THU 17 SEP 2020

Top Stories:

AREIT: Acquires Teleperformance Cebu (AS OF SEP 16, 2020)

PNB: PNB plans US$1Bil prime asset sale INDICES
MER: Meralco settles ERC’s fine
Close Points % YTD%
PSEi 5,946.62 -71.59 -1.19 -23.91
All Shares 3,565.81 -25.76 -0.72 -23.31
Other News Financials 1,141.06 -11.87 -1.03 -38.77
Holding Firms 6,230.33 -83.08 -1.32 -17.94
Industrial 7,891.01 -134.65 -1.68 -18.10
PIP: Mandatory tender offer in pursuance of Voluntary Delisting Mining & Oil 6,136.00 43.49 0.71 -24.17
JFC: JFC opens new overseas branches Property 2,779.48 -19.82 -0.71 -33.10

Economy: Infrastructure spending falls 30.4% y/y in July Services 1,454.47 -7.01 -0.48 -5.00

Economy: GIR rises to US$99.0Bil as of end-August Dow Jones 27,995.60 2 0.01 -1.90
Economy: FDI net inflows rise 7.1% y/y in June S&P 500 3,401.20 17.66 0.52 5.27
Nasdaq 11,190.32 133.67 1.21 24.72

COVID-19 Update: INDEX GAINERS

Ticker Company Price %
Total Cases Total Deaths Total Recoveries AGI Alliance Global Inc 7.10 1.87
LTG LT Group Inc 8.79 1.03
Philippines 272,934 (+3,550) 4,732 (+69) 207,858 (+524) AEV Aboitiz Equity Ventures 47.40 0.64
BLOOM Bloomberry Resorts 7.03 0.57
USA 6,824,821 (+37,536) 201,251 (+1,088) 4,101,743 (+40,141) GTCAP GT Capital Hldgs Inc 404.80 0.45

Worldwide 29,998,954 (+284,899) 944,180 (+5,813) 21,766,070 (+243,891)

INDEX LOSERS
Ticker Company Price %
MER Manila Electric Company 269.80 -3.16

Market Summary: URC

SM
Universal Robina Corp
SM Investments Corp
137.00
910.00
-2.97
-2.88
BDO BDO Unibank Inc 88.00 -2.28
The local equities market pulled back below the 6,000-level as investors took profits AP Aboitiz Power Corp 26.35 -2.04
from the market’s recent rally.
TOP 5 MOST ACTIVE STOCKS
The PSEi gave up 71.59 points or 1.19% to close at 5,946.62. The main drags were MER Ticker Company Turnover
(-3.16%), URC (-2.97%), SM (-2.88%), BDO (-2.28%), and AP (-2.04%). On the other hand, SM SM Investments Corp 553,436,100
the top movers were AGI (+1.87%), LTG (+1.03%), AEV (+0.64%), BLOOM (+0.57%), and URC Universal Robina Corp 354,237,600
ALI Ayala Land Inc 299,119,900
GTCAP (+0.45%).
SMPH SM Prime Hldgs Inc
PGOLD Puregold Price Club Inc 213,374,100
Value turnover declined to Php5.4Bil from Php5.6Bil in the previous session. Meanwhile,
foreigners remained net sellers, disposing Php843.9Mil 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

THU 17 SEP 2020

Top Stories:

Richard Laneda, CFA AREIT: Acquires Teleperformance Cebu

Senior Research Manager
GLA to grow by 11.8% with new acquisition. As expected, AREIT announced that it has
signed a Deed of Sale with ALO Prime Prime Realty, a wholly-owned subsidiary of ALI, to
acquire Teleperformance Cebu, a Gade-A, PEZA-accredited BPO development located in
Cebu I.T. Park. It has 18,092sqm of leasable space (17,682 sqm leased to Teleperformance
Cebu and 410 sqm leased to McDonald’s), thus expanding AREIT’s total GLA by 11.8%
to 172,000sqm. Proceeds from the primary offer raised from AREIT’s IPO will be used to
purchase the property.

