mon 10 apr 2017 (as of apr 07, 2017) jgs: core fy16 ...€¦ · meg megaworld corporation 3.94 6.20...

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MON 10 APR 2017

INDICES

Close Points % YTD%

PSEi 7,583.75 18.43 0.24 10.86

All Shares 4,524.16 15.35 0.34 8.86

Financials 1,898.90 -4.92 -0.26 14.70

Holding Firms 7,656.52 49.85 0.66 9.50

Industrial 11,148.11 -24.20 -0.22 4.68

Mining & Oil 12,097.97 88.41 0.74 2.03

Property 3,310.40 24.80 0.75 7.96

Services 1,591.40 2.14 0.13 22.15

Dow Jones 20,656.10 -6.85 -0.03 4.52

S&P 500 2,355.54 -1.95 -0.08 5.21

Nasdaq 5,877.81 -1.14 -0.02 9.19

Ticker Company Price %

MEG Megaworld Corporation 3.94 6.20

JFC Jollibee Foods Corp 210.40 5.20

EMP Emperador Inc 6.26 2.79

GTCAP GT Capital Hldgs Inc 1173.00 2.71

MPI Metro Pacific Inv Corp 6.56 2.18

Ticker Company Price %

URC Universal Robina Corp 165.00 -5.44

ICT Int'l Container Term 89.00 -2.20

FGEN Frist Gen Corporation 21.55 -1.60

BDO BDO Unibank Inc 120.60 -1.15

LTG LT Group Inc 15.50 -1.02

Ticker Company Turnover

SMPH SM Prime Hldgs Inc 661,728,300

SM SM Investments Corp 516,523,300

BDO BDO Unibank Inc 510,917,600

MEG Megaworld Corporation 501,220,000

MBT Metrobank 475,185,700

TOP 5 MOST ACTIVE STOCKS

INDEX GAINERS

INDEX LOSERS

(as of Apr 07, 2017)

Stocks in Focus:

JGS: Core FY16 earnings trail COL forecast on URC and RLC’s disappointing earnings

Core FY16 earnings trail COL forecast on URC and RLC’s disappointing earnings. JGS’ FY16 consolidated net income from equity holders of the parent declined 51.7% to Php10.92Bil. This was primarily due to the booking of Php16.71Bil in impairment losses attributable to the decline in market value of its 8% investment in PLDT (according to Philippine Accounting Standard 39). Excluding non-recurring items, JGS’ core FY16 net income rose 6.9% to Php29.97Bil, below COL forecast (representing 95.2% of COL forecast, 97.1% of consensus full year forecasts). Overall earnings contribution of subsidiaries grew 16.9% to Php44Bil, representing 91.3% of our full year forecast, with the growth mainly coming from CEB and JGSPC. Core net income trails COL forecast mainly due to URC and RLC’s weaker than expected income contribution and lower than expected dividend income from its investment in PLDT, partly offset by the stronger than expected earnings of the petrochemical business.

Top Stories:

IMI: Acquires 80% of STI Enterprises LimitedCHIB: Finalizes terms of Php15Bil rights offeringPGOLD: FY16 profits up 10.5% y/y, in line with estimates.COSCO: 2016 profits continue to underperform on weakness of smaller subsidiariesMWIDE: Profits up 22.4% y/y to Php1.56Bil, in line with management’s guidance

Other News:

MPI: MPTC open to join Ayala and SM on proposed tollway projectDD: DD eyes bond issue by mid 2017IMI: IMI eye expansion in Russian marketEconomy: GIR in end-March 2017 stood at US$80.9BilEconomy: Infrastructure underspending rate narrows to 7.5% in 2016

Market Summary:

The PSEi advanced on Friday, gaining 18.43 points or 0.24% to close at 7,583.75. Index gainers led decliners 17 to 10, while 3 issues remained unchanged. Likewise, most sectors advanced with Property (+0.75%) leading the gainers and Financials (-0.26%) leading the decliners. Significant index gainers were MEG (+6.20%), JFC (+5.20%), GTCAP (+2.71%), MPI (+2.18%), and JGS (+1.65%). On the other hand, significant index decliners were URC (-5.44%), ICT (-2.20%), and FGEN (-1.60%).

Value turnover increased to Php9.7Bil from Php9.5Bil the previous session. Foreigners continued to be net buyers for the fourth consecutive day, accumulating Php1.6Bil worth of shares.


