Stocks in Focus: MON 01 JUN 2021

NIKL: Renewed focus on mining

industry could jumpstart pipeline
projects (AS OF MAY 31, 2020)
INDICES
LME nickel price stabilizes after 2020 surge. After rallying by 25% in 2020, the price of Close Points % YTD%
nickel traded in the London Metal Exchange (LME) fell from US$8.80/lb during February PSEi 6,628.49 -46.02 -0.69 -7.16
to a low of US$7.20/lb in April. However, LME prices have recovered since and is currently All Shares 4,022.83 -24.65 -0.61 -5.85
at US$8.00/lb. This was primarily due to the continued strengthening of commodity Financials 1,418.67 1.04 0.07 -2.00
prices as major global economies begin to reopen and as lockdown measures are relaxed. Holding Firms 6,708.50 -19.91 -0.30 -8.79
Furthermore, despite the impact on Covid-19 on Indonesia’s economy, its government Industrial 8,937.59 -52.05 -0.58 -4.85
maintained the nickel ore export ban (which is needed to encourage investments in the Mining & Oil 9,410.82 -5.82 -0.06 -1.23
downstream nickel processing sector), which help support the prices of LME and nickel Property 3,225.42 -48.30 -1.48 -11.98

ore prices. As a result of Indonesia’s ongoing ban on nickel ore export, the average Services 1,493.63 -17.21 -1.14 -1.35

contract price for NIKL ore exports is currently at US$37/WMT, 18% lower than 1Q21
Dow Jones 34,529.45 65 0.19 12.82
prices, but still up by 9% higher than FY20 average prices.
S&P 500 4,204.11 3.23 0.08 11.93
Nasdaq 13,748.74 12.46 0.09 6.68
For 2021, the company is targeting of maintaining its production target of ~18Mil MT
of nickel ore this year, at par with its production level in 2020. While 1Q21 production
(2.82Mil WMT) accounts for only 16.8% of full year forecast (mainly due to seasonality INDEX GAINERS
factor), management believes that NIKL will be able to ramp up production in the second Ticker Company Price %
and third quarter and bring total production this year close to 2020 level of 18Mil. FGEN First Gen Corporation 29.70 3.48
AC Ayala Corporation 794.00 1.93
BDO BDO Unibank Inc 1.87
Top Stories:
103.70
AGI Alliance Global Inc 10.38 1.76
MPI Metro Pacific Inv Corp 3.98 1.27

Property Sector: President wants POGO tax bill passed in 3 days

INDEX LOSERS
Cement Sector: Cement companies register higher profits on lower costs Ticker Company Price %
PGOLD Puregold Price Club Inc 37.25 -5.10
PNB: PNB to book Php34.1Bil in gains from revaluation of its prime AP Aboitiz Power Corp 22.70 -2.99
MEG Megaworld Corp 3.04 -2.88
properties
SMPH SM Prime Hdgs Inc 36.00 -2.44
ICT Intl Container Term 143.10 -2.25

TOP 5 MOST ACTIVE STOCKS

Other News: Ticker Company Turnover
BDO BDO Unibank Inc 551,461,800
ALI Ayala Land Inc 440,590,700
GLO: GLO secures almost 800 permits to build new towers JFC Jollibee Foods Corp 301,271,600
AC Ayala Corporation 232,320,100
GLO: GCash eyeing cryptocurrency
AP Aboitiz Power Corp 204,762,300
Economy: BSP chief says policy adjustments by mid-2022
Economy: Bank lending in April declines 5.0% y/y
Economy: Domestic liquidity expands by 5.1% y/y in April

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

MON 01 JUN 2021

COVID-19 Update:
Total Cases Total Deaths Total Recoveries

Philippines 1,230,301 (+6,684) 20,966 (+107) 1,155,045 (+6,098)

USA 34,113,096 (+83,086) 609,767 (+223) 27,863,715 (+22,831)

Worldwide 171,450,762 (+440,265) 3,564,576 (+8,248) 153,897,526 (+614,938)

Market Summary:

The local stock market fell on Monday as investors took profit following a four-day rally
last week.

The PSEi declined by 46.02 points or 0.68% to close at 6,628.49. Decliners outnumbered
gainers, 21 to 7, while 2 issues were unchanged. The main drags were PGOLD (-5.10%),
AP (-2.99%), MEG (-2.88%), SMPH (-2.44%), and ICT (-2.25%). The top movers were FGEN
(+3.48%), AC (+1.93%), BDO (+1.87%), AGI (+1.76%), and MPI (+1.27%).