Higher dividends secured to next year. The purchase of Teleperformance Cebu will
raise AREIT’s distributable income for next. This secures AREIT’s projection of paying out
Php1.58/sh next year, 20.6% higher than the projected payout of Php1.31/sh this year.

Yield remain very attractive. At the current price of Php25.70 per share, AREIT offers
a very attractive yield of 2.8% for the second half of 2020 and 6.15% for 2021. This is
quite attractive given the low interest environment. Recent corporate bond offerings
have coupon rates that are much lower than the yields offered by AREIT.

John Martin Luciano, CFA PNB: PNB plans US$1Bil prime asset sale
Senior Research Analyst
According to media sources, PNB is planning to dispose three prime properties that it
Philippine National Bank
BUY values at about US$1Bil (or ~Php48Bil) as early as this year. In particular, the bank plans
Php39.00 to realize the value of its 10 Ha property along Manila Bay, as well as an office building
and a prime lot in the nation’s main financial district in Makati City. Recall that the bank
disclosed last week that it plans to realize the market value of the bank’s prime properties
and reduce its low-earning assets.

As we have previously commented, we view the planned sale positively as this accelerates
the disposal of its non-performing assets, allowing PNB to reallocate the funds into
interest-earning assets and improve its profitability. More importantly, this should also
increase its capital ratios, providing additional buffer amidst the current economic
slowdown. Given the potential size of the sale, we believe this can be a catalyst for the
bank’s share price to re-rate. Assuming that the bank successfully disposes all the assets
mentioned above at US$1Bil (or ~Php48Bil) and assuming that properties are currently
on the books at 20% of the transaction value, we estimate that its book value could
increase by as much as ~26%. Note that since PNB’s initial disclosure of its plan, its share
price has rallied by 20%.

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We highlight that there are risks to the transaction such as a) finding an interested buyer
amidst the ongoing pandemic as well as b) acquiring its US$1Bil internal valuation.
Nevertheless, at its current price, PNB is trading at a steep discount vs its book value
at 0.25X 2021E P/BV. This is also significantly below the industry average of 0.60X. We
currently have a BUY rating on PNB with a FV estimate of Php39/sh based on a 0.40X
2021E P/BV.

George Ching MER: Meralco settles ERC’s fine

Senior Research Manager

Manila Electic Company

Meralco settles ERC’s fine. MER announced that it has already settled the ERC’s Php19Mil
HOLD fine the latter imposed during August over the MER’s neglect to provide accurate and
Php266.60 timely information for electricity consumption and billing for its customers during the
ECQ period. Furthermore, MER said it is planning to shoulder Php200Mil of distribution
charges of poor customers.

The Php19Mil fine paid by MER represents only 0.2% of the company’s estimated profits
for the year. The settlement will also address concerns that MER’s franchise could be put
at risk due to the non-compliance of the ERC’s ruling.

Maintaining HOLD rating. We have a HOLD rating on MER with a FV estimate of

Php266.6/sh. Although MER’s long term outlook remains positive, the company faces
numerous risks in the short term. Aside from weaker demand brought about by the
COVID19 outbreak, MER faces a looming distribution tariff cut in the next regulatory
period, the magnitude of which could be much steeper than expected given that the
SC last year ordered the ERC to review MER’s distribution tariff which it believes to be
too high. Based on its current price of Php269.8/sh, there is no more upside to our FV
estimate.

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Other News:

Research Analysts PIP: Mandatory tender offer in pursuance of Voluntary Delisting

John Martin Luciano, CFA In accordance with the delisting rules of the PSE, Lotte Chilsung is conducting a mandatory
Frances Rolfa Nicolas tender offer to acquire the 2.11% of total issued and outstanding shares owned by all the
Justin Richmond Cheng common shareholders of PIP, excluding Lotte Chilsung, Lotte Corporation, and Quaker
Adrian Alexander Yu
Global Investments B.V. Lotte Chilsung will acquire up to 77,858,236 common shares at a
Kerwin Malcolm Chan
tender offer price of Php1.95/sh. The tender offer period is from September 16 to October
13 while the cross date will be on October 26, unless the offer period is extended.

