Stocks in Focus: WED 08 NOV 2017

URC: 3Q17 net income down 39.2%

y/y to Php2.0 Bil, in line with COL but
underperforms consensus
(AS OF NOV 07, 2017)
3Q17 net income down 39.2% y/y. URC’s net income for the third quarter of the year dropped by INDICES
39.2% y/y to Php2.0 Bil. After removing non-recurring items, core earnings still declined by 25.7% Close Points % YTD%
y/y to Php2.6 Bil despite the 20.4% growth in its revenues to Php31.6 Bil. This is again mainly PSEi 8,521.81 -1.26 -0.01 24.58
due to the cutthroat competition in its coffee segment, high base and increasing competition in All Shares 4,966.60 -2.00 -0.04 19.50
the ready-to-drink beverage segment, and the lower sales and EBIT margin from its Vietnamese
Financials 2,069.33 13.61 0.66 24.99
business. The said factors led to a 280 bps y/y decline in its EBIT margin to 10.0%.
Holding Firms 8,703.71 -61.76 -0.70 24.48
Industrial 10,971.31 -55.53 -0.50 3.02
For the first nine months of 2017, net profits reached Php8.2 Bil (down 21.8% y/y) and is in line
Mining & Oil 13,259.91 -48.20 -0.36 11.82
with COL (72.9% of full-year estimate) forecast but below consensus (69.5% of full-year estimate)
Property 4,054.42 25.95 0.64 32.22
forecast. URC’s core earnings declined at a slower pace of 13.3% y/y to Php9.7 Bil and represents
Services 1,703.59 3.89 0.23 30.76
70.8% of our full-year forecast. The drop in earnings is attributable largely due to the EBIT margin
drop of 250 bps y/y to 11.7%. Aside from the inflationary pressures across its input costs, the
coffee market continued its shift towards twin-pack sachets which brought down URC’s EBIT Dow Jones 23,557.23 8.81 0.04 19.20
margin. Meanwhile, its revenues grew by 13.1% to Php92.4 Bil but is only due to incremental S&P 500 2,590.64 -0.49 -0.02 15.71
gains from its Snack Brands Australia acquisition, Thailand, and Malaysia operations. In fact, Nasdaq 6,767.78 -18.65 -0.27 25.72
domestic branded revenues are still lower by 1% y/y to Php44.3 Bil. Nevertheless, consolidated
revenue is in line with COL and consensus forecasts as it represents 72.8% and 72.4% of full-year
INDEX GAINERS
estimates, respectively.
Ticker Company Price %
SMC San Miguel Corporation 114.80 7.49
Top Stories: MBT Metrobank 94.00 3.24
RLC Robinsons Land Corp 25.70 2.19
ALI: Strong residential segment drives 18.3% 9M17 growth LTG LT Group Inc 17.54 1.39
PIZZA: Recurring profits up 15.4% to Php519 Mil in 9M17, in line with COL and consensus ALI Ayala Land Inc 45.60 1.33
PNB: 9M17 earnings decline 21%; below estimates
CIC: 3Q17 earnings up 12%, in line with estimates
SCC: 9M17 earnings rose 21% to Php11.55Bil, below COL forecast INDEX LOSERS
AP: AP 9M17 core earnings exceed forecasts Ticker Company Price %
URC Universal Robina Corp 139.5 -4.12
Other News: SM SM Investments Corp 975 -2.30
RRHI Robinsons Retail Hldgs 94 -1.05
SMC: SMC completes the acquisition of fifth bottling firm in Oceania
AGI Alliance Global Inc 15.96 -0.87
SMC, PF: SMC plans US$3Bil offering by PF
Economy: October inflation higher at 3.5%; in line with consensus forecasts MPI Metro Pacific Inv Corp 6.75 -0.74
Economy: Philippine automobile industry outperforms in ASEAN market
Economy: End-October 2017 GIR marginally slides to US$80.6Bil
TOP 5 MOST ACTIVE STOCKS
Market Summary: Ticker Company Turnover
MBT Metrobank 379,638,300
The PSEi ended flat on Tuesday, losing only 1.26 points or 0.01% to close at 8,521.81. ALI Ayala Land Inc 376,155,900
URC Universal Robina Corp 339,411,700
Index gainers led decliners 17 to 11, while 2 issues remained unchanged. Sectoral indices ended AC Ayala Corporation 318,275,700
mixed with Property (+0.64%) leading the three gainers and Holding Firms (-0.70%) leading SM SM Investments Corp 291,478,400
the three decliners. Significant index gainers were SMC (+7.49%), MBT (+3.24%), RLC (+2.19%),
LTG (+1.39%), and ALI (+1.33%). Meanwhile, significant index decliners were URC (-4.12%), SM
(-2.30%) RRHI (-1.05%).