Value turnover decreased to Php5.4Bil from the Php12.4Bil traded on Friday. Meanwhile,
net foreign buying dropped to Php56.1Mil from the Php917.3Mil recorded in the previous
session.

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Stocks in Focus:

NIKL: Renewed focus on mining industry

George Ching
Senior Research Manager
could jumpstart pipeline projects
Nickel Asia Corporation
HOLD LME nickel price stabilizes after 2020 surge. After rallying by 25% in 2020, the price of
Php5.25 nickel traded in the London Metal Exchange (LME) fell from US$8.80/lb during February
to a low of US$7.20/lb in April. However, LME prices have recovered since and is currently
at US$8.00/lb. This was primarily due to the continued strengthening of commodity
prices as major global economies begin to reopen and as lockdown measures are relaxed.
Furthermore, despite the impact on Covid-19 on Indonesia’s economy, its government
maintained the nickel ore export ban (which is needed to encourage investments in the
downstream nickel processing sector), which help support the prices of LME and nickel
ore prices. As a result of Indonesia’s ongoing ban on nickel ore export, the average
contract price for NIKL ore exports is currently at US$37/WMT, 18% lower than 1Q21
prices, but still up by 9% higher than FY20 average prices.

For 2021, the company is targeting of maintaining its production target of ~18Mil MT
of nickel ore this year, at par with its production level in 2020. While 1Q21 production
(2.82Mil WMT) accounts for only 16.8% of full year forecast (mainly due to seasonality
factor), management believes that NIKL will be able to ramp up production in the second
and third quarter and bring total production this year close to 2020 level of 18Mil.

Exhibit 1: LME nickel (US$/lb)

Source: Kitco.com

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Not eyeing any specific assets in government’s privatization plan. The Department
of Finance announced in October of last year that the government plans to revive the
mining industry in the country in order to create more rural jobs to mitigate the impact
on the Covid-19 pandemic and raise government’s tax revenue from the mining industry.
This will be achieved through the privatization of state-owned mining assets. NIKL’s
management said that while the company is always open to expansion opportunities
(including acquisitions), it is not eyeing to acquire any specific assets that the government
is looking to privatize at this point.

Renewed focus on mining industry with lifting of moratorium on new mines. In

April of this year, the government announced that the country has lifted its moratorium
on the development of new mines through Executive Order (EO) No. 130. The new
EO effectively overwrote EO No. 79 in 2012, which imposed the moratorium of new
mine development in the country. The government added that with EO No. 130, the
government may now enter into new mineral agreements, subject to compliance with
the Philippine Mining Act of 1995 and other applicable laws, rules, and regulations. We
believe that the lifting of the moratorium on new mines will significantly benefit the
country’s mining industry as this will allow mining companies to expand its operation as
well as extend the life of mines and companies whose mineral reserves are near depletion.
For NIKL’s part, management said that this is a welcome development as it signals that
the government is once again ready to focus on the development of the country’s mining
industry and this could jumpstart the development of many shelved mining projects in
the country. While NIKL said that EO No.130 will not have a direct impact on NIKL’s
pipeline projects as these projects already have Mineral Production Sharing Agreement
(MPSA), obtaining the remaining required permits for these mines could hasten with the
government’s renewed commitment to jumpstart the mining industry. These projects
include the Dinapique nickel project in Isabela, the Bulanjao project in and the Manicani
Project in Eastern Samar. These projects have a combined mineral resource estimate of
270Mil WMT, equivalent to 14 years of NIKL’s annual shipment volume. The Bulanjao
Mine’s production is expected to replace NIKL’s Rio Tuba Mine production (which has a
remaining mine life of 3 years), while the Dinapigue and Manicani Mines could potentially
boost NIKL’s annual shipment volume by more than 20%.

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Exhibit 2: NIKL’s development pipeline

source: NIKL

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

Php5.25/sh. We continue to like NIKL given that near term prices for nickel will continue
to be supported by the Indonesian nickel ore export ban. Furthermore, we remain positive
on the long term outlook for nickel due to the rising EV battery demand. However, NIKL’s
stock price has increased by 241% in the past 12 months, outperforming the PSEi’s 14%
increase during the same period. At its current price of Php5.19/sh, upside to our FV
estimate is limited at 1.2%.

