom, and utility
sectors. He received his Master's Degree in Business Administration from the Asian Institute of
Management.
Genevieve Hazel Yap is in charge of thematic research and product development. Prior to joining
BDO, she was with BPI Securities covering the Philippine consumer retail and property sectors.
Hazel received her Bachelor of Science degree in Business Administration (Magna Cum Laude)
from the University of the Philippines.
Thank you