Value turnover decreased to Php7.0Bil from Php7.3Bil the previous session. Meanwhile,
foreigners continued to be net buyers for the fourth consecutive day, accumulating Php11Mil
worth of shares.

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 08 NOV 2017

Stocks in Focus:

ANDY DELA CRUZ URC: 3Q17 net income down 39.2% y/y to Php2.0 Bil,
RESEARCH ANALYST
in line with COL but underperforms consensus
UNIVERSAL ROBINA CORPORATION
HOLD 3Q17 net income down 39.2% y/y. URC’s net income for the third quarter of the year
PHP155.00 dropped by 39.2% y/y to Php2.0 Bil. After removing non-recurring items, core earnings still
declined by 25.7% y/y to Php2.6 Bil despite the 20.4% growth in its revenues to Php31.6 Bil.
This is again mainly due to the cutthroat competition in its coffee segment, high base and
increasing competition in the ready-to-drink beverage segment, and the lower sales and EBIT
margin from its Vietnamese business. The said factors led to a 280 bps y/y decline in its EBIT
margin to 10.0%.

For the first nine months of 2017, net profits reached Php8.2 Bil (down 21.8% y/y) and is in
line with COL (72.9% of full-year estimate) forecast but below consensus (69.5% of full-year
estimate) forecast. URC’s core earnings declined at a slower pace of 13.3% y/y to Php9.7 Bil
and represents 70.8% of our full-year forecast. The drop in earnings is attributable largely due
to the EBIT margin drop of 250 bps y/y to 11.7%. Aside from the inflationary pressures across
its input costs, the coffee market continued its shift towards twin-pack sachets which brought
down URC’s EBIT margin. Meanwhile, its revenues grew by 13.1% to Php92.4 Bil but is only
due to incremental gains from its Snack Brands Australia acquisition, Thailand, and Malaysia
operations. In fact, domestic branded revenues are still lower by 1% y/y to Php44.3 Bil.
Nevertheless, consolidated revenue is in line with COL and consensus forecasts as it represents
72.8% and 72.4% of full-year estimates, respectively.

Exhibit 1: Results summary

% of Forecast
in PhpMil 3Q16 3Q17 % Change 9M16 9M17 % Change
COL Consensus
Revenue 26,272 31,620 20.4 81,728 92,415 13.1 72.8 72.4
EBIT 3,359 3,153 (6.1) 11,622 10,768 (7.4) 71.0 64.2
EBIT Margin (%) 12.8 10.0 - 14.2 11.7 - - -
Core Earnings 3,556 2,641 (25.7) 11,231 9,735 (13.3) 70.8 -
Core Margin (%) 13.5 8.4 - 13.7 10.5 - - -
Net Income 3,216 1,956 (39.2) 10,502 8,211 (21.8) 72.9 69.5
Net Margin (%) 12.2 6.2 - 12.9 8.9 - - -
Source: URC, COL Financial, Consensus

Domestic branded business continues to drag. URC’s domestic branded consumer food
(DBCF) business continued to suffer from the competition in its coffee segment. DBCF revenues
in 3Q17 posted a 3.1% y/y decline to Php14.4 Bil, bringing year-to-date DBCF revenues to
Php43.7 Bil (down 1% y/y). This is in line with our forecast as we also expected DBCF revenues to
decline by 1.3%. According to URC, its coffee segment experienced lower sales volume due to
aggressive moves from its competitors (Nescafe and Kopiko). In fact, URC’s market share of the
total coffee segment is now at 27.7%, down from its market share of 28.7% last quarter. To add
to this, URC is now only the third largest share in the coffee industry as Mayorah (Kopiko) took

COL Financial Group, Inc. 2

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 08 NOV 2017

URC’s spot in second place with a market share of 29.2%. On the positive side, URC mentioned
that its RTD segment (C2) already showed signs of recovery and should post some growth in
4Q17. Its snacks business also ended the period well as it managed to grow around 9% in sales.

Meanwhile, EBIT fell faster as it dropped by 14% y/y to Php6.8 Bil. As discussed earlier,
inflationary pressures across its input costs and the continued unfavorable shift of its revenue
mix in its coffee segment (towards twin-pack sachets) dragged its EBIT margin.

International branded shows slow signs of recovery from Vietnam. The international
branded consumer food (IBCF) business of URC continued to be hurt by the weakness in
URC’s Vietnamese operations. Although Vietnam is finally showing some signs of growth, EBIT
margin is still negative due to high investments in A&P. As of October, Vietnam’s revenue is at
52% of pre-recall levels, slower than expected since URC initially targeted to recover 60% of its
pre-recall sales level by end 2017. It now only expects to recover around 50% to 55% of the said
figure by year-end since its RTD segment in Vietnam contracted by double-digit. Nevertheless,
its Vietnamese operations was more than offset by Snack Brands Australia (incremental and
+9% y/y growth), Malaysia, and Thailand. IBCF revenues grew by 39% y/y to Php31.2 Bil due
to the said factors.

