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Deutsche Bank Markets Research
Asia
Philippines
Strategy
Philippine Strategy
Date
24 June 2016
Strategy Update
The straight path turns to the left
Duterte administration to take office on 30 June
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
This research has been prepared in association with Deutsche Regis Partners, Inc. The opinions contained in this report are those of Deutsche Regis Partners, Inc.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.
Rafael Garchitorena
Deutsche Regis Partners, Inc.
Research Analyst
(+63) 2 894 6644
Gio Dela-Rosa, CFA
Deutsche Regis Partners, Inc.
Research Analyst
(+63) 2 894 6642
Related recent research Date
Philippine Market - Economic priorities of the new government
Gio dela Rosa
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Carissa Mangubat
17 Jun 2016
Philippine infrastructure - Infrastructure a priority for incoming administration
Klyne Resullar
17 Jun 2016
Economics Update - Philippines: Gunning for inclusive growth
Diana del Rosario
16 Jun 2016
Source: Deutsche Bank
As the world digests the implications of Brexit, the Philippines focuses on a much more local regime change. On 30 June, Mr Rodrigo Duterte will be sworn in as the 16th President of the Republic of the Philippines. Mr Duterte has quickly consolidated his base with a coalition that claims a "super-majority" of over two-thirds of Congress. His incoming Cabinet has unveiled a "10-point socio-economic agenda" that strongly signals his business-friendly, expansionary, if left-leaning, policies.
Taking a left(ist) turn, towards a more “inclusive” kind of growth The incoming government inherits a robust domestic economy – much more resilient to global shocks like Brexit – thanks to the “straight path” of good governance under President Aquino. However, Mr Duterte has vowed to make growth more "inclusive". Social reforms include enhanced welfare (CCT), pension and healthcare benefits. A tax reform package seeks to lower personal and corporate income tax rates, while improving collection and introducing/hiking taxes on "junk food", real estate, and petroleum. To attract investments, Mr Duterte wants to raise foreign ownership limits for certain industries (eg. telecom, power), cut red tape, and revisit the REIT law. Infrastructure spend is targeted to rise to 5% of GDP, a goal that eluded the Aquino administration. He also espouses a shift to Federalism. Central to Mr Duterte's campaign was his strong anti-crime and anti-corruption drive.
PSEi up 11.2% since early May, now the best performing in the region The markets seem to like what they see and hear. The PSEi Index is up 11.2% since just before the election, and is up 10.6% YTD, now the best performing market in Emerging Asia. The Peso, too, is up c.2% since early May. Foreign net buying has surged, reversing months of outflow.
Policies favor consumers/retailers, infra plays Mr Duterte's policies to promote broader, more inclusive GDP growth will support consumption, with retailers as likely winners. Increased infrastructure spending would benefit project proponents, construction, building materials, and even support banks’ loan growth. A review of the REIT rules could be positive for property companies with strong rental portfolios.
Neutral on the market – at 20x PE on 2016F; earnings disappoint again However, the market's jump has meant that the PSEi Index is again trading at 20x our 2016F profit estimates, near the top of its historic trading range. Meanwhile, earnings in 1Q16 disappointed again, up just 6% YoY and posing downside risk to our 12% index earnings forecasts.
Change is here; short-term disruptions likely; fiscal slippage is a risk Mr Duterte ran and won on a platform of change, some of it radical. Change can often be a (very) good thing, but it is hardly ever easy. Much needed long-term reforms will likely come with short-term disruptions, whether politically, economically or both. The fiscal side, for example, bears close monitoring as the incoming administration juggles tax reform, social and infra spending, and a crackdown on corruption in the revenue collection agencies.
24 June 2016
Philippine Strategy
Page 2 Deutsche Bank AG/Hong Kong
Change is here
Market cheers Duterte win
Philippine financial markets seem to be cheering the election of former Davao
City mayor Rodrigo Duterte, who takes his oath as the 16th President of the
Republic of the Philippines on 30 June. Since the elections on 9 May, the main
PSEi Index has risen 11.2% to a new 52-week high, roundly outperforming the
region. Year-to-date, the PSEi is up 10.6%, the best performing market in
Emerging Asia.
After a year of near-constant net foreign selling, foreigners turned aggressive
buyers in May. The local stock market saw net inflows of $285mn.
The Peso also strengthened since the elections. After appreciating as much as
2.7%, the currency has settled down, but is still up 1.7% from 6 May.
