Headlines - colfinancial.com · JFC Jollibee Foods Corp 105.80 -1.12 INDEX LOSERS Ticker Company Turnover AC Ayala Corporation 378,414,800 ALI Ayala Land Inc …

The PSEi advanced to a new record high on Tuesday after following the orderly elections that took place on Monday. The index increased by 51.08 points or 0.70% to close at 7,313.46.

Index gainers led decliners 16 to 12 while 2 issues were unchanged. The strongest sectors yesterday were Services (+1.60%) and Financials (+1.24%). Significant gainers were MBT (+3.42%), BLOOM (+2.79%), BEL (+2.76%), TEL (+2.62%), and BDO (+2.04%). On the other hand, the Mining and Oil (-2.59%) was the weakest sector. Notable decliners were PX (-2.38%), DMC (-2.35%), and SCC (-2.33%).

Value turnover increased to Php10Bil from Php7.5Bil last Friday. Foreigners were still net buyers, acquiring Php1.4Bil worth of shares.

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Market Summary

Close Points % YTD%PSEi 5,210.89 21.52 0.41 19.19All Shares 3,459.02 14.18 0.41 13.60Financials 1,304.87 5.26 0.40 34.67Holding Firms 4,369.45 10.57 0.24 24.71Industrial 7,907.14 21.75 0.28 11.77Mining & Oil 23,177.28 -59.86 -0.26 -1.39Property 1,908.65 31.58 1.68 28.85Services 1,783.59 -1.00 -0.06 10.35

INDICES

Ticker Company Price %SMPH SM Prime Hldgs 13.60 4.29RLC Robinsons Land Corp 18.46 2.56MPI Metro Pacific Inv Corp 4.20 1.94MEG Megaworld 2.15 1.90ICT Int'l Container Term 71.70 1.85

INDEX GAINERS

Ticker Company Price %URC Universal Robina Corp 59.45 -3.25SCC Semirara Mining 220.00 -2.65DMC DMCI Hldgs, Inc 57.90 -1.53GLO Globe Telecom, Inc 1,135.00 -1.13JFC Jollibee Foods Corp 105.80 -1.12

INDEX LOSERS

Ticker Company TurnoverAC Ayala Corporation 378,414,800ALI Ayala Land Inc 232,134,500RLC Robinsons Land Corp 207,296,400BDO BDO Unibank, Inc 192,199,500TEL Phil Long Distance Co 183,260,600

TOP 5 MOST ACTIVE STOCKS

EVENTS CALENDARDATE TICKER COMPANY EVENTS15-May-13 FPH First Philippine Holdings Corporation Ex-date Php2.00 Cash Dividend15-May-13 GPH Grand Plaza Hotel Corporation Annual Shareholdings Meeting15-May-13 GMA7 GMA Network Inc Annual Shareholdings Meeting16-May-13 RCB Rizal Commercial Banking Corporation Ex-date Php1.00 Cash Dividend17-May-13 ION Ionics Inc/Philippines Annual Shareholdings Meeting18-May-13 PSE Philippine Stock Exchange Inc Annual Shareholdings Meeting20-May-13 ACR Alsons Consolidated Resources Inc Ex-date Php0.016 Cash Dividend20-May-13 PF San Miguel Pure Foods Co Inc Ex-date Php1.20 Cash Dividend20-May-13 AEV Aboitiz Equity Ventures Inc Annual Shareholdings Meeting20-May-13 AP Aboitiz Power Corporation Annual Shareholdings Meeting20-May-13 AB Atok Big Wedge Co Inc Annual Shareholdings Meeting20-May-13 ISM ISM Communications Corporation Annual Shareholdings Meeting20-May-13 LOTO Pacific Online Systems Corporation Annual Shareholdings Meeting21-May-13 SMDC SM Development Corporation Ex-date Php0.053 Cash Dividend21-May-13 SM SM Investments Corporation Ex-date Php11.80 Cash Dividend21-May-13 MVC Mabuhay Vinyl Corporation Ex-date Php0.05 Cash Dividend21-May-13 PXP Philex Petroleum Corporation Annual Shareholdings Meeting21-May-13 PCOR Petron Corporation Annual Shareholdings Meeting