Top Stories:

Richard Laneda, CFA Property Sector: President wants POGO tax bill
Senior Research Manager
passed in 3 days
POGO to be taxed 5% regardless of base of operations. Presidential Spokesperson
Harry Roque confirmed on May 31 that President Duterte has certified as urgent Senate
Bill 2232, which seeks to formalize the tax regime for POGO companies in the country.
The bill prescribes a 5% gaming tax in lieu of all other taxes, which must be remitted
monthly to the Bureau of Internal Revenue. Meanwhile, regulatory fees are capped at
2% of gross gaming revenue. The bill also clarifies that all offshore gaming licensees,
regardless of whether Philippine- or foreign-based, are considered doing business in the
Philippines and therefore must pay the gaming tax. Meanwhile, income generated from
non-gaming activities shall be subject to the lower corporate income rate.

The Bill also states that 25% final withholding tax based on gross income will be imposed
on an alien individual employed by offshore gaming licensees and services providers,
regardless of residency in the Philippines, term, and type of visa.

New tax bill better than Bayanihan 2. We have been expecting a new tax bill from
the government since the Supreme Court issued a temporary restraining order on the
provision on Bayanihan 2 Law which states that POGOs are required to pay 5% franchise
tax on all bets instead of gross gaming revenues which deducts winnings by players. The
new tax bill is negative for the POGO in general but is much better than the one under

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Bayanihan 2. This will also finally formalize the tax regime for POGO companies in the
Philippines and remove some uncertainties in operations going forward.

Impact to be less as developers have lower POGO exposure. We could see some
POGO closures as a result of this new tax but it should be minimal as a lot of POGOs
have already closed shop in 2020 due to difficulty of operation, which include manpower
challenges. Property companies’ exposure to the sector has also been reduced due to
preterminations last year. ALI’s exposure is down to 5% of total office space from 9% in
2019. FLI is expected to reduce its exposure to around 5% by the end of 2Q21. Meanwhile,
MEG’s exposure is down to 9% from 13% in 2019.

Frances Rolfa Nicolas

Cement Sector: Cement companies register higher
Research Analyst
profits on lower costs
Cement companies register higher profits. All cement companies registered higher
profits in 1Q21. CHP’s earnings more than doubled to Php355Mil due to lower net
financial expenses, while HLCM’s income grew 81.4% due to lower costs. Meanwhile,
EAGLE’s profits grew 36.5% due to higher revenues and lower tax expenses. In terms
of operating performance, as measured by operating EBITDA, the cement companies
delivered mixed results. CHP’s EBITDA declined by 5.2%, while EAGLE’s and HLCM’s grew
by 22.0% and 43.6% respectively. CHP’s results ended below COL estimate but in line with
consensus estimates, while EAGLE ended ahead of our estimates. There is no consensus
rating for HLCM.

Exhibit 1: Earnings Summary

source: CHP, HLCM, EAGLE, Bloomberg, COL estimates

Exhibit 2: Operating EBITDA summary

source: CHP, HLCM, EAGLE, Bloomberg, COL estimates

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Most revenues decline on lower ASP. Most cement companies registered lower
revenues due to lower ASP. We estimate that ASP declined by mid-single digit during
the quarter due to intensifying competition in the industry, particularly from imports.
Allegedly, cement products from Vietnam are entering the Philippine market at dumped
prices. It is estimated that the imports are undercutting prices of domestic cement by
as much as 24%. Only EAGLE’s revenues grew, up 16.4% y/y, due to higher volumes
during the quarter. Moving forward, we expect volumes to slightly weaken due to the
re-imposition of the enhanced community quarantine (ECQ) in NCR and neighboring
provinces. Nevertheless, we remain optimistic that construction activity will pick up again
in the second half of the year with the eventual easing of restrictions.

Exhibit 3: Revenues summary

source: CHP, HLCM, EAGLE, Bloomberg

Margins improve on lower costs and expenses. EBITDA margins of all companies
improved in 1Q21 due to lower fuel cost, power consumption. and material handling
costs. Moreover, most companies registered lower operating expenses from lower
distribution costs and personnel costs. CHP’s and EAGLE’s EBITDA margins grew by
0.5pp to 19.7%, and by 1.8pp to 40.9% respectively. Meanwhile, HLCM’s EBITDA margin
grew the most, up by 8.8pp to 25.2%. Moving forward, we expect margins to remain
stable. However, risk is on the downside due to rising input costs. Moreover, ASP will
likely remain weak due to the intensifying competition in the industry.

Exhibit 4: Operating EBITDA (%)

Source: CHP, EAGLE, HLCM

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Capacity expansions on track for completion this year. CHP’s and EAGLE’s capacity
expansion projects are on track for completion this year. Specifically, CHP’s Solid plant
expansion is expected to be completed by year end, while EAGLE’s Bulacan expansion by
2Q21. Recall that CHP’s expansion will increase its capacity by ~26%, bringing its total
capacity to 7.2Mil MT. Meanwhile, EAGLE’s expansion will increase its capacity by ~21%
to 8.6Mil MT.