2

Dai ly Notes I Phi l ip ine Equi ty Research

MON 10 APR 2017

Stocks in Focus:

JGS: Core FY16 earnings trail COL forecast on URC and RLC’s disappointing earnings

Core FY16 earnings trail COL forecast on URC and RLC’s disappointing earnings. JGS’ FY16 consolidated net income from equity holders of the parent declined 51.7% to Php10.92Bil. This was primarily due to the booking of Php16.71Bil in impairment losses attributable to the decline in market value of its 8% investment in PLDT (according to Philippine Accounting Standard 39). Excluding non-recurring items, JGS’ core FY16 net income rose 6.9% to Php29.97Bil, below COL forecast (representing 95.2% of COL forecast, 97.1% of consensus full year forecasts). Overall earnings contribution of subsidiaries grew 16.9% to Php44Bil, representing 91.3% of our full year forecast, with the growth mainly coming from CEB and JGSPC. Core net income trails COL forecast mainly due to URC and RLC’s weaker than expected income contribution and lower than expected dividend income from its investment in PLDT, partly offset by the stronger than expected earnings of the petrochemical business.

URC 2016 earnings below COL estimates on higher than expected operating expenses. URC reported that full year profits reached Php12.9Bil, down 7.1% y/y and underperforming our forecast as it accounts for 92.1% of our full year forecast on the back of higher operating expenses. Similarly, EBIT declined by 12.9% y/y, which we estimate reached Php15.8Bil. This missed our forecast as it represents only 96.2% of our full year forecast. Operating expenses rose by 9.8% y/y to Php20.5Bil, underperforming our forecast of Php19.7Bil. URC did not disclose the reason for steep rise in operating expenses. Nevertheless, total revenues for the year amounted to Php112.6Bil, slightly higher y/y and in line with COL forecast as it accounts for 99.0% of our full year forecast. Moreover, gross profits for the year reached Php36.2Bil, down 1.4% y/y but still in line as it represents 100.3% of our full year forecast.

Exhibit 1: JGS results Summary

COLRevenue 59,488 62,980 5.9 240,500 96.2 99.3Operating Income 12,790 12,040 -5.9 52,270 94.2 112.1Operating Margin (%) 21.5 19.1 -11.1 21.7 - -Net Income 6,505 -12,330 -289.6 10,920 34.7 40.0Net Margin (%) 10.9 -19.6 -30.5 4.5 - -*Source: JGS

PhpMil 4Q15 4Q16 %Change FY16% of Full Year Forecast

Exhibit 2: Earnings of subsidiariesPhpMil 4Q15 4Q16 %Change FY15 FY16 %Change %of COL forecastFoods 3,647 2,370 -35.0 13,854 12,870 -7.1 83.8Air Transportation 827 2,650 220.4 4,387 9,750 122.2 88.2Real Estate and Hotels 1,770 940 -46.9 5,950 5,750 -3.4 87.2Petrochemicals 1,860 1,130 -39.2 3,160 5,130 62.3 133.8Banking -20 38 -295.2 107 257 140.6 72.1Dividend income (PLDT) 28 40 42.2 2,850 2,030 -28.8 62.3Others 1,250 1,830 46.4 7,310 8,180 11.9 106.4Total 9,362 8,998 -3.9 37,618 43,967 16.9 91.3*Source: JGS and COL est imates

George ChingSenior Research Manager

Stock Data

TickerRatingTarget Price

JGSHOLD

Php65.90


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MON 10 APR 2017

CEB FY16 operating income in line with forecast. CEB ended the year with a net income of Php9.8Bil. However, excluding forex losses amounting to Php2.3Bil, hedging gains of Php1.6Bil and a loss on the sale of aircraft of Php1.0Bil, core earnings totaled Php11.2Bil, up 18.4% y/y. Earnings ended ahead of both COL and consensus estimates, at 106.0% and 105.4% of forecasts respectively. The outperformance was due to the difference in tax treatment. FY16 results showed a tax benefit of Php38Mil, while our estimates assumed tax expenses. The benefit from income tax came from the recognition of deferred tax assets on future deductible amounts during the period. On an operating level, operating income was in line with COL estimates at 100.4% of full year forecast, and below consensus estimates at 96.2%.

RLC earnings missed earnings on tax and interest expenses, operating income in line with forecast. RLC’s revenues for 2016 grew 12.1% to Php22.75 Bil driven by the 8% growth in mall revenues, 17.1% increase in residential revenues, 23.6% jump in office revenues, and 1% improvement in hotel revenues. EBIT and EBITDA for the period were up 4.7% and 8.5% respectively, both in line with estimates, representing 97.1% and 98.4% of our full year forecast, respectively. However, net income was down 3.5% to Php5.75 Bil due to higher interest and tax expenses. Interest expense was higher because of higher debt balance while tax is also higher because of a more difficult regulatory environment, resulting in less tax incentives than before. RLC said that their new office buildings do not receive tax incentives despite them being PEZA accredited, resulting in higher taxes for the new office buildings. RLC’s net income underperformed our estimates mainly due to the higher than expected interest and tax expenses.