Headlines:URC: Earnings results and guidance surprise positively

SECB: 1Q13 earnings trail estimates on higher expenses

GTCAP: Core earnings beat expectations due to Metrobank

ICT: ICT plans to sell up to Php8.3Bil in primary shares

EDC: Earnings beat estimates on lower than expected operating costs

MER: Meralco in talks for stake in Angat

SCC: 1Q13 earnings below COL and consensus forecasts

AC: Sells 40% stake in Iloilo power plant

CEB: Earnings beats estimates

RCB: 1Q12 profits up 16% to Php1.8Bil, ahead of consensus estimate

Economy: Exports flat in March

WEDNESDAY, 15 MAY 2013

INDICES

INDEX GAINERS

INDEX LOSERS

TOP 5 MOST ACTIVE STOCKS

Close Points % YTD%PSEi 7,313.46 51.08 0.70 25.82All Shares 4,535.86 18.44 0.41 22.62Financials 1,895.06 23.20 1.24 24.19Holding Firms 6,576.71 -2.98 -0.05 27.68Industrial 10,994.01 60.39 0.55 23.84Mining & Oil 19,020.77 -506.53 -2.59 -2.00Property 2,991.49 12.30 0.41 29.80Services 2,168.11 34.07 1.60 25.71

Ticker Company Price %MBT Metrobank 136.00 3.42BLOOMBloomberry Resorts 12.54 2.79BEL Belle Corporation 6.70 2.76TEL Phil Long Distance Co 3210.00 2.62BDO BDO Unibank Inc 95.00 2.04

Ticker Company Price %PX Philex Mining Corp 15.60 -2.38DMC DMCI Hldgs Inc 58.20 -2.35SCC Semirara Mining 293.00 -2.33RLC Robinsons Land Corp 25.45 -2.12AEV Aboitiz Equity Ventures 56.05 -1.67

Ticker Company TurnoverBLOOM Bloomberry Resorts 1,364,657,000TEL Phil Long Distance Co 1,020,093,000MBT Metrobank 485,945,000BDO BDO Unibank Inc 469,517,100MPI Metro Pacific Inv Corp 451,313,400

(As of May 14, 2013)•••••••••••

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

Wednesday, 15 May 2013 page 2

Universal Robina Corporation:Earnings results and guidance surprise positively

Improving margins responsible for outperformance. URC’s 2QFY13 core income jumped 86.7% to Php3.4 Bil. This brought 1HFY13 core earnings to Php6.0 Bil, up 55% and already equivalent to 67.1% of COL and 70.4% of consensus full year estimates. URC’s better than expected performance was largely due to the significant improvement in its operating margin from 9.8% during 2QFY12 to 12.7% during 2QFY13. Revenues during 2QFY13 grew by 17.0% to Php20.2 Bil, in line with expectations.

Exhibit 1: Results Summary

Source: URC, COL estimates, Bloomberg

Margins improve on lower input prices, economies of scale and turnaround of the agro-industrial business. URC’s operating margin improved as its branded consumer food group (BCFG) segment benefited from lower input prices and better volumes while its agro-industrial segment continued to turnaround.

Operating margin of both domestic and international BCFG improved. The operating margin of URC’s domestic BCFG increased to 12.8% during 2QFY13 from 10.7% during 2QFY12, while the operating margin of URC’s international BCFG increased to 9.6% during 2QFY13 from 8.7% during 2QFY12.

Meanwhile, the agro-industrial segment continued to turnaround, with the group’s operating income reaching Php218 Mil during 2QFY13 from a loss of Php54 Mil during the same period last year. According to URC, the recovery of pork prices was largely responsible for the turnaround of its farm sub-segment, allowing 2QFY13 revenues to grow by 42.8% to Php1.2 Bil and for operating profits to jump by 189.1% to Php139 Mil.