Total IBCF EBIT margin also fell by 150 bps y/y to 6.2%. Nevertheless, it still posted positive EBIT
growth of around 12% to Php1.9 Bil due to the 39% increase in its sales.

Management once again revises guidance downward. Management revised its guidance
for 2017 for a fourth time this year as it now guided a low single-digit drop in EBIT margin (in
line with our assumption as we expect EBIT to decrease by 3.8% y/y) and sales to grow in the
low double digits (also in line with our assumption since we expect revenues to grow by12.7%
this year).

Decreasing forecasts in the next few years, maintain HOLD. Although we will not be
adjusting our forecast for this year given that our results are on track to meet our estimates,
the slower-than-expected recovery of its Vietnam business and the continued EBIT margin
decline of its domestic business convinced us to temper our long-term view. We then cut our
consolidated core profit forecast by 3.7% to Php15.4 Bil in 2018 and by 7.8% to Php16.8 Bil in
2019. We also decreased our revenue forecast by 0.7% to Php132.7 Bil in 2018 and by 1.6% to
Php139.0 Bil in 2019 given sustained pressures in URC’s domestic beverage business and the
slower recovery of its Vietnam business. We reiterate our cautious outlook on URC’s domestic
business as we do not think its coffee segment will grow anytime soon given its competitive
landscape. It is also too early to tell whether URC’s new product launches will prove sustainable
and profitable to an extent that it could start to grow URC’s domestic revenues faster in the
long run.

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

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Exhibit 2: Summary of changes in forecast

2018 2019
in PhpMil
Old New % Change Old New % Change
Revenue 133,632 132,678 (0.7) 141,256 138,929 (1.6)
EBIT 17,019 16,899 (0.7) 18,995 18,013 (5.2)
EBIT Margin (%) 12.7 12.7 - 13.5 13.0 -
Core Income 16,019 15,434 (3.7) 18,193 16,771 (7.8)
Core Margin (%) 12.0 11.6 - 12.8 12.1 -
Net Income 12,726 12,223 (4.0) 14,492 13,324 (8.1)
Net Margin (%) 9.5 9.2 - 10.0 9.6 -
Fair Value Estimate 173.0 155.0 (10.4)

Source: COL Estimates

After factoring in our more conservative earnings forecast, we reduced our fair value estimate
by 10.4% to Php155.0/sh. At its current price of Php139.50/sh, upside potential remains limited
at 11.1%. Valuations are also not yet compelling given numerous risks such as the negative
impact of the potential passage of the sugary drinks tax and the uncertainties surrounding its
ability to fully recover lost revenues of its Vietnamese operations. As such, we are maintaining
our HOLD rating on the stock.

Top Stories:

RICHARD LAÑEDA, CFA ALI: Strong residential segment drives 18.3% 9M17
SENIOR RESEARCH MANAGER
growth
AYALA LAND INC.
BUY 3Q17 net profit grows 18.4%. ALI’s 3Q17 net income grew 18.4% y/y to Php6.3 Bil,
PHP53.07 maintaining the growth trajectory in 1H17. Net income growth was brought about by a 11.2%
improvement in revenues and operating profit margin expansion as general and administrative
expenses dropped 2% y/y. ALI’s 3Q17 profit brings its 9M17 net income to Php17.81 Bil, an
18.3% improvement y/y. This is in line with both COL and consensus estimates at it accounted
for 73.8% of COL and 73.4% of consensus estimate. Note that last year’s nine-month income
represented 72% of full-year estimates.

Exhibit 1: Results Summary

% % % of full-year estimate
3Q16 3Q17 9M16 9M17
in Php Mil change change COL Consensus
Revenues 30,231 33,602 11.2% 84,092 96,405 14.6% 69.7% 72.7%
Operating profit 9,752 11,209 14.9% 27,867 31,684 13.7% 73.5% 78.3%
Operating profit margin 32.3% 33.4% 3.4% 33.1% 32.9% -0.8%
Net income 5,321 6,298 18.4% 15,061 17,810 18.3% 73.8% 73.4%

Source: ALI, COL estimates, Bloomberg

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

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Residential and office for sale segments drive up revenues. Residential and office
units for sale were the main drivers of revenue growth in 9M17 as new sales bookings and
project completions translated to higher revenues. Residential revenues grew 27.5% while
office for sale grew 44.5% y/y.

Shopping centers and office revenues continued to trend up on higher lease rates and GLA.
ALI’s shopping centers GLA in 2Q17 was 8.3% higher than a year ago while office space is 20.7%.
The big jump in office GLA compared to the revenue growth was because of the completion of
Circuit BPO Tower 2 (27k sqm) and The 30th Corporate Center (46k sqm) in August. We should
expect these new offices to contribute to revenues next year. Hotels and resorts were lower
than expected because of declines in average room rates and average occupancy in ALI’s
branded hotels. International travel was dampened by travel advisories that some western
nations have on the Philippines.