Petrochemical business earnings beat forecast on higher than expected margin. JG Summit Petrochemicals Corp. (JGSPC) reported a net income of Php5.13Bil during FY16, up 62.3% y/y, representing 133.8% of our full year forecast. JGSPC’s revenues rose 8.55% from Php29.1Bil during FY16, representing only 71.2% of our full year forecast. However, this was offset by higher than expected margin as net margin improved to 17.6% during the period (from 11.8% during the same period last year), beating our 9.4% forecast.

MER core operating performance beats estimates. Meralco’s FY16 core net income increased 3.7% to Php19.6Bil. Although this was lower than COL’s forecast (95.8% of COL forecast), the underperformance was due to the booking of larger than expected provisions. Core operating performance as measured by net distribution revenues was stronger than expected. FY16 net distribution revenues rose 3.3% to Php56.9Bil, representing 102.3% of our full year forecast. Sales volume grew 8.1% to 40,142 Gwh, representing 101.5% of our full year forecast. Distribution tariff declined 4.5% to Php1.42/kwh, but was still 1.9% higher than expected.

Maintain HOLD rating. We are maintaining our HOLD rating on JGS with a FV estimate of Php65.9/sh. We like JGS as it is well positioned to capitalize on the favorable growth outlook of the Philippine economy given the market leadership position of its operating subsidiaries, the parent company’s strong balance sheet and the excellent track record of its management team. However, based on its currently market price of Php80.55/sh, there is no more upside to our FV estimate.


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MON 10 APR 2017

Top Stories:

IMI: Acquires 80% of STI Enterprises Limited

Acquires 80% of STI Enterprises Limited. IMI disclosed on Friday that it has entered into an agreement with Surface Technology International Enterprises Limited (STI) for the acquisition of an 80% stake in STI through IMI’s subsidiary Integrated Micro-Electrionics UK Limited. According to IMI, the acquisition will be mainly funded by debt. However, further details on the acquisition have not yet been disclosed.

STI is a private limited company founded in 1989 and is based in UK. STI specializes in contract electronics manufacturing to serve high-reliability industries such as aerospace, defense, security, and energy. The company provides a complete set of electronics design and manufacturing in printed circuit board assembly and full box-build manufacturing. STI has two factories in UK (Hook and Poynton) and one in the Philippines (Cebu). Currently, STI’s customer base has over 90 names and 80% of the top 25 names are large public companies.

Acquisition mainly to support entry into aerospace and defense. IMI sees STI to be a value-enhancing acquisition as it enables IMI to enter into the high-value industry of aerospace and defense. We think that the acquisition will better support IMI’s initiatives to enter the said industries given the industries’ nature of having high barriers to entry. We believe that this should give IMI a better foothold in the contract electronics manufacturing scene, allowing them to win more sizeable contracts. Moreover, IMI expects the acquisition to have synergies with their industrial segments given that its customer base is complementary with IMI’s. This will also further improve IMI’s purchasing coverage and bargaining power for its industrial segment.

IMI expects the acquisition to be accretive to IMI’s profits driven by the expected solid growth of STI starting 2017.

Estimates under review. We are reviewing our estimates for a potential upgrade given the outperformance of IMI’s full year results. Moreover, we are will be waiting for further details on the acquisition of STI. We currently have a BUY rating on IMI with a fair value estimate of Php8.90/sh.

Andy Dela CruzResearch Analyst

Stock Data


IMIBUY

Php8.90


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MON 10 APR 2017

CHIB: Finalizes terms of Php15Bil rights offering

Offer price set at Php31.00/sh. CHIB has finalized the terms of its Php15Bil stock rights offering on Friday. CHIB is set to offer 483.9Mil shares at Php31/sh. The offer price was determined based on the 15-day VWAP, subject to a 24.1% discount. Shareholders will be able to subscribe to one common share for every 4.1375 common shares held. The Ex-Rights Date will be on April 12, 2017, while the offer period will run from April 24, 2017 to May 5, 2017.

CAR levels to improve. As stated in our previous report, we believe that CHIB should benefit from the planned capital raising activity. While its tier 1 and total CAR remain healthy at 11.3% and 12.2% respectively as of end-2016, the additional capital would serve as a buffer amidst its efforts to aggressively expand its market position by growing its asset base. Based on our estimates, assuming the full Php15Bil in proceeds, the bank’s tier 1 would expand by over 300 basis points to 14.5%. This is already significantly above the (estimated) 10.0% minimum requirement (by 2019) set by the BSP. We believe that this should be enough to support CHIB’s growth for at least the next two to three years. We currently have a HOLD rating on CHIB with an FV estimate of Php38.50/sh based on 1.15X 2017E P/BV.