All business segments post double digit revenue growth. URC’s consolidated revenues grew by 17.0% during 2QFY13 as all business segments except for the packaging business posted double digit revenue growth.

Exhibit 2: Revenue Breakdown

Source: URC

please see next page

2QFY12 2QFY13 % ChangeDomestic BCFG 8,211 10,293 25.4International BCFG 4,956 5,154 4Agro-Industrial Group 1,719 1,919 11.6Commodity Food Group 1,929 2,586 34.1Packaging 602 267 -55.6

in PhpMilRevenues

COL ConsensusRevenue 17,288 20,219 17 40,317 49.6 49.5Operating Income 1,689 2,561 51.6 4,901 52.7 53.1

Operating Margin (%) 9.8 12.7 2.9 12.2 - -Core Earnings 1,805 3,370 86.7 5,977 67.1 70.4

Core Margin (%) 10.4 16.7 6.2 14.8 - -Net Income 2,123 3,129 47.4 5,441 61 64.1

Net Margin (%) 12.3 15.5 3.2 13.5 - -

1HFY13% of Full Year Forecast

in PhpMil 2QFY12 2QFY13 %Change

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Wednesday, 15 May 2013

The BCFG segment benefited from the strength of its domestic operations, which saw revenues grow by 25.4%. The agro-industrial group benefited from the 43% increase in revenues from the farm sub-segment while the commodity food group benefited from the 88% jump in revenues from sugar sales.

Bright outlook for domestic BCFG. Revenues from URC’s domestic BCFG jumped by 25.4% during 2QFY13. Successful product innovation was largely responsible for URC’s above industry sales growth as URC was able to gain market share from its competitors. According to URC, its market share in coffee and snacks improved to 14% and 40%, from 8% and 37% respectively, mainly from the success of its new products over the past 18 months. Sales volume jumped by 17% during 1HFY13.

For the whole of 2013, URC expects domestic BCFG revenues to grow by 19% to 20%. This is higher than COL’s revenue growth forecast of 17.6% for FY13. Going forward, it expects growth to be maintained at low to mid-teens level, driven by its focus on product innovation.

Continuous recovery in international BCFG despite flattish revenue growth. Although revenues from URC’s international BCFG increased by only 4.0% during 2QFY12, the company said that its international operations continued to show signs of recovery. Revenues from Thailand grew by 7% in 2QFY13 after falling by 12% during 1QFY13 (in dollar terms). Meanwhile, revenues from Indonesia grew by 40% during 1HFY13. Finally, China continued to operate at breakeven level as plants were used to produce goods for the Philippine market. For the whole of FY13, URC remains confident that it can grow international BCFG revenues by 10%. This is in line with COL’s revenue growth assumption.

Sale of investment portfolio to reduce volatility of earnings. As of end March 2013, URC divested over Php10 Bil worth of its investment portfolio. Proceeds were used to pay off short term debts. We view this development positively as it would reduce the volatility of URC’s profits brought about by the booking of mark to market gains and losses on its investment portfolio.

Upward revision in earnings guidance. Due to URC’s stronger than expected earnings results, the company revised its FY13 earnings guidance to Php9.5 Bil from Php9.0 Bil. We have a favorable view on this development as the revised figure is higher than both COL and consensus full year earnings estimates of Php8.9 Bil and Php8.5 Bil respectively.

Reviewing earnings and FV estimates for potential upgrade. We will review our earnings and FV estimates on URC for a potential upgrade in light of its stronger than expected 2QFY13 results. We currently have BUY rating and a FV estimate of Php110.5/sh on URC. Fundamentally, we like URC since we believe that it will benefit not only from the strength of consumer spending in the Philippines but also from its expansion in the ASEAN region which remains an underpenetrated market.

APRIL LYNN TAN, [email protected]



Security Bank Corporation:1Q13 earnings trail estimates on higher expenses

Net income trails estimates. Security Bank reported Php1.22Bil in net income for the first quarter, up 11% from its earnings in 1Q12. The increase is largely attributable to stronger trading gains and fee-based income. This offset the drop in net interest income and higher operating expenses. Despite the growth in profits, the bank’s first quarter performance trailed both COL (15.4% of full-year target) and consensus (17.8%) forecasts. Earnings for 1Q13 translate to an annualized ROE of 13%.