Exhibit 2: Revenue breakdown

3Q16 3Q17 % change 9M16 9M17 % change

in Php Mil
Residential development 15,976 21,299 33.3% 47,065 60,027 27.5%
Office for sales 1,265 2,202 74.1% 4,645 6,711 44.5%
Commerical lots 2,889 1,495 -48.3% 4,487 4,839 7.8%
Shopping centers 3,603 3,924 8.9% 10,587 11,769 11.2%
Office leasing 1,433 1,539 7.4% 4,012 4,468 11.4%
Hotels and resorts 1,382 1,430 3.5% 4,574 4,829 5.6%
Gross construction 16,673 17,723 6.3% 47,655 49,718 4.3%
Property management 317 765 141.3% 1,046 1,581 51.1%
Sub-total 43,538 50,377 15.7% 124,071 143,942 16.0%
Intercompany adjustments -13,307 -16,774 26.1% -39,980 -47,536 18.9%
Total real estate revenues 30,231 33,603 11.2% 84,091 96,406 14.6%
Revenues excluding lot sales 27,342 32,108 17.4% 79,604 91,567 15.0%

Source: ALI

Residential sales buoyed by international demand. Demand for ALI projects remained
strong in 3Q17 with take-up sales growing 12.3% y/y to Php32.8. The growth is higher than
the 11.4% growth registered in 1H17. For the first nine months of the year, take-up sales of ALI
reached Php94.2 Bil which is 11.7% higher compared to last year. Confidence on the Philippine
economy remains high and has been one of the drivers of sales. Another drive of growth was
international sales which grew 20% y/y from Php20 Bil to Php24 Bil and contribution to total
take-up sale has grown from 25% from 24%. Of the 25% international sales, 10% are from
overseas Filipinos while 15% are from foreigners, a big part of which are Chinese. Management
added that foreign demand has been strong as of late and for the first time, some of their
buildings are reaching the 40% limit of foreign ownership.

Benefitting from POGO growth. We have seen the positive impact of the POGO industry to
the office segment and the spill over to the residential segment of other developers and Ayala
Land is no different. ALI has one office building in Circuit Makati (27l sqm) that is fully taken-up
by POGOs while the second tower may also be catered to the said segment. For now, ALI has
decided to limit their POGO exposure to Circuit Makati.

COL Financial Group, Inc. 5

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

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They are also benefitting on the residential side of the business. Of the 25% international sales,
10% are from overseas Filipinos while 15% are from foreigners and according to management,
a large number of foreigners are Chinese, which we assume are related to the emergence of
the POGO industry. Management added that for the first time that some of their buildings are
reaching the 40% limit of foreign ownership.

Reiterate BUY on strong earnings and sales. We are reiterating our BUY rating on ALI with
a fair value estimate of Php53.07. We remain positive on the short- and long-term outlook of
ALI. They continue to deliver solid earnings growth and expansion of its leasing portfolio is on
track to reach their 2020 target. Continued growth in its take-up sales despite the high base
also helps buoy revenue growth in the short and medium term. The strong income growth
this year means they are still on track to reach their Php40 Bil income target by 2020. Over the
long term we believe ALI is positioned to benefit from the infrastructure projects planned by
the government given its strategically located landbank. ALI is also most complete property
company in terms of product offering and geographical exposure. This diversification puts the
company in a good position to capitalize on the numerous growth areas available and at the
same time make the company’s operations more sustainable over the long term.

ANDY DELA CRUZ PIZZA: Recurring profits up 15.4% to Php519 Mil in

RESEARCH ANALYST
9M17, in line with COL and consensus
SHAKEYS PIZZA ASIA VENTURES
BUY 3Q17 Recurring profits up 33.3% y/y to Php132 Mil. PIZZA’s net income in 3Q17 surged by
PHP16.30 127.6% y/y to Php132 Mil. However, excluding one-time costs and gains related to the firm’s
restructuring and its initial public offering, recurring profits rose by 33.3% y/y to Php132 Mil. This
is driven by better operating expense management which led to a 320 bps y/y improvement in
its operating profit margin to 14.1%. Revenues for the quarter also grew by 10.9% y/y driven by
its 5 new store additions and 1.0% same store sales growth (SSSG).

Its third quarter performance brought its recurring net income for the first nine months of 2017
to Php519 Mil, up by 15.4% from 9M16’s recurring net income of Php449 Mil. This is in line with
COL (69.3% of full year forecast) and consensus (66.9% of full-year) forecasts. Note that PIZZA’s
fourth quarter profits usually contribute around 30% of full-year results. Earnings growth was
driven by a 17.7% y/y increase in revenues to Php5.0 Bil. PIZZA’s 16 new stores helped boost
revenues, as well as its same store sales growth of 6%. Moreover, operating expenses declined
by 5.8% y/y to Php645 Mil, leading to the expansion of its OPM by 210 bps y/y to 16.4%. This
managed to bring operating income to jump by 35.3% y/y to Php820 Mil.