Figure 1: PSEi Index surges post May 2016 election
8,127
6,952
6,991
7,756
5,500
6,000
6,500
7,000
7,500
8,000
8,500
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
Dec
-15
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
all-time high Apr'14
end-2015
6,084Jan'16
06May'16
Source: Deutsche Bank, Philippine Stock Exchange
Figure 2: PSEi – best performing in Emerging Asia Figure 3: Net foreign buy/(sell), monthly in USDmn
11.6%10.6%
6.6%4.5%
3.2%1.6%
-3.2% -3.4%-5.1%
-17.9%-20%
-15%
-10%
-5%
0%
5%
10%
15%
-1,000
-800
-600
-400
-200
0
200
400
600
800 May'16$285mn
Source: Deutsche Bank estimates, Bloomberg Finance LP
Source: Deutsche Bank estimates, Philippine Stock Exchange
PSEi Index
+11.2% since elections
+10.6% year-to-date
+27% from January low
24 June 2016
Philippine Strategy
Deutsche Bank AG/Hong Kong Page 3
Duterte's team hits the ground running
We must admit that the market’s positive reaction somewhat surprised us.
While we did downplay the pre-election worries over Mr Duterte’s headline-
grabbing comments (see "Testing its resilience, Pt2 - Do the elections matter?"),
we expected the market to take a more wait-and-see attitude towards the
controversial candidate. In that report and in another directly after the election
("A missive from Manila - The road less travelled", 10 May), we reckoned that
Mr Duterte's appointments to his Cabinet would be crucial for calming
markets' nerves. Individually, the proposed Department Secretaries have so far
received mixed reviews (see Figure 8, on page 9).
Cabinet bares “10-point socio-economic agenda”
However, those in the "economic cluster" have come out strong. Within days
of the election (on 12 May), the transition team – led by incoming Finance
Secretary Carlos G Dominguez – revealed the new administration’s 8-point
socio-economic agenda, which was later expanded to a 10-point agenda:
1) Maintain the key macroeconomic policies — including fiscal,
monetary and trade — of the previous administrations.
2) Reform the tax system to make it more progressive, improve
collection effectivity, and index tax rates to inflation.
3) Attract more investment (both foreign and local) by improving
competitiveness and ease of doing business. Relax Constitutional
foreign ownership limits for partially protected industries (exception
for land ownership).
4) Accelerate infrastructure spending to 5% of GDP (from less than 3%
in 2015). This will be done both through direct government spending
and through public private partnership (PPP).
5) Promote rural development, improve agricultural productivity, and
promote rural tourism.
6) Ensure security of land tenure, and streamline land titling agencies
and processes.
7) Invest in human capital development by improving access to
healthcare and making the education system better responsive to the
demands of businesses.
8) Enhance innovation by promoting science, technology and the
creative arts.
9) Stronger and broader social safety nets for the poor, including an
expansion of the existing Conditional Cash Transfer (CCT) program.
10) Fully implement the Responsible Parenthood and Reproductive
Health Law.
Since then, the Cabinet has been proactively promoting the 10-point agenda.
Earlier this week (20-21 June), Duterte and his Cabinet hosted "Sulong
Pilipinas" (or "Onward Philippines") in Davao City, a two-day consultative
forum in which the country's business leaders were asked to give their
recommendations — a "wish list" — for the incoming officials.
24 June 2016
Philippine Strategy
Page 4 Deutsche Bank AG/Hong Kong
Consolidates hold on Congress – from fringe party to a super-majority
There were also concerns over how quickly Mr Duterte could form a coalition
in Congress. Many of the proposed reforms need Congressional support. This
is especially true for the ones that require a change in the Constitution such as
the shift to a Federal form of government and the relaxation of foreign
ownership restrictions.
His political party, the Partido Demokratiko Pilipino-Lakas ng Bayan (or PDP-
Laban), is quite small. Immediately after the May election, the party only held
three seats in the 292-member Lower House, and only one of the 24 seats in
the Senate. Just two weeks after the election though, his party had formed
coalition agreements that claim at least 260 members, much more than the
two-thirds super-majority needed to begin the process of Constitutional
change. Both the Speaker of the House (Congressman Pantaleon Alvarez) and
the Senate President (Senator Aquilino Pimentel III) are expected to come from
the PDP-Laban.
Taking a left(ist) turn, towards more “inclusive” growth
The Duterte team has lauded the current – and past – administrations for their
sound fiscal and monetary policies that have made the Philippines among the
world's fastest growing and most resilient economies. These have also led to
multiple credit rating upgrades to investment-grade status. The Aquino
administration attributes this success to their policy of “Daang Matuwid” – or
“straight path” – of good governance.