Trading gains and fee-based income grow. SECB’s earnings grew primarily as a result of the three-fold increase in non-interest income from Php333Mil in 1Q12 to Php1.1Bil in 1Q13. Trading gains for the quarter reached Php624Mil, recovering from the Php102Mil loss posted during the same period last year. Meanwhile, fee-based income also posted a notable 60% increase year-on-year to Php390Mil. Notwithstanding the sharp increase in non-interest income, the first quarter figure still trailed our projections, accounting for only 18% of our full-year estimate.

Net interest income falls on lower margins. Meanwhile, non-interest income declined 2% year-on-year to Php1.96Bil despite the significant increase in loans and interest earnings assets. As of end March, SECB’s loan portfolio expanded 21% to Php119.2Bil, while total interest earning assets rose 20% to Php249.9Bil. Nevertheless, the growth in its asset base was not enough to offset the steep decline in margins. Based on our calculations, net interest margin during 1Q13 fell 70 basis points to 3.1%. Aside from the continuous decline in interest rates, the sharp drop in margins is most likely attributable to the non-remuneration of reserves (which only started in 2Q12), and the disposal of a portion of the bank’s financial securities (SECB sold an estimated Php16Bil in securities valued at amortized cost in 2Q12; the proceeds were most likely reinvested at instruments with lower yields).

In our 2013 earnings forecast, we assumed that net interest income would increase by 12%, driven by a 22% growth in SECB’s lending portfolio, partly offset by a slight decline in its margin to 3.4%.

Operating expenses continue to rise amidst branch expansion. In addition to the disappointing net interest income figures, SECB’s operating expenses also continued to increase, rising by 44% to Php1.66Bil. Nevertheless, the sharp increase was already expected amidst the bank’s aggressive branch expansion program and the consolidation of Premiere Bank’s (renamed as Security Bank Savings). Note that in 2012, SECB was able to open 34 new branches on top of the 38 branches of Premiere Bank. SECB also added 2 new branches in 1Q13. This brought its total branch network to 210 as of end March, up 54% from 136 branches as of end 2011.

As we have stated in our previous reports, we believe that SECB’s branch expansion strategy would ultimately be beneficial for the bank as this would improve its ability to expand its deposit and interest earning asset base going forward. However, expenses would increase in the short term. Nevertheless, despite the sharp increase in expenses, the bank’s cost-to-income ratio remained among the lowest at 54%.

Focus Stock

Ticker : SECBCOL Rating : BUYFair Value : Php237.00Current Price : Php200.80


COL ConsensusNet interest income 2,002 1,959 -2.1 21.5 NANon-interest income 333 1,098 230.0 17.6 NAProvisions 0 24 - 10.1 NANet income 1,092 1,217 11.4 15.4 17.8Source: SECB, COL estimates

% FY13EIn PhpMil 1Q12 1Q13 % Change


page 5



Reiterate BUY rating. We reiterate our BUY rating on Security Bank with an FV estimate of Php237.00/sh based on 2.8X 2013E P/BV. We like Security Bank given its track record of being the most profitable bank in terms of ROE, and for having the strongest balance sheet. While its earnings in the short term could be weighed down by its aggressive branch expansion, plan to grow its consumer lending business should drive long term growth for the bank.

CHARLES WILLIAM [email protected]

GT Capital Holdings, Inc:Core earnings beat expectations due to Metrobank

Earnings top estimates on strong MBT results. GTCAP’s core income for 1Q13 rose 108% year-on-year to Php2.71Bil, already representing 34.5% of the full-year consensus target. The increase is attributable to it higher stakes in Fed Land, Global Business Power (GBP), and Toyota Motor (TMP) over the comparable period. Earnings also benefited from the stronger operations of its subsidiaries. In particular, MBT’s income for the period surged 163% to Php11.4Bil amidst a spike in trading gains. Including a non-recurring gain of Php1.3Bil arising from the consolidation of TMP in 1Q13, GTCAP’s net income reached Php4.0Bil, 211% higher year-on-year.