PGOLD: FY16 profits up 10.5% y/y, in line with estimates.

4Q16 profits slow down on lower margins. Puregold booked Php1.9Bil in profits during the fourth quarter, up 4.6% y/y as lower gross margins offset a 13.5% increase in net sales. Gross margins for the quarter dropped by 100 bps to 16.6% due to Puregold’s Christmas basket sales to both corporate and government customers who wanted to give them out during the holiday. These Christmas basket sales were obtained through a bidding and gave Puregold lower margins but higher sales volume. Similarly, net margins in 4Q contracted by 40 bps y/y with higher JV losses of Php68Mil (previously 11M) adding to the decline. Despite the slower growth in 4Q16, full year profits reached Php5.5Bil, up 10.5% from 2015. This was in line with both COL and consensus estimates accounting for 99.4% and 99.6% of full-year estimates. Revenues for the year were up 15.9% y/y driven by organic growth as well as a strong blended same-store-sales growth (SSSG) of 5.8%, the highest full year figure for the past 5 years.

Exhibit 1: Results Summary

Source: PGOLD, COL estimates

Net sales climb by 15.9% in 2016. PGOLD’s net sales grew by 13.5% y/y to Php33.9Bil in 4Q16. This brought full year revenues to Php112.6Bil up 15.9% y/y, ending in line with estimates. Topline performance continued to be driven by the organic growth of PGOLD’s store network, the full year contribution of NE Bodega and Budgetlane, as well as sustained SSSG. For 2016, PGOLD opened 26 additional Puregold stores and 2 S&R Warehouse stores.

Charles William Ang, CFADeputy Head of Research

Stock Data


CHIBHOLD

Php38.50

COL Consensus

Net Sales 29,837 33,852 13.5 97,172 112,589 15.9 102.4 100.3Gross Profit 5,245 5,635 7.4 16,489 18,538 12.4 101.0 99.2

Gross Profit Margin (%) 17.6 16.6 - 17.0 16.5 - - -Operating Income 2,572 2,834 10.2 7,150 8,097 13.3 100.2 101.2

Operating Margin (%) 8.6 8.4 - 7.4 7.2 - - -Net Income 1,799 1,882 4.6 5,002 5,527 10.5 99.4 99.6

Net Margin (%) 6.0 5.6 - 5.1 4.9 - - -

%Change % of Full year Forecast4Q15 4Q16 %Change 2015 2016in PhpMil

Stock Data


PGOLDBUY

Php51.00

Justin Richmond ChengResearch Analyst


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MON 10 APR 2017

Furthermore, Puregold stores delivered SSSG of 6.2%, while S&R’s SSSG accelerated in 4Q to 11% bringing its full year figure to 4.4%, a jump from the 1.4% SSSG recorded in 9M16. S&R’s stronger SSSG was propelled by the Member’s Treat Sale which it brought back in 2016 and held during September 30 to October 2. This brought S&R’s revenues up 21.5% y/y in 2016, exceeding our estimates after accounting for 111% of full year forecasts.

Member’s Treat Sale continued in 2017. S&R recently held a 5-day Member’s Treat Sale from March 29 – April 2, 2017. According to management, with the strong reception of their sale last year, they wanted to continue providing value for their members through the sale. Notably, the 5-day sale was also well received by S&R’s members. As such, S&R’s revenues for the first and second quarter would likely be given a boost especially since no sale was held in the same two quarters during 2016.

Not concerned about endo. Puregold does not expect to be significantly impacted by the banning of endo. Although they intend to regularize some personnel such as cashiers, they mentioned that these will have minimal impact to their operating expenses. Note that operating expenses for the year as a % of sales have dropped to 12.2% from 12.6% in 2015, and with concerns regarding endo crossed out, we think PGOLD should be able to continue managing their costs this 2017.

2017 guidance mostly within expectations except lower S&R margins. PGOLD expects net sales to grow between 8-10%, with SSSG for PGOLD and S&R sitting between 2-3%. This is just slightly below our 10.6% revenue growth forecast for 2017. Management noted that they are providing a conservative SSSG guidance based on the SSSG recorded in January and February 2017 which is at 3%. Note that after adjusting for the leap year, SSSG for the period would have been around 4% and we think this provides some upside risks to management’s guidance and also our forecasts. Meanwhile, management is targeting to sustain Puregold’s gross and net margins in 2017. For S&R, gross margins are expected fall between 20.5-21.5% in 2017 from 21.7% last year. Further depreciation of the peso could put additional pressure in S&R’s margins amidst their continuous efforts to provide value to members. Although margins for Puregold were in line with expectation, S&R’s lower margins are not yet factored into our forecasts as we expect S&R’s margins to sit at 22.0% for 2017.