JFC: JFC opens new overseas branches

JFC continues its expansion in North America and Europe as it sees growing demand for
its Jollibee brand overseas. The company said it recently opened its first Jollibee store in
Liverpool, UK and West Plano, Texas, USA, where initial sales from the stores exceeded
forecasts. JFC noted a double-digit growth for Jollibee in North America, and a plan to
open 50 stores in Europe for the next three to five years. (Source: Businessworld)

Economy: Infrastructure spending falls 30.4% y/y in July

The Department of Budget and Management (DBM) reported that infrastructure and
other capital outlays dropped 30.4% y/y to Php52.3Bil in July from Php75.2Bil registered
in the same month last year. This was also 16% lower than the Php62.8Bil spent in
June of this year. According to the DBM, the decline y/y was mainly due to the one-
off expenditure in July last year with the advance payment made by the DND for the
projects under the Revised AFP Modernization Program. However, the DBM also noted
the disbursements to the Department of Public Works and Highways (DPWH) were
lower, as projects were gradually restarted with health and safety protocols. Some areas
experienced inclement weather, which also affected construction work. For the January
to July period, infrastructure expenditures were down 9.4% y/y to Php350.3Bil due to the
impact of the enhanced community quarantine on business activity in Metro Manila and
nearby provinces. Note that construction activities were only allowed to resume in mid-
May. (Source: Businessworld)

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Economy: GIR rises to US$99.0Bil as of end-August

The country’s gross international reserves (GIR) rose by US$350Mil to US$99.0Bil as of

end-August 2020 from US$98.6Bil in the previous month. The increase in the GIR level
was mainly from the BSP’s foreign exchange operations and income from its investments
abroad. These inflows were partly offset by the foreign currency withdrawals made by the
national government to pay its foreign currency debt obligations as well as revaluation
losses from the BSP’s gold holdings resulting from the decrease in the price of gold in the
international market. According to the BSP, the GIR level represents an adequate external
liquidity buffer, which can cushion the domestic economy against external shocks. This
buffer is equivalent to 9 months’ worth of imports of goods and payments of services and
primary income. Moreover, it is also about 7.6 times the country’s short-term external
debt based on original maturity and 4.8 times based on residual maturity. (Source: BSP)

Economy: FDI net inflows rise 7.1% y/y in June

Foreign direct investment (FDI) net inflows rose by 7.1% y/y to US$481Mil in June from
the US$449Mil recorded in the same month last year. According to the BSP, this positive
development was underpinned by the gradual reopening of advanced economies
with investment interest in the Philippines amidst the country’s sustained strong
macroeconomic fundamentals. In particular, net equity capital investments expanded to
US$173Mil from US$29Mil a year ago. The bulk of the equity capital placements for the
month originated from Japan, the United Kingdom and the United States. By economic
activity, these placements were invested mainly in 1) manufacturing, 2) human health and
social work, 3) financial and insurance, and 4) real estate industries. On the other hand,
net investments in debt instruments during the month dropped 28.8% y/y to US$229Mil,
while reinvestment of earnings was lower by 19.4% y/y to US$80Mil.The growth in FDI
net inflows in June eased the year-to-date contraction in FDI to 18.3% from a decline of
21.9% during the January to May period. (Source: BSP)

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Frances Rolfa Nicolas

Research Analyst

Holcim Philippines, Inc.

N/A
N/A

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Kerwin Malcolm Chan

Research Analyst

COL Financial Group, Inc. 7

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I M P O R TA N T R AT ING 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.

I M P O R TA N T DISC L AIM ER
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.

CO L R E S EAR C H T EAM

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

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

CO L F IN ANC IAL G R O UP, IN C.

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

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