Metrobank’s earnings surge on strong trading gains. MBT’s net income jumped 163% year-on-year to Php11.4Bil, topping earnings forecasts amidst a huge spike in trading revenues. During the quarter, trading revenues reached Php11.34Bil, more than double the previous record high of Php5.23Bil booked during 1Q12. Also driving earnings growth was a 4.6% increase in net interest income and the 22.7% drop in provisions.

Fed Land’s income up on increased real estate sales. Meanwhile, Fed Land booked Php240Mil in net income for 1Q13, more than double its Php110Mil earnings in 1Q12. Fed Land’s total revenues expanded 56% to Php1.1Bil, driven by a 77% increase in booked real estate sales and a 215% increase in rental income. The increase in real estate sales came as a result of the ongoing

Focus Stock

Ticker : GTCAPCOL Rating : N/AFair Value : N/ACurrent Price : Php880.00


Company 1Q12 1Q13 % ChangeMetrobank 1,080 1,946 80.2Federal Land 88 240 171.7

Global Business Power 171 199 16.3Toyota Motor Phil 168 557 231.6

AXA Life and others 42 82 97.6Parent expense -249 -315 26.7GT Capital core income 1,300 2,709 108.4 34.5% of consensus forecastOne time gain from TMP - 1,260 -GT Capital net income 1,277 3,969 210.8Source: GT Capital, COL Estimates

Higher real estate sales; increased stake from 80% to 100%Increased stake from 34.4% to 51%Higher car sales; increased stake from 21% to 51%Higher premium revenues

Arising from consolidation of TMP

Net Income Contributrion of BusinessesEarnings Driver/Notes

Strong trading income




completion of its residential projects while the acquisition of GT Tower International building (Makati) last December helped boost rental revenues. Fed Land’s contribution to GTCAP also rose after the holding company increased its stake in the property firm to 100% from 80% in May 2012.

TMP further grows on higher car sales, stronger peso. Toyota Motor Philippines’ net income rose by 49% to Php1.1Bil in 1Q13. The strong performance was due to the sustained growth in car sales (+18% year-on-year) and the appreciation of the Philippine Peso versus the Japanese Yen, which resulted in higher gross margins (from 9.5% to 12.1%). TMP’s earnings growth was further magnified by the larger stake of GTCAP. Note that GTCAP bought an additional 30% stake in TMP from MBT in December 2012 and January 2013.

GBP lags on weaker peak demand for electricity, lower WESM rates. On the hand, Global Business Power’s profits dropped 22% to Php391Mil as net fees declined by 17%. According to GTCAP, fees dropped as a result of the lower pass-through rates (5.1% appreciation of the Peso and the 27% reduction in coal prices); weaker peak demand for electricity (due to cooler weather in 1Q13); and lower WESM rates (26% drop to Php8.19 per kwh). Nevertheless, GBP’s earnings contribution to its parent still increased year-on-year as GTCAP acquired an additional 16.6% stake in GBP since 1Q12, bringing its total direct stake to 51% as of end March.

No consensus rating. There is currently no consensus rating on GTCAP.


International Container Term:ICT plans to sell up to Php8.3Bil in primary shares

Proceeds to fund ongoing expansion. ICT disclosed plans to sell up to 90Mil primary shares (70Mil base, plus additional of 20Mil shares if the demand is strong). The additional 90 Mil shares represent 4.6% of existing and 4.4% of ICT’s expanded outstanding shares. The shares will be sold at a range of Php91-Php92/sh, an 8.95% to 7.95% discount to yesterday’s closing price of Php99.95/sh. Proceeds of the share offering will be used to fund the company’s capital expenditure requirement as well as for general corporate purposes. Note that ICT recently made several acquisitions. It also has numerous greenfield projects. In the next few years, it will have five additional ports located in Honduras, Nigeria, Mexico, Argentina and Columbia.