Realigning forecasts, maintain BUY rating. We are realigning our forecasts to factor in the stronger performance of S&R’s revenues boosted by its Member’s Treat Sale and adjusting for the lower gross margin guidance (reducing to 21.0% from 22.0%) in 2017. Nevertheless, these changes did not significantly affect our FV estimate.

We continue to like PGOLD as we believe the company remains well positioned to capitalize on the existing growth opportunities in the modern retail sector given its well-recognized brand and differentiated focus on different income segments, including resellers. We currently have a BUY rating on PGOLD with a FV estimate of Php51/sh and at its current price of Php43.60/sh, upside to our FV estimate remains significant at 17.0%. In light of these, we are maintaining our BUY rating on PGOLD.


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MON 10 APR 2017

COSCO: 2016 profits continue to underperform on weakness of smaller subsidiaries

Profits up 5.4% y/y in FY16, below estimates. COSCO recorded Php1.5Bil in profits during 4Q16, up 2.1% from the same quarter in 2015. This brought total income for the year to Php4.7Bil, up 5.4% y/y. Full year results lagged both COL and consensus estimates, representing 95.8% and 92.5% of 2016 forecasts. The continued underperformance was largely due to the weakness in its smaller subsidiaries. Aside from lower global LPG prices, tougher competition led Liquigaz to have lower gross profits per kg. Similarly, COSCO’s commercial real estate business, booked lower rental revenues in 4Q (-16.4%), bringing profits down 27.7% y/y and offsetting the 8.5% growth in net income as of 9M16 to end the year with flattish profits. On the other hand, PGOLD, which remains the main driver for COSCO’s earnings (60% of total profits), grew steadily with net income up 10.5% y/y on the back of sustained SSSG and organic expansion.

Exhibit 1: Net Income Breakdown

Source: COSCO, COL Estimates

PGOLD earnings meets estimates. Puregold booked Php1.9Bil in profits during the fourth quarter, up 4.6% y/y as lower margins offset a 13.5% increase in net sales. Gross margins in 4Q16 contracted by 100 bps mainly due to Puregold’s participation in bidding for Christmas basket sales to corporate and government customers. Nevertheless, full year profits reached Php5.5Bil, up 10.5% from 2015. This was in line with both COL and consensus estimates accounting for 99.4% and 99.6% of full-year. Meanwhile revenues for the year were up 15.9% y/y driven by organic growth as well as a strong blended same-store-sales growth (SSSG) of 5.8%, its highest figure in the past 5 years. Notably, S&R’s SSSG accelerated in 4Q16 after hitting 11%, bringing full year SSSG to 4.4% from 1.4% in 9M16. With COSCO’s 51% stake in PGOLD, net income attributable to the parent amounted to Php2.8Bil, accounting for 60% of total profits for the year.

Specialty retail continues to underperform. COSCO’s specialty retail segment widened its losses in 4Q16 to Php24Mil from Php12Mil in the same quarter during 2015. As a result, total profits for 2016 declined by 25.4% y/y to Php338Mil (81% from Liquigaz; 19% from Office Warehouse). Revenues from Liquigaz had dropped by 16.4% y/y in 4Q16 while for the full year it was down by 24.7% to Php8.9Bil. Aside from lower global LPG prices and a 6.9% decline in volume sold, management attributed the weaker performance of Liquigaz to competition in its wholesale segment (85% of Liquigaz’s sales). Liquigaz had a big customer in the past that decided to setup its own terminal facility in late 2015 and this led to the drop in sales volume as well as lower gross profits per kilogram of LPG sold (from Php2.2/kg to Php1.8/kg) from tougher competition. Management expects continued pressure in its wholesale segment, but intends to offset it through growing its retail business (currently 15% of revenues) which offers higher margins.