John Martin Luciano, CFA

Senior Research Analyst
PNB: PNB to book Php34.1Bil in gains from
revaluation of its prime properties
Philippine National Bank
BUY PNB disclosed that it will be booking Php34.1Bil in gains from the revaluation of PNB
Php51.20 Holdings Corporation (PHC). This is the difference between Php46.7Bil fair value and the
Php12.6Bil book value of the properties. After giving out the property dividends, the
company’s book value would increase by Php10.3Bil or 7% to Php161.8Bil. We estimate
that this would improve the bank’s CET1 ratio to ~15% from 14.1% in 1Q21. This will give
the bank room to a) lever up its balance sheet once economic growth resumes, b) absorb
potential losses from the pandemic, and c) book additional provisions given that its NPL
ratio is the worst among all of the banks at 10.7% while having the lowest NPL cover at
43%. Meanwhile, PNB can still benefit from the development of the properties with its
remaining 49% stake in PHC.

Other News:

Research Analysts GLO: GLO secures almost 800 permits to build new towers

John Martin Luciano, CFA GLO recently announced that it secured almost 800 permits to build new cell towers in
Frances Rolfa Nicolas different parts of the country. According to management, it will take at least three months
Justin Richmond Cheng
to install a new tower depending on the location, accessibility, logistics, and quarantine
Adrian Alexander Yu
protocols. Recall that the telcos are benefiting from the Bayanihan 2 law, which suspends
Kerwin Malcolm Chan
the many permits and clearances required to build cell towers. GLO already built 318 new
cell towers in 1Q21 and is targeting to put up a total of 2,000 new cell sites this year. (Source:
Bworldonline)

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GLO: GCash eyeing cryptocurrency

According to GCash President and CEO Martha Sazon, the company is looking into
offering, buying, selling, and storing cryptocurrency through its mobile wallet app. She
noted that many payment app giants such as PayPal and Square are allowing its users to
buy and sell cryptocurrency. Since the start of the pandemic, GCash has been growing its
portfolio of financial products and services. GCash users can now shop, save, invest, get
insurance coverage, and more through the app. As of end April, the mobile wallet has
over 40 million users with the app being used more than twice a day by its active users.
(Source: PhilStar)

Economy: BSP chief says policy adjustments by mid-2022

BSP Governor Benjamin E. Diokno said that the central bank will keep its accommodative
stance until economic recovery is sustained, with further monetary policy adjustments
likely by the second half of 2022. The BSP chief vowed to have “a very carefully crafted,
managed disengagement strategy” in unwinding policies implemented during the
pandemic. The pace of the mass vaccination campaign is seen to be crucial in restoring
consumer confidence and driving economic activity. Moreover, the government’s
continued infrastructure push is expected to support recovery. (Source: Businessworld)

Economy: Bank lending in April declines 5.0% y/y

Outstanding loans of universal and commercial banks declined by 5.0% y/y in April
following a 4.5% contraction in March. Bank lending remained weak as measures to
contain the resurgence in COVID-19 cases constrained domestic economic activity and
dampened market sentiment. Consumer loans fell 10.2% y/y in April after a 9.9% decline
in March. This was mainly due to the continued drop in credit card and motor vehicle
loans. Similarly, loans for production activities decreased 3.9% y/y in April after a 3.2%
y/y decline in the previous month. This was dragged by wholesale and retail trade and
repair of motor vehicles and motorcycles (-10.2% y/y), manufacturing (-9.8% y/y), and
financial and insurance activities (-6.8% y/y). The BSP noted that its key priority is to
preserve policy support to facilitate the recovery of the domestic economy. As such, the
BSP is prepared to take appropriate measures as necessary to ensure favorable financing
conditions in support of domestic economic activity and market sentiment, consistent
with its price and financial stability mandates. (Source: BSP)

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Economy: Domestic liquidity expands by 5.1% y/y in April

Preliminary data from the BSP showed that domestic liquidity (M3) expanded by 5.1%
y/y to Php14.2Tril in April 2021, slower than the 8.3% expansion in the previous month.
Growth in domestic claims slowed to 1.8% y/y in April from 5.6% in March as bank
lending to the private sector remained weak due to the pandemic. Moreover, net claims
on the central government grew by 23.6% in April from 47.4% in March, due partly to the
sustained borrowings by the national government. Meanwhile, net foreign assets (NFA)
in peso terms expanded by 18.3% y/y in April, broadly steady from