The share sale would most likely result to a share overhang in the short term. Nevertheless, we remain positive on ICT given that the share placement would further boost the company’s ability to expand its port portfolio. Moreover, potential dilution would be minimal. Assuming the worst case scenario where offer price would only be Php91/sh while no new acquisitions will be made, our FY13E EPS would decline by only 1.6% while our FV estimate would drop by only 0.7% to Php105.8/sh.

Reiterate BUY rating with FV of Php106.50/sh. We reiterate our BUY rating on ICTSI and our FV estimate of Php106.50/sh. We like ICT given its successful track record of growing its port portfolio through acquisitions and greenfield projects, and its focus on emerging economies which have a favorable long term growth outlook and are more resilient to negative developments in Europe and the US.

GEORGE [email protected]

page 7



Energy Development Corporation:Earnings beat estimates on lower than expected operating costs

Earnings beat estimates on lower than expected operating costs. EDC 1Q13 net income was flat y/y at Php2.7Bil, equivalent to 32.3% of COL and 27.1% of consensus full year forecasts. Earnings beat expectations mainly due to lower than expected operating expense. Revenues were in line with estimates, falling marginally by 2.5% to Php6.9 Bil.

Hydro plant earnings offset Bacman failure. EDC’s 1Q13 revenues declined by 2.5% to Php6.94Bil. The drop was largely due to the decline in ancillary service revenues of the Pantabangan-Masiway as the NGCP reduced its acceptance rate for offers of ancillary service. However, the decline was already expected. Furthermore, the drop was more than offset by higher sales volume as total power sold by the hydro plant increased by 83.6% to 166.1GWH, representing 62.7% of our full year forecast. As a result, the hydro plant reported Php708Mil in net income in 1Q13, equivalent to 51% of our full year forecast. The strong performance of the hydro plant offset the lower than expected revenue contribution the Bacman whose operations were halted for most part during the quarter due to the failure of the Bacman 2. Revenues from the Bacman plants totaled Php82.5Mil, representing only 5% of our full year forecast. However, we expect higher contribution from the Bacman in the coming quarters given that Bacman unit 1 is already operating on a de-rated capacity, and that unit 2 will most likely begin contributing in 2H13.

Operating expense lower than expected. Total operating expense declined 6.4% in 1Q13 to3.0Bil, representing only 18.2% of our full year forecast. Expenses fell due to lower rehabilitation cost as well as lower salary expense as EDC completed its early retirement program last year.

Maintain BUY rating. We have a BUY rating on EDC with a FV estimate of Php8.00/sh. We believe that the market has overreacted to the recent Bacman incident. Even assuming the highly unlikely scenario where the Bacman plants would be fully written off, our fair value estimate of EDC would drop to Php6.03/sh, implying a possible downside of only 4.6% based on its current price. Based on our base case fair value estimate of Php8.00/sh, which already a factor in a more conservative outlook for Bacman, upside potential is significant at 26.6%.


Exhibit 2: EDC 1Q13 Results Summaryin PhpMil 1Q12 1Q13 % Change % of FY COL ForecastRevenue 7,122 6,940 -2.5 23.7Operating expenses 3,239 3,034 -6.4 18.2Finance and other expense 525 678 29.3 26.5Net Income 2,699 2,698 0.0 32.3

Net margin (%) 37.9 38.9 1.0 N/ASource: EDC



Manila Electric Company:Meralco in talks for a stake in Angat

Angat plant to potentially boost attributable capacity by as much as 110%. MER disclosed that it is in discussion with Angat hydro electric plant’s winning bidder Korea Water Resources Corporation (K-Water) for a possible equity stake in the privatized hydroelectric power facility. MER is also looking to seal a power supply agreement with the power facility. However, MER said that there is no commitment at this point.

Though details of the talks are still not available, we believe this potential investment in the Angat hydroelectric plant should further boost MER’s earnings growth outlook. The Angat Power plant has an installed capacity of 246MW which represents 110% of MER’s attributable capacity of 224MW through its 28% effective stake in the 800MW LNG plant in Singapore.