However, Mr Duterte – a self-professed “leftist” and “socialist” – believes that
growth needs to be more inclusive, addressing extreme income inequality.
Based on government estimates, 23.6% of Filipinos were below the poverty
line in 2014. His policies focus on uplifting the poorest of the poor through
lower tax rates and through improved education, CCT, pension, and healthcare
benefits. He also intends to focus investments – including infrastructure –
outside Metro Manila, where poverty incidence is much greater. Per-capita
GDP in the National Capital Region (NCR) in 2014 was almost three times the
national average. More shockingly, it was nearly 12x that of the poorest
province.
Figure 4: GDP per capita per region (P)
365,629
126,579107,479
30,602
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Source: Philippine Statistics Authority
24 June 2016
Philippine Strategy
Deutsche Bank AG/Hong Kong Page 5
Policy proposals – potential impact on sectors, stocks
Outside the broad policies outlined under the 10-point agenda, Mr Duterte
and/or his Cabinet members have, at different times, made a number of
specific proposals the administration is likely to pursue.
Figure 5: Policies proposed by incoming Duterte administration
PLAN / LIKELY PROPOSAL REMARKS
FEDERALISM Devolution of powers to regions Improved opportunities and income for areas outside the capital
Necessary change in Constitution likely a multi-year process
Positive for companies that have larger emphasis on operations outside the capital
TAX CHANGES / REFORM
Individual income tax Reduce top tax rate to 25% from 32% Increases disposable income
Positive for consumption and consumer companies
Corporate income tax Reduce tax rate to 25% from 30% Increases corporate income across the board
Real estate tax Update zonal values which are the bases for tax assessments
Raises holding cost for property, esp for those with large land banks May discourage investing in property
Mildly negative for property companies
Excise taxes on oil/petroleum Raise excise taxes and index them to inflation Indirect decrease in disposable income; equivalent to oil price hike
Could have mild impact on inflation
Excise taxes on "junk food" Tax on unhealthy food Coverage of "junk food" unclear
Would be negative for companies selling products covered
PEACE&ORDER / PUBLIC HEALTH
Peace and order Aggressive crackdown on criminality Improved peace and order environment could spur economic activity and employment
Anti-smoking laws Davao City’s extremely strict smoking ordinances could be implemented nationwide
Short-term negative for tobacco consumption, but Davao experience was that volumes recovered within a year.
Alcohol sale restrictions Davao prohibits the sale of alcohol after 2 am, except in hotels
Unclear what the impact on consumption was in Davao or what it could be if implemented nationally
SOCIAL PROGRAMS
Conditional cash transfer Review and expansion of CCT program Would raise incomes of the poorest segment of population
Positive impact on consumption and consumer companies
Healthcare Achieving universal healthcare funded by gaming agency
Could free up non-healthcare spending Positive impact on consumption
Government salaries Double wages of uniformed personnel; increase wages of teachers
Aim to reduce corruption and attract better workers Positive impact on consumption
INFRASTRUCTURE Increase infrastructure spending to 5% of GDP Would improve long-term competitiveness of the country
Positive impact on project developers, contractors and suppliers of construction materials
INVESTMENTS
Red tape Improve approval and licensing process for businesses
Improved ease of doing business could spur economic activity and employment
Could lead to greater credit demand and would be positive for banks
Foreign ownership Raise allowable foreign ownership in partially nationalized industries
Would require Constitutional amendments Many companies already have foreign ownership above the 40% maximum through various legal structures
Real Estate Investment Trusts (REIT)
Review and/or revision of rules to relax requirements to create REIT companies
Would improve recycling and investment of capital for property investment at risk of foregone tax revenue for the government
Positive for companies with rental property portfolio that can be spun off into REITs
Source: Deutsche Bank
24 June 2016
Philippine Strategy
Page 6 Deutsche Bank AG/Hong Kong
Expansionary fiscal policy supports continued GDP growth
Broadly, the stated policies seem to support sustained healthy economic
growth. In the past four years, Philippine GDP growth has averaged close to
6.5% YoY. This was achieved despite chronic under-spending by the national
government, particularly in infrastructure. DB’s economist Diana del Rosario
reckons that “loosening fiscal levers” poses potential “upside risk to our 2-year
growth outlook” (See “Economics update – Philippines: Gunning for inclusive
growth” 16 June). Our forecasts call for real GDP growth of 6.0% in 2016 and
5.8% in 2017. Longer-term, plans to reduce bureaucratic red tape and to open
foreign ownership restrictions could provide a further boost from increased
private investments.
Putting money in consumers’ pockets – prefer retailers
Nearly every item on the list in Figure 5 would have a net positive impact on
personal incomes. Uplifting the lives of the poorest families would increase the
spending power of a disproportionate number of Filipinos, growing the market
for consumer staples. Reduced poverty and provincial growth could also
accelerate the migration of consumption into modern retail formats (eg.
supermarkets). All of these would be positive for retailers such as Metro Retail
(MRGSI.PS), Puregold (PGOLD.PS), Robinsons Retail (RRHI.PS), and to a lesser
degree SM Investments (SM.PS) as retail accounts for 20% of net profits.
Consumer companies such as Century Food (CNPF.PS), Jollibee (JFC.PS) and
Universal Robina (URC.PS) would benefit too. However, a proposed tax on
“junk food” could hurt some producers. It is unclear at this stage what the
term “junk food” would cover. Globally though, these sort of taxes tend to
focus on products that are high in sugar and/or sodium. URC could be
casualties of this policy.
Infrastructure – removing bottlenecks, honoring contracts
The incoming Cabinet aims to de-bottleneck infrastructure spending. It has
vowed to not review existing projects, a practice that dragged spending plans
of previous administrations. Mr Duterte wants to stop losing bidders seeking
temporary restraining orders (TROs) to delay contract awarding and forcing
rebids.
We estimate that there are more than $30bn worth of projects (railways, toll
roads, ports and airports) that could be undertaken in either PPP or non-PPP
form in the medium term. Finance Secretary-designate Dominguez, though,
admits to a lack of “absorptive capacity” in the government agencies, which
need to be addressed to execute the spending plans.
This could be positive for project proponents such as Ayala Corp (AC.PS), and
Metro Pacific (MPI.PS). Construction firms such as DMCI (DMC.PS) could
benefit even from non-PPP projects, as would cement and building materials
companies. The high capital nature of these projects could boost loan demand
for banks.
Crucially, the incoming administration has committed to honor contractual
obligations of the government, including those currently under litigation or
arbitration (see “Infrastructure a priority for incoming administration”, 16 June).
This could pose upside risk for the likes of MPI, AC and DMCI as all of them
have pending cases in their water and/or toll road operations.
24 June 2016
Philippine Strategy
Deutsche Bank AG/Hong Kong Page 7
Property – a mixed bag – prefer landlords (REITs), provincial developers
The policies are more of a mixed bag for property developers. To the upside,
the review of the REIT Law could be hugely positive for companies with large
portfolios of rental properties such as Ayala Land (ALI.PS), Megaworld
(MEG.PS), Robinsons Land (RLC.PS) and SM Prime (SMPH.PS). The push for
infrastructure outside of Metro Manila would benefit developers with larger
provincial exposures such as Filinvest Land (FLI.PS) and Vista Land (VLL.PS).
However, a proposed update in zonal values could mean significant increases
in real estate taxes. This would penalize companies that hold (or hoard) land
assets. All the aforementioned property companies would fit that bill, in our
view. Higher land tax could also hurt residential demand, particularly for
landed property. We understand that the gap between zonal and market values
for condos is much narrower.
Fiscal loosening – a balancing act; watch for slippage
To fund the Duterte administration’s projects, a much looser fiscal policy
would be required. Indeed it has already signaled an increase in the target
budget deficit to 3% of GDP compared to 2% of GDP under the outgoing
Aquino government (2014 and 2015 came in at about 1% of GDP, largely due
to underspending).
The challenge will be to balance reductions in income tax rates on one hand,
and increased social and infrastructure spending on the other. The risk to the
balancing act is slippage (pun intended).
We estimate, for example that income taxes alone account for P800bn. The
proposed reduction in the income tax rate to 25% could reduce tax collection
by P100-150bn, equivalent to close to 1% of GDP. The implementation of new
taxes and improved collection efficiency will need to be ramped up quickly to
compensate. Granted, the example is simplistic, and we do expect the tax rate
reduction to be implemented in phases. The Cabinet aims to deliver its
Comprehensive Tax Reform proposals to Congress by September.
On top of this, the Duterte government has vowed a crackdown on the main
collection agencies, the Bureau of Internal Revenue (BIR) and Bureau of
Customs, which together account for 88% of total government revenues. The
President-elect has explicitly tagged the bureaus as two of the “most corrupt”
agencies in government. News sources (eg. www.philstar.com) reported
threats of mass resignations at the BIR, though this was later denied by the
agency’s Commissioner.
Fiscal discipline during the two previous administrations was largely
responsible for improving the country’s credit rating to investment grade, and
consequently the sharp reduction in interest rates. We agree that there is
significant room to loosen the purse strings, especially with savings built up in
the Treasury in recent years. We believe the market will heartily support
increased spending for productive and inclusive growth. However, it may not
be as forgiving of recurring collection shortfalls.
24 June 2016
Philippine Strategy
Page 8 Deutsche Bank AG/Hong Kong
Neutral on the market on a 12-month view
Valuations back at 20x PE on 2016 forecasts
We remain bullish on the country’s macro prospects, and see potential upside
to our GDP forecasts on the incoming administration’s policy statements.
However, the recent jump in share prices has brought the PSEi Index close to
20x PE on our 2016F earnings estimates, and 19.5x on 12-month forward PE.
Figure 6: PSEi 12-month forward PE (x)
5
10
15
20
25
30
-1 SD
avg
+1 SD
Source: Deutsche Bank estimates
Earnings disappoint… again; 1Q16 earnings growth of 6%
Meanwhile, company earnings continue to disappoint. Despite a surprise GDP
growth turnout of 6.9% in 1Q16, aggregate net profit for companies we cover
was up just 6% YoY in the same period. For reference, our current forecasts
call for 12% growth for the full-year. Further earnings misses could mean the
market is even more expensive than what Figure 6 would suggest.
Figure 7: Earnings growth – stuck in low gear
-20%
-10%
0%
10%
20%
30%
40%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Ahead
In line
Behind
NPAT, %YoY (rhs)
Source: Deutsche Bank estimates, company data
24 June 2016
Philippine Strategy
Deutsche Bank AG/Hong Kong Page 9
Figure 8: President-elect Duterte’s proposed Cabinet members, and selected Bureau heads
Post Appointee Brief description
Spokesperson Ernesto Abella Educator, social entrepreneur and former pastor. Once kidnapped by rebels, but was saved with the help of then Mayor Duterte.
Executive Secretary Salvador Medialdea Began his career at a law firm (ACCRA). He and Mr Duterte, who is a client in his law firm, were childhood friends in Davao.
Cabinet Secretary Leoncio Evasco A priest during the Marcos era and a former small-town mayor in Bohol. He worked under Duterte in Davao and is a close confidant.
Agrarian Reform Rafael Mariano A farmer and the chairman of a militant (leftist) farmer's group that led many protests against the Aquino administration.
Agriculture Emmanuel Piñol A former North Cotabato Governor who has years of experience as governor and vice-governor of North Cotabato.
Budget Benjamin Diokno Previously served as budget secretary under the Estrada administration and undersecretary under President Corazon Aquino.
Defense Delfin Lorenzana A retired general who is currently the Presidential Representative and Office of Veterans Affairs head at the Phils. Embassy in Washington.
Education Leonor Briones A former National Treasurer during the Estrada administration. Currently teaches Public Administration at the University of the Philippines.
Energy Alfonso Cusi Served under the Arroyo administration as head of the country’s Aviation and Ports Authority before moving to the Int'l Airport Authority.
Environment Regina Lopez Head of the charitable arm of ABS-CBN and a member of the Lopez clan. She is an environmentalist and vocal anti-mining advocate.
Foreign Affairs Perfecto Yasay, Jr. A lawyer and former chairman of the SEC. He testified against President Estrada in the latter’s impeachment trial over price manipulation.
Finance Carlos Dominguez III Secretary of Environment then later of Agriculture under Pres Corazon Aquino from 1987-89. Business interests in agri, retail and hotels, etc.
Health Paulyn Ubial Currently the Asst. Secretary of the Department of Health. Dr. Ubial is currently in charge of the agency's Office for Health Regulations.
Info, Comm, Tech Rodolfo Salalima Lawyer and former Chief Legal Counsel of Globe Telecom (GLO.PS). Was a law school classmate of Mr Duterte.
Interior/Local Govt Mike Sueño A former South Cotabato Governor and former chairman of PDP-Laban, the incoming president's political party.
Justice Vitaliano Aguirre II A prosecutor in the impeachment of SC Chief Justice Corona. Legal counsel during Duterte's campaign. Law school classmate of Duterte.
Labor Silvestre Bello III Served as Justice Secretary under the Cory Aquino's administration, Solicitor General and head of the Negotiating Panel under Pres Ramos.
Public Works Mark Villar Congressman and a member of the Villar/Aguilar political family of Las Piñas. Family owns the listed real estate company Vista Land (VLL.PS).
Science & Technology Fortunato Dela Peña Appointed Undersecretary of the Dept. of Science and Technology in 2001. Also currently the president of the National Research Council.
Social Welfare Judy Taguiwalo A professor in the University of the Phils. Helped organize a militant women's organization (MAKIBAKA) and was arrested and tortured during the Marcos period.
Tourism Wanda Teo The president of one of the largest travel associations in the country. She also owns a travel agency based in Davao City.
Trade & Industry Ramon Lopez The current vice president / exec. asst. at RFM Corp. Also the executive director of a non-profit org that promotes entrepreneurship.
Transportation Arthur Tugade Headed state-owned Clark Development Corporation (2012-16). Is a name partner at a law firm, and law school classmate of Duterte.
Internal Revenue Cesar Dulay Not much is known apart from him being a lawyer. His appointment to the "most corrupt" agency suggests he is someone Duterte trusts.
Customs Nicanor Faeldon A former Marine captain who (along with Sen. Trillanes) led the Oakwood mutiny in 2003. Was subsequently jailed for two years.
Economic Adviser Ernesto Pernia A professor emeritus in economics at the University of the Philippines. A former lead economist at Asian Development Bank.
Peace Process Jesus Dureza Served various gov't posts such as Spokesman of President Ramos, Press Secretary, and Presidential Adviser on the Peace Process.
Drug Enforcement Isidro Lapeña A retired general and former Davao City Police chief. Once headed the Davao Public Safety Command Center.
Security Adviser Hermogenes Esperon Armed Forces Chief of Staff under the Arroyo admin. Also served as Presidential Security Group commander under president Ramos.
Legal Counsel Salvador Panelo A lawyer who’s taken up high-profile controversial cases.
Source: Deutsche Bank
24 June 2016
Philippine Strategy
Page 10 Deutsche Bank AG/Hong Kong
Appendix 1
Important Disclosures
Additional information available upon request
*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Rafael Garchitorena/Gio Dela-Rosa
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.
Newly issued research recommendations and target prices supersede previously published research.
53 %
36 %
10 %16 % 15 % 21 %
050
100150200250300350400450500
Buy Hold Sell
Asia-Pacific Universe
Companies Covered Cos. w/ Banking Relationship
Regulatory Disclosures
1.Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2.Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are
consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the
SOLAR link at http://gm.db.com.
24 June 2016
Philippine Strategy
Deutsche Bank AG/Hong Kong Page 11
Additional Information
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investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is
denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the
investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are
current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and
other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties.
Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise
to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash
flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a
loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the
loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse
macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation
(including changes in assets holding limits for different types of investors), changes in tax policies, currency
convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and
settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed
income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to
FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the
index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended
to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon
rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is
also important to acknowledge that funding in a currency that differs from the currency in which coupons are
denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to
the risks related to rates movements.
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Philippine Strategy
Page 12 Deutsche Bank AG/Hong Kong
Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk.
The appropriateness or otherwise of these products for use by investors is dependent on the investors' own
circumstances including their tax position, their regulatory environment and the nature of their other assets and
liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar
to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can
be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be
incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable
for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized
Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the
website please contact your Deutsche Bank representative for a copy of this important document.
Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i)
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debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed
exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are
affected by the currency of an underlying security, effectively assume currency risk.
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of investment advice, products and services. Recommended investment strategies, products and services carry the risk
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24 June 2016
Philippine Strategy
Deutsche Bank AG/Hong Kong Page 13
Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are
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Copyright © 2016 Deutsche Bank AG
David Folkerts-Landau Group Chief Economist and Global Head of Research
Raj Hindocha Global Chief Operating Officer
Research
Michael Spencer Head of APAC Research
Global Head of Economics
Steve Pollard Head of Americas Research
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Anthony Klarman Global Head of Debt Research
Paul Reynolds Head of EMEA
Equity Research
Dave Clark Head of APAC
Equity Research
Pam Finelli Global Head of
Equity Derivatives Research
Andreas Neubauer Head of Research - Germany
Stuart Kirk Head of Thematic Research
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