Stock Data


COSCOBUY

Php11.09

Justin Richmond ChengResearch Analyst

in PhpMil 4Q15 4Q16 % Change FY15 FY16 % Change %COLPuregold 1,799 1,881 4.6% 5,002 5,526 10.5% 99.4%Real estate 313 247 -21.1% 1,028 1,023 -0.5% 92.4%Liquor distribution 278 201 -27.7% 660 581 -12.0% 88.5%Specialty retail (12) (24) 100.0% 453 338 -25.4% 73.7%

2,365 2,416 2.2% 6,987 7,469 6.9% 96.9%Net Income to equity 1,437 1,467 2.1% 4,490 4,734 5.4% 95.8%


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MON 10 APR 2017

In line with management’s goal of expanding its retail LPG business, its new terminal facility in Sairaya, Quezon is expected to be completed in 2H17, and this would help Liquigaz in its expansion to the South. The new terminal facility will add an additional 12,000 mT to Liquigaz’s current capacity of 5,100mT. Furthermore, they expect to save Php120Mil annually from the use of this new terminal. Full operations with the terminal is expected to come by 1Q18.

Liquor profits still affected by change in sales mix. Revenues for the fourth quarter were down 4.5% y/y to Php2.2Bil, bringing full year numbers up 4.0% to Php5.9Bil. Despite total volume growing robust at 18% y/y in 2016, revenues continued to be weighed down by the drop in COSCO’s sales of Fundador brandy after Emperador acquired it in April. Nevertheless, this was partially offset by the pick up in Alfonso brandy sales due to management’s strong marketing and promotional efforts. Note that while Fundador brandy is priced at a premium, Alfonso has higher margins than the former. As a result, gross profit margins for 2016 only ended 10 bps lower y/y to 22.8%. Meanwhile, on the EBITDA level, profits were up 1.6% for the year with net margins dropping by 40 bps as a result of higher advertising expense from actively promoting its Alfonso products. Net income for the year declined by 11.9% to Php581Mil and management attributed the drop in net income to a one-time management fee (~Php150Mil) charged by the parent for tax savings purposes. Excluding this, profits would have ended at Php731Mil, 10.8% higher year-on-year.

Lower rental revenues drive flattish profits. COSCO’s leasing business booked profits of Php201Mil in 4Q16, lower by 27.7% y/y. The drop was driven by lower rental revenues from its NE Pacific Mall as a result of competitive pressures. This brought rental revenues during the fourth quarter to Php587Mil, down 16.4% y/y. The weakness in the fourth quarter had offset the 8.5% growth in profits as of 9M16, concluding the year with flattish profits at Php1.0Bil (-0.5% y/y). In 2016, COSCO ended with 38 properties equal to the amount of properties it had in 2015. Meanwhile, the company is currently developing two community malls with one in Marikina and the other in Laguna. These are expected to be completed in 1H17 and 2H17, respectively.

Maintain BUY rating. We currently have a BUY rating on COSCO with a FV estimate of 11.09/sh. The stock is currently undervalued with its specialty segment, real estate, and liquor distribution not yet priced in. Also, at its current price of Php8.52/sh, upside to our FV estimate remains significant at 30.2%. Despite the headwinds faced by the company in 2016, we continue to believe that 2017 should be a better year for COSCO with its liquor distribution performing at a more normalized base in 2Q17 while the rebound in oil prices would also relieve some pressure on Liquigaz.


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MON 10 APR 2017

MWIDE: Profits up 22.4% y/y to Php1.56Bil, in line with management’s guidance

Profits up 22.4% y/y on back of airport operations. MWIDE’s profits for 2016 increased by 22.p1.56Bil. This is in line with management’s net income guidance of Php1.58Bil. Earnings growth was driven by a 14.3% increase in revenues to Php17.66 Bil. Gross margin also expanded by 100 bps to 21.9% largely due to improvements in its airport operations. The substantial improvements in its airport gross margin of around 400 bps y/y to 81% is largely due to the higher contribution of non-aero operations (rental revenue and advertising from concessioners, among others).

Although revenues in the fourth quarter declined by 15.5% compared to the same period a year ago, we believe that the focus should be on MWIDE’s substantial construction backlog amounting to Php38.49 Bil. Moreover, full year revenues were still slightly above management’s guidance of Php17.48Bil.

Exhibit 1: Results summary

Source: MWIDE

Decline in 4Q16 revenues not a concern. Revenues in 4Q16 declined by 15.5% y/y to Php3.9 Bil, slowing down full year revenue growth to 14.4% y/y. In contrast, revenues in the first nine months of the year grew by 27.3% y/y. The drop was largely due to its construction business which suffered from a 19.5% decline in revenues to Php3.4 Bil. Nevertheless, we are not concerned as MWIDE was still able to meet its full year revenue guidance of Php17.48 Bil. Construction projects also have seasonal patterns and the weakness in the fourth quarter might only be due to seasonal factors. Finally, MWIDE disclosed that it has a construction backlog of Php38.49 Bil as of end 2016 (Php12.73 Bil are new contracts acquired in 2016). This would mean highly visible revenue potential in the coming years.