Reviewing forecast and FV estimate. We currently have a BUY rating on MER with a FV estimate of Php380/sh. Fundamentally, we like MER since it will be the main beneficiary of the country increasing power demand brought about by the rapid growth of the country’s economy. Plans to expand into power generation and retail electricity sales should also improve the company’s long term earnings growth prospects. However, we are reviewing our rating and FV estimate following the 44.7% YTD increase in its share price. At the current price of Php390/sh, there is a 2.6% downside to our FV estimate.

Semirara Mining Corporation:1Q13 earnings below COL and consensus forecasts

Profits negatively affected by landslide incident. SCC’s disclosed 1Q13 earnings declined 41.6% to Php1.01Bil, representing only 15.5%of COL and 13.2% consensus forecast. We will release a more detailed analysis of the 4Q12 results once the F/S is available.

According to the company, earnings declined mainly due to a Php145.4Mil net loss posted by its coal mining segment as coal production fell due to the temporary suspension of operations resulting from the landslide incident. Meanwhile, earnings from power generation amounted to Php1.15Bil, representing 25.5% of our full year forecast.

Reviewing forecasts. We will be reviewing our earnings and FV estimate to factor in the company’s weaker than expected 1Q13 earnings results and the company’s plan to push through with the second phase of the Calaca expansion. We currently have a HOLD rating on SCC with a FV estimate of Php276.8/sh.



page 9



Ayala Corporation:Sells 40% stake in Iloilo power plant

To focus on more imminent projects. AC sold its 40% stake in each of Palm Conception Power Corp. (PCPC) and Panay Consolidated Land Holdings Corp. to Palm Thermal Consolidated Holdings, a wholly-owned subsidiary of A. Brown Co. The two companies own the 135-MW coal-fired plant in Iloilo that is currently being constructed. AC sold its shares to focus on more imminent projects.

Exhibit 1: Power plants under development

Source: AC

Still on track with power investments. Despite the sale, AC is still on track to meet its goal as far as its power investments are concerned. Excluding PCPC, AC has already committed around US$325 Mil out of its US$600-700 Mil budget for power investments. AC is currently eyeing a coal-fired plant in Mindanao as its next investment.

Still trading at a discount. At the current price of Php680, AC offers good value to investors as it is trading at a 14.5% discount to its market-based NAV of Php794.92. Historically, AC traded at a 5-10% discount to its market-based NAV. Aside from being a cheaper way to own its listed subsidiaries, the growth of AC’s investments in power and infrastructure give investors another compelling reason to own the stock. Note that potential contributions from the said businesses have not yet been factored into our forecasts.

RICHARD LAÑEDA, [email protected]

Capacity (MW) Ownership Equity

Investment Status

North Wind 33 50% US$20 MilOperating and awaiting specific FIT

GN Power 600 20% US$155 MilCommissioning; to be operational within 2013

South Luzon Thermal Energy Corp. (SLEC) 1 135 50% US$50 Mil

Under construction; expected to operate by 2016

South Luzon Thermal Energy Corp. (SLEC) 2

135 50% US$50 Mil Under construction

Mini-Hydro 11 100% US$50 MilExpected start date on April

Total 914 US$325 Mil



Cebu Air Inc:Earnings beats estimates

Outperformance brought around lower than expected expenses. Cebu Pacific’s core earnings reach Php1Bil in 1Q13E, a stark improvement from just Php204Mil last year. Profits beat estimates, accounting for 38.5% and 32.6% of COL and consensus forecasts respectively. The outperformance was mostly due to the 8.8% decline in aircraft and engine lease to Php466Mil. CEB also benefited from lower fuel prices and pilot expenses. On the other hand, revenues grew by 12.9% to Php10.5Bil, in line with estimates.