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

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Exhibit 1: Results summary

% of
in Php Mil 3Q16 3Q17 % Change 9M16 9M17 % Change COL Consensus
Net revenues 1,456 1,615 10.9 4,240 4,992 17.7 71.6 72.1
Gross profit 484 449 -7.2 1,290 1,465 13.6 70.8 70.0
Gross margin (%) 33.2 27.8 - 30.4 29.3 - - -
Core EBITDA 158 270 70.9 768 967 25.9 69.4 71.6
EBITDA margin (%) 10.9 16.7 - 18.1 19.4 - - -
Operating income 158 227 43.7 606 820 35.3 67.4 69.0
Operating margin (%) 10.9 14.1 - 14.3 16.4 - - -
Net income 58 132 127.6 424 504 18.9 67.3 65.0
Net margin (%) 4.0 8.2 - 10.0 10.1 - - -
Core income 99 132 33.3 449 519 15.6 69.3 66.9
Core margin (%) 6.8 8.2 - 10.6 10.4 - - -

Source: PIZZA, Bloomberg

Revenues up 10.9% to Php1.6 Bil on back of store openings and positive SSSG. As
discussed earlier, revenues for PIZZA rose by 10.9% y/y to Php1.6 Bil in 3Q17. This is driven by
five new stores and an SSSG of 1% in the same period (lower SSSG due to price increase done
at 3Q16). This brought its revenues in 9M17 to Php5.0 Bil, up by 17.7% and in line with COL
and consensus forecasts as it represents 71.6% and 72.1% of full-year estimates, respectively.
Although PIZZA’s 1% SSSG looks unattractive, this is still in line with our forecast as we expect
SSSG for the full year to end at 4.0%. In 9M17, PIZZA’s SSSG stood at 6%. It was also able to add
16 new stores and is on track to beat its 20 store addition guidance this 2017.

GPM pressured by rise in input costs but was more than offset by opex management.
PIZZA’s GPM in 3Q17 declined by around 540 bps y/y to 27.8% due to the rise in its input
costs. Similarly, 3Q16 was a tough comparable given unusually low cheese prices in the period,
among others. Still, price increases and purchasing synergies with Century Pacific Group
helped protect its GPM from further impact of rising raw material costs. Its GPM for 9M17
likewise declined albeit at a slower pace of 110 bps y/y to 29.3%.

On the positive side, its operating expense declined by around 5.8% y/y in 9M17 as PIZZA was
able to manage its operating expenses. This brought its OPM in 9M17 to 16.4%, higher by 210
bps y/y and in turn led to a 35.3% y/y increase in operating profits to Php820 Mil.

Maintain BUY. We are maintaining our BUY rating on PIZZA. At its current price of Php13.02/
sh, PIZZA is trading at 23.4X 18E P/E, a discount to the average P/E of domestic and global
peers of around 27.0X to 29.0X. At our fair value estimate of Php16.30/sh, implied 2018E P/E is
at 29.2X, at par with its peers’ average P/E. We think that PIZZA deserves to trade at least in line
with its domestic and global peers given its similarly attractive outlook. Note that we forecast
a 13.6% EPS growth in 2018, broadly in line with its peers’ median EPS growth of 15%.

COL Financial Group, Inc. 7

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CHARLES WILLIAM ANG, CFA

DEPUTY HEAD OF RESEARCH
PNB: 9M17 earnings decline 21%; below estimates
JOHN MARTIN LUCIANO 9M17 earnings decline 21%; below estimates. PNB reported Php1.9Bil in net income during
RESEARCH ANALYST the third quarter, up by 37% y/y from Php1.3Bil in the same period last year. The strong growth
during the quarter was driven mainly by the strong growth in net interest income (+14% y/y)
PHILIPPINE NATIONAL BANK
and fees (+30% y/y). However, 9M17 earnings still declined 21% y/y to Php4.4Bil mainly due
HOLD
to the one-off revenues in 1H16 amounting to Php2.7Bil. Compared to estimates, earnings
PHP71.00
ended below COL at 63%, but in line with consensus at 72%. Earnings for the first nine months
translate to an annualized ROE of 6.4% (adjusted for goodwill).

Exhibit 1: Results Summary

% FY17E
In PhpMil 3Q16 3Q17 % Change 9M16 9M17 % Change
COL Consensus
Net interest income 5,103 5,813 13.9 14,653 16,119 10.0 74.1 NA
Non-interest income 1,982 2,082 5.1 8,808 5,500 -37.6 62.1 NA
Operating expenses 5,049 4,921 -2.5 14,512 14,948 3.0 73.4 NA
Net income 1,298 1,779 37.0 5,568 4,399 -21.0 62.5 71.8

source: PNB, COL estimates

Lending income grows on higher volume. PNB’s net interest income during the third quarter
expanded 14% y/y to Php5.8Bil. This was mainly driven by higher volumes. The bank’s loan
portfolio expanded 11% y/y, driven by higher loans from corporate, commercial, and SME.
On the other hand, we estimate that net interest margin was flat y/y at ~3.1%. Nevertheless,
this is still an improvement from the ~2.8% seen in 2Q17. We believe the bank may not be as
pressured in protecting its commercial loans, which was the cause for the decline in margins
in the previous quarter. For the first nine months, total net interest income grew 10% to
Php16.1Bil, in line with COL estimates at 74% of our 2017 forecast.

Fees boost non-interest income. The bank’s fee-based revenues performed well during the
quarter, expanding 30% y/y to Php907Mil. As a result, 9M17 total fees rose 18% y/y to Php2.5Bil.
This outperformed our estimates, accounting for 74% of full-year forecast. Meanwhile, PNB’s
3Q17 non-interest income increased 5% y/y to Php2.1Bil. However, 9M17 non-interest income
declined 38% y/y to Php5.5Bil. This was largely driven by one-off revenues earned in 1H16
amounting to Php2.7Bil. These consist of net gains from major disposals of foreclosed assets,
net gain on the sale of PNB Life shares, and collection of non-performing assets. Overall, this
underperformed our estimates, amounting to just 62% of our forecast. While breakdown for
non-interest income has been given, we estimate that the miss in our forecast was mainly due
to lower-than-expected foreclosed asset sale gain.

Maintain HOLD rating. We currently have a HOLD rating on PNB with an FV estimate
of Php71.00/sh based on 0.85X 2018E P/BV (adjusted for goodwill). While we like PNB as a
turnaround play given its efforts to improve profitability coupled with revenue and cost
synergies that are expected to result following its merger with Allied Bank, we believe that
current valuations are no longer attractive.

COL Financial Group, Inc. 8

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WED 08 NOV 2017

KYLE VELASCO
RESEARCH ANALYST
CIC: 3Q17 earnings up 12%, in line with estimates
CONCEPCION INDUSTRIAL CORP. 3Q17 earnings up 12%, in line with estimates. CIC’s 3Q17 earnings grew by 12% to
SELL Php182Mil, bringing 9M17 earnings to Php752Mil. This is in line with COL estimates at 76% of
PHP52.40 forecasts, while underperforming consensus at only 73.1% of targets. Revenues grew by 19%
during the quarter to Php3.2Bil, bringing 9M17 revenues to Php10.4Bil, up 11.4% y/y. This is
in line with both COL and consensus estimates at 74% or full year earnings. Meanwhile, 3Q17
gross margins deteriorated by 270 basis points to 33.9% from 36.6% last year. Margins declined
mainly due to sustained higher raw material costs and unfavorable FX rates. The decline in
margins was already anticipated and are in line with COL forecasts.

Exhibit 1: Results Summary

% of Forecasts
In PhpMil 3Q16 3Q17 % Change 9M16 9M17 % Change
COL Consensus
Revenues 2,657 3,168 19.2 9,298 10,354 11.4 73.8 74.5
Gross Profit 973 1,075 10.5 3,356 3,683 9.7 80.2 77.6
GPM (%) 36.6 33.9 - 36.1 35.6 - - -
Operating income 390 418 7.1 1,615 1,725 6.8 78.1 77.2
Operating margin (%) 14.7 13.2 - 17.4 16.7 - - -
Net income 162 182 11.9 695 752 8.1 76.1 73.1
Margin (%) 6.1 5.7 - 7.5 7.3 - - -
source: CIC, COL estimates

3Q17 revenues up 19.2%, in line with estimates. Revenues during 3Q17 grew by 19.2% y/y
and reached Php3.2Bil. This brought 9M17 revenues to Php10.4Bil, up 11.4%. This is in line with
both COL and consensus estimates at 74% and 75% of full year forecasts, respectively.

The growth in revenues primarily came from the Consumer Lifestyles Solutions segment. The
business unit saw an increase of 27% in revenues to Php2.3Bil for the quarter. Note that this
segment previously underperformed and was only able to grow by 5% during the first half of
the year. CIC attributes the sudden growth in the sales to the successful market share grabbing
activities earlier this year. Moving forward, we remain cautious in the sector as competitive
pressure remains in the said segment. For 9M17, the segment contributes around 75% of total
revenues.

Meanwhile, CIC’s Business and Industrial solutions remained flat during the quarter. Revenues
from the said segment only grew by 1.5% to Php898Mil. This is significantly lower compared to
the 17% growth it demonstrated during the first half of the year.

3Q17 margins continue to decline. CIC’s margins significantly declined during the third
quarter. Gross profit margin saw a decline of 270bps to 33.9%. CIC attributed the decline to
the devaluation of the peso and higher costs of raw material inputs. This likewise affect both
operating and net income margin, seeing a decline of 150bps and 40bps, respectively. The drop

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in margins has already been factored in our estimates and is in line with our forecasts. Note
that CIC’s cost heavily relies on raw materials such as aluminum, copper and steel. According
to CIC, the said raw materials account for 70% of its cost of goods sold. Bulk of their cost is
also imported, making the company highly sensitive to fluctuations in the exchange rate. We
expect margins to remain under pressure moving forward

Midea remains in the red. CIC’s venture into the consumer electronics segment has yet to
become profitable. Midea netted a loss of Php11Mil and Php41Mil during the quarter and first
none months, respectively.

Reiterate SELL. Although we like CIC’s long term prospects given the growing affluence of
Filipino consumers and the low penetration rate of air conditioner and refrigerator ownership
in the country, CICs profitability is expected to face headwinds in the near term brought
about by the unfavorable FX rates and higher input costs. Intensifying competition in the
retail segment which still accounts for 75% of CIC’s revenues is also expected to hamper the
company’s ability to raise selling prices. Additionally, valuations are unattractive. At CIC’s
current price of Php66.00/sh, the company is trading at 23.0X 18E P/E and a 26% premium
compared to our FV estimate of Php52.40/sh.

GEORGE CHING
SENIOR RESEARCH MANAGER
SCC: 9M17 earnings rose 21% to Php11.55Bil, below
COL forecast
SEMIRARA MINING CORPORATION
BUY 9M17 earnings rose 21% to Php11.55Bil, below COL forecast. SCC’s disclosed 9M17
PHP52.60
earnings rose 21% to Php11.55Bil, below COL estimate (66.8% of forecast) and consensus
estimate (72.9%). We will release a more detailed analysis of the 9M17 results once the F/S
is available. The coal segment and power generation segment contributed Php5.57Bil and
Php6.01Bil in earnings, respectively.

SCC reported a 11% increase in coal production volume to 9.94Mil MT, while sales volume rose
3% to 9.8Mil MT, representing 75.4% of our full year forecast.

Reiterate BUY rating. We have a BUY rating on SCC with a FV estimate of Php52.6/sh.
Fundamentally, we continue to like SCC since we expect it to be a major beneficiary of the
country’s rising power demand given its plans to boost power generation capacity from
550MW in 2012 to 1,200MW in 2020E. Furthermore, the outlook for its coal mining business
has improved due to its higher coal production level and the recent recovery of regional coal
prices. SCC’s valuations are also attractive, with the stock trading at 11X 2017E P/E, below
the average P/E of 14X of locally listed peers. Capital appreciation potential based on our FV
estimate of Php52.6/sh is also significant at 26.7%.

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GEORGE CHING
SENIOR RESEARCH MANAGER
AP: AP 9M17 core earnings exceed forecasts
ABOITIZ POWER CORPORATION AP 9M17 core earnings exceed forecasts. Aboitiz Power reported 9M17 core earnings
BUY increased 15% to Php17.5Bil, representing 84% and 83.4% of COL and consensus forecast,
PHP52.70 respectively. Total EBITDA grew 24% to Php35.4Bil, exceeding forecast, representing 88% of
COL estimate. Earnings from AP’s power generation business grew 25% y/y to Php15.3Bil,
mainly driven by the first time contribution of the GNPower Mariveles and higher contribution
from AP’s hydroelectric plants, offset by higher interest expense and depreciation resulting
from the GNPower acquisition. Earnings from AP’s distribution business grew 4% to Php3Bil,
driven by an improvement in gross margin per kwh on better supply mix and recoveries of
purchased power costs.

Exhibit 1: AP 3Q17 Results Summary

in PhpMil 3Q16 3Q17 % Change 9M17 % of FY COL Forecast
Net income 5,135 5,979 16.4 15,700 N/A
Net Income (core) 5,368 7,036 31.1 17,500 84.0
source: AP, COL estimates

We are still waiting for more details on the 3Q17 results from AP’s analyst briefing this afternoon.

Maintain BUY rating. We are maintaining our BUY rating on AP with a FV estimate of Php52.70/
sh. We like AP given its vertically integrated structure will allow AP to expand its power
generation portfolio despite concerns of oversupply in the market. Furthermore, valuation
has become increasingly attractive after the recent sell-off as the stock is now trading at 2018E
P/E of 10.7X, a discount relative to the 14.4X average P/E of industry peers. AP’s dividend
yield is also very attractive at 3.2% for 2018E. Furthermore, AP’s earnings growth outlook is
more attractive, with profits projected to increase at a CAGR of 14.8% to Php30.2Bil by 2019.
Based on its current market price of Php42.5/sh, upside to our FV estimate of Php49.20/sh is
significant at 24%
.

Other News:

RESEARCH ANALYSTS SMC: SMC completes the acquisition of fifth bottling firm in Oceania
FRANCES ROLFA NICOLAS
ANDY DELA CRUZ San Miguel Corporation through its international packaging business, San Miguel Yamamura
JUSTIN RICHMOND CHENG Packaging International Ltd. (SMYPIL) has acquired Best bottlers Pty Ltd (Best Bottlers) in order
KYLE JEMMRIC VELASCO to boost its packaging business in the Australasian region. Located in Victoria, Australia, Best
JOHN MARTIN LUCIANO
Bottlers is a wine bottling and packaging facility. Its line of business also includes still and
ADRIAN ALEXANDER YU
sparkling wines, cider and other ready to drink non-alcoholic beverages. This transaction
marks SMC’s fifth acquisition of firms related to the wine industry in the region. Last July, SMC
acquired Barossa Bottling Services Pty, Ltd, a wine bottling facility catering to artisan wineries
in South Australia for Php448Mil. According to SMC president and COO, Ramon Ang, the latest

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acquisition is intended to meet the growing demand in the region. As domestic and export
demands increase, the company continues to look for synergies and opportunities for the
company’s packaging business. (Source: BusinessWorld, Philstar)

SMC, PF: SMC plans US$3Bil offering by PF

SMC is planning a US$3Bil equity offering by its enlarged consumer arm (PF) to be known
as San Miguel Food and Beverage Inc. This is to comply with the minimum public float to be
required by the PSE for the continued listing on its bourse, as the recent plan to consolidate
the traditional businesses into PF will reduce the company’s free float to 4.13%. Recall that the
SEC plans to direct the PSE to require listed companies to maintain a public ownership of at
least 20%, double the existing minimum requirement. SMC President Ramon Ang said that
they are planning to sell 30%, which would translate to an offering size of around US$3Bil by
February 2018. (Source: Inquirer)

Economy: October inflation higher at 3.5%; in line with consensus

forecasts

Inflation in October increased to 3.5% from 3.4% in September. Nevertheless this is in line
with both BSP and consensus forecasts. The resulting year-to-date average inflation rate of
3.2% also remains within the government’s target range of 3.0% ± 1 percentage point for
2017. Meanwhile, the slight increase in inflation was driven mainly by faster price increases
for selected food and non-food commodities. Food inflation went up as price increases for
corn, meat, and vegetables offset price slowdowns for rice, fish, and fruit. Similarly, Non-food
inflation rose due to upward adjustments in electricity rates and prices of domestic petroleum
products. (Sources: BSP)

Economy: Philippine automobile industry outperforms in ASEAN market

According to the latest data from the ASEAN Automotive Federation, vehicle sales and
production in the Philippines experienced the second fastest growth just behind Myanmar,
which has a smaller market. The Philippine automotive industry has shown no signs of slowing
downs as it continues to be one of the leaders in Southeast Asia through the first three quarters.
Philippine automobile sales grew by 15.9% in the first nine months while local productions
increased by 30.1%, from 86,244 units in 2016 to 112,171 units in 2017. In the ASEAN region,
only the Philippines, Myanmar and Thailand posted year-on-year jumps in vehicle productions
while the cumulative vehicle production in the region remained flat at 3.02 million units. (Source:
Philstar)

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Economy: End-October 2017 GIR marginally slides to US$80.6Bil

The BSP reported that the country’s gross international reserves (GIR) reached US$80.6Bil as of
end-October 2017. This is slightly lower than the end-September 2017 GIR figure of US$81.0Bil.
The month-on-month decline was primarily due to outflows from payments made by the
government for its maturing foreign exchange obligations as well as from foreign exchange
operations of the BSP. These were partially offset by the net foreign currency deposits by the
government as well as income from the BSP’s investments abroad. According to the BSP, the
end-October 2017 GIR level can adequately cover 8.4 months’ worth of imports of goods and
payments of services and primary income. (Source: BSP)

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IMPORTANT RATING DEFINITIONS

BUY
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
12 months.

HOLD
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 in line or underperform in the market in the next six to twelve
months.

SELL
We 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.

IMPORTANT DISCLAIMER
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 companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

FRANCES ROLFA NICOLAS ANDY DELA CRUZ JUSTIN RICHMOND CHENG

RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com

KYLE JEMMRIC VELASCO JOHN MARTIN LUCIANO ADRIAN ALEXANDER YU

RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
kyle.velasco@colfinancial.com john.luciano@colfinancial.com adrian.yu@colfinancial.com

COL FINANCIAL GROUP, INC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 15