On the other hand, MWIDE’s 60% stake in GMCAC which operates the Mactan-Cebu International Airport continued to see robust revenue growth in the fourth quarter of 29.3% y/y to Php493Mil, partly offsetting the decline in construction revenues. This brought full year airport revenues to Php1.87Bil, higher by 26.2% y/y. MWIDE attributes the strong performance of its airport operations to the 12% y/y growth on passenger traffic to 8.89 Mil. Moreover, non-aero related revenues rose by 57% y/y to Php192Mil, driven by new concessionaire contracts in the vicinity. MWIDE remains optimistic on its airport operations given the scheduled completion of Terminal 2 in June 2018, which will increase the airport’s designed capacity to 12.5 Mil.

% of in PhpMil 4Q15 4Q16 % Change FY15 FY16 % Change Mgt GuidanceRevenues 4,653 3,931 (15.5) 15,442 17,658 14.3 101.0Gross Profit 689 863 25.2 3,225 3,871 20.0 -

Gross Margin (%) 14.8 22.0 - 20.9 21.9 -

Operating Income 334 514 53.7 2,334 2,779 19.1 -Operating Margin (%) 7.2 13.1 - 15.1 15.7 -

Net Income 142 251 76.7 1,274 1,559 22.4 98.4Net Margin (%) 3.1 6.4 - 8.2 8.8 -

Stock Data


MWIDEN/AN/A

Andy Dela CruzResearch Analyst


10


MON 10 APR 2017

Exhibit 2: Revenue breakdown

Source: MWIDE

2017 income expected to grow by 12.9%. Management remains positive and expects to grow profits by 12.9% in 2017. Although growth is lower than 2016’s income growth pace, MWIDE said that it is tempering its contract booking to make way for potential infrastructure and PPP (public-private partnership) bids. Moreover, the guidance does not include any potential infra and PPP contract wins yet. PPP projects that MWIDE are eyeing include the five regional airports (Davao, Iloilo, Bacolod, Laguindingan, and New Bohol) with a total cost of Php110.4Bil and prison facilities worth Php50.2Bil.

Exhibit 3: 2017 management guidance summary

Source: MWIDE

* Less 40% (minority interest) of airport income guidance

Consensus has a fair value estimate of Php19.52/sh on MWIDE.

Other News:

MPI: MPTC open to join Ayala and SM on proposed tollway project

Metro Pacific Tollways Corp. (MPTC) is open to the proposal of AC Infrastructure Holdings Corp. and SM Investments Corp. to build the C-3 elevated tollway. The tollway would start from C-3 Sta. Mesa area in Manila, linking Skyway Stage 3 to Mall of Asia in Pasay at a cost of Php25Bil. MPTC President Rodrigo Franco said that the project would give motorists the option on which alignments to take and provide access to other areas such as Ayala, Buendia and Mall of Asia. (source: Philstar)

DD: DD eyes bond issue by mid 2017

Chief Investment Officer Hannah Yulo said that DD plans to raise Php9.7Bil from the sale of 10-year retail bonds by the middle of this year. The bonds form part of a Php15Bil shelf offering and will be the last fund raising initiative to cover development costs toward 2020. So far, DD has raised 75% of its required capital to execute its target of building 1Mil sq.m. of leasable space by 2020. (source: Businessworld)

in PhpMil 4Q15 4Q16 % Change FY15 FY16 % Change % of

Mgt GuidanceConstruction 4,272 3,439 (19.5) 13,958 15,786 13.1 100.3Airport operations 381 493 29.3 1,484 1,872 26.2 107.8Total revenues 4,653 3,931 (15.5) 15,442 17,658 14.3

16A 17E % y/y change 16A 17E % y/y change 16A 17E % y/y change

Revenues 15,786 16,580 5.0 1,872 2,100 12.2 17,658 18,680 5.8EBITDA 2,300 2,420 5.2 1,302 1,500 15.2 3,604 3,920 8.8

EBITDA margin (%) 14.6 14.6 - 69.6 71.4 - 20.4 21.0 -Net Income 1,017 1,160 14.1 903 1,000 10.8 1,559 1,760* 12.9

Net margin (%) 6.4 7.0 - 48.2 47.6 - 8.8 9.4 -

Construction Airport Consolidatedin PhpMil

Research AnalystsFrances Rolfa NicolasAndy Dela CruzJustin Richmond ChengKyle VelascoJohn Martin Luciano