Benefiting from lower lease, fuel and pilot expenses. As discussed earlier, aircraft and engine lease fell by 8.85 to Php466 Mil. Flying operation expenses inched up by only 2% to Php5.2Bil. The said amount is only 21.3% of our full year forecast. Aviation fuel expenses increased by only 3.4%, lower than the 4.8% increase in flights as average aviation fuel price fell to US$128.5 per barrel during 1Q13 from US$131.8 per barrel last year. In addition, pilot expenses decreased due to the reduction in expat pilots.

Revenue growth driven by higher passenger volume and average fares. Cebu Pacific’s revenues grew by 12.9% to Php10.5Bil. Growth was mostly driven by the 13.6% increase in passenger revenues to Php976Mil. The company benefited from an increase of 8.8% in average fares and a 4.9% improvement in passenger numbers to 3.5Mil as the number of flights were increased by 4.8% in the quarter.

Reviewing our earnings and FV estimates. We will review our earnings and FV estimates on CEB in light of its better than expected 1Q13 results. We currently have a HOLD rating on CEB and a FV estimate of Php80.40/sh.

KERVIN [email protected]


in PhpMil 1Q12 1Q13 % Change COL ConsensusRevenues 9,341 10,542 12.9 21.9 23.9

EBITDAR 1,719 2,730 58.9 25.7 n/a

EBITDAR Profit Margin (%) 18.4 25.9 40.8

Core Income 204 1,011 394.7 38.5 32.6

Core Income Margin (%) 2.2 9.6 338.4

Source: CEB, COL Est imates, Bloomberg

% Forecast

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Rizal Commercial Banking:1Q12 profits up 16% to Php1.8Bil, ahead of consensus estimates

Trading gains and net interest income boost earnings. RCBC booked Php1.77Bil in net income in 1Q13, up 16% from the same period last year. Profits topped consensus forecast, representing 27.4% of the full-year estimate. Earnings growth was driven by both higher net interest income and strong trading revenues. The first quarter figure translates to an annualized ROE of 17.1%,

Net interest income increases on higher margins. The bank’s net interest income showed encouraging results during the quarter, rising by 12% to Php3.04Bil. While loan growth reached just 6.5%, most of the increase came from the higher-yielding consumer (+22% year-on-year) and SME loans (+14%). This, together with an increase in CASA-to-total deposits ratio from 60.5% to 63.1%, allowed RCBC to increase its net interest margin from 3.7% in 1Q12 to 4.1% in 1Q13. We believe that RCBC’s focus on higher-yielding assets and on funding mix should continue to sustain the bank’s margins going forward.

Trading and fee-based income post solid growth. RCBC’s non-interest income rose 23% year-on-year to Php3.58Bil, benefiting from both higher trading gains and fee-based income. Trading gains during the period grew 27% to Php2.1Bil amidst declining bond rates. Meanwhile, service fees and commissions increased 20% to Php576Mil.

Asset quality further improves. Following a Php4.8Bil sale of the bank’s non-performing assets to Phil. Asset Growth One, RCBC’s asset quality continued to improve. As of end March, the bank’s NPL ratio dropped to 1.05% from 1.61% as of 1Q13. Phil. Asset Growth One is an SPC formed by the International Finance Corp., OSK Group – Malaysia, and Altus Transaction.

Consensus HOLD rating. The consensus rating on RCB is a HOLD with an FV estimate of Php73.79/sh.


Exhibit 1: Results Summary% FY13E

ConsensusNet interest income 2,711 3,040 12.1 NANon-interest income 2,901 3,580 23.4 NANet income 1,529 1,770 15.8 27.4Source: RCB, Bloomberg

In PhpMil 1Q12 1Q13 % Change



Economy:Exports flat in March

The National Statistics Office reported that March exports amounted to US$4.3Bil, flat compared to the same period last year. This brought total exports for 1Q13 to US$12.1Bil, down by 6.2% from last year. The underperformance of exports was mostly due to the 22.4% decline in electronic exports to US$1.8 Bil. Electronics remain one the country’s top export products.

Despite the disappointing export numbers, we expect economic growth to remain to remain robust. Exports account for only a small share of GDP. Meanwhile, the other drivers of economic growth namely consumer spending, investments and government spending remain strong

KERVIN [email protected]



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.

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