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MON 10 APR 2017

IMI: IMI eye expansion in Russian market

IMI is planning to expand into the Russian market, once its manufacturing facility in Serbia starts operations by July 2018. According to management, IMI is expected to benefit from Serbia’s free trade agreement (FTA) with the Russian economy. Under the FTA, goods produced having at least 51% value added in the country is exported to Russia duty free. Serbia would serve as a manufacturing hub for duty-free exports to a market of more than one billion, including the Russian economy. The company also received incentives from the Serbian government, such as an income tax holiday for the next 10 years and cash incentives of up to €8.5Mil based on achievement of employment and revenue milestones. (Source:

Businessworld)

Economy: GIR in end-March 2017 stood at US$80.9Bil

The Bangko Sentral ng Pilipinas (BSP) announced that the Philippine’s gross international reserves stood at US$80.9Bil as of end-March 2017. This was 0.7% lower than the end-February 2017 GIR of US$81.4Bil but 0.2% higher than the end-2016 level of US$80.7Bil. According to the BSP, the month-on-month decline was on the back of outflows from the BSP’s foreign exchange operations and the payments made by the government for its maturing foreign exchange obligations. However, these were partially offset by the net foreign currency deposits by the government and revaluation adjustments on the BSP’s gold holdings. (Source:

BSP)

Economy: Infrastructure underspending rate narrows to 7.5% in 2016

The Department of Budget and Management (DBM) reported that infrastructure spending hit Php493Bil in 2016, up 42.8% y/y from the Php345Bil recorded in 2015. The higher infrastructure spending was credited to road widening and rehabilitation of national roads, the AFP’s modernization program, the DOH’s construction of medical facilities and purchase of medical equipment, and construction and repair of State Universities’ facilities. Despite the increase, the full-year infrastructure figure still fell short of the Php533.1Bil budget, leaving 7.5% of the funds unspent. However, this was an improvement from the 20% underspending seen in 2015. The DBM said that the underspending was caused by the difficulties in the procurement process. (Source: DBM, Businessworld)


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Calendar of Events

Key Events Hol iday

MAR 1

ALI Ex-date Php0.24 Cash Div idend

MAR 2

FEU: EX-date Php10.00 Cash Div idend

MAR 3

ABS: Ex-date Php1.04 Cash Div idend

MAR 6

ANS: Ex-date Php0.20 Cash Div idend

MBT: Ex-date Php1.00 Cash Div idend

TUGS: Annual Shareholders Meet ing

MAR 7

BLFI : Ex-date Php0.20 Cash Div idend

PLC: Ex-date Php0.281 Cash Div idend

MAR 8

PRC: Ex-date Php0.08 Cash Div idend

MAR 9

BDO: Ex-date Php0.30 Cash Div idend

BEL: Ex-date Php0.095 Cash Div idend

ALCO: Ex-date Php0.012 Cash Div idend

PX: Ex-date Php0.04 Cash Div idend

MAR 10

MWC: Ex-date Php0.4244 Cash Div idend

MAR 14

PHEN: Ex-date Php0.04 Cash Div idend

MAR 15

EDC: Ex-date Php0.14 Cash Div idend

PNX: Annual Shareholders Meet ing

MAR 16

AP: Ex-date Php1.36 Cash Div idend

AEV: Ex-date Php1.33 Cash Div idend

TEL: Ex-date Php28.00 Cash Div idend

DTEL: Ex-date Php28.00 Cash Div idend

MAR 22

MER: Ex-date Php9.30 Cash Div idend

MAR 27

MPI: Ex-date Php0.068 Cash Div idend

MAR 30

COL: Annual Shareholders Meet ing

M A R C H

3301 2315 26 27 28 29 30

29


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MON 10 APR 2017

April Lynn Tan, CFA

VP & Head of Research

[email protected]

Charles William Ang, CFA George Ching Richard Lañeda, CFA

Deputy Head of Research Senior Research Manager Senior Research Manager

[email protected] [email protected] [email protected]

Frances Rolfa Nicolas Andy Dela Cruz Justin Richmond Cheng

Research Analyst Research Analyst Research Analyst

[email protected] [email protected] [email protected]

Kyle Velasco John Martin Luciano

Research Analyst Research Analyst

[email protected] [email protected]

COL Financial Group, Inc.2402-D East Tower, Philippine Stock Exchange Centre,

Exchange Road, Ortigas Center, Pasig City

1605 Philippines

Tel No. +632 636-5411

Fax No. +632 635-4632

Website: www.colfinancial.com

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Important Disclaimer

BUYStocks 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 12 months.

HOLDStocks 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 in line or underperform in the market in the

next six to twelve months.

SELLWe dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

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 said

information 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 prior 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 and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the

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mon 10 apr 2017 (as of apr 07, 2017) jgs: core fy16 ...€¦ · meg megaworld corporation 3.94 6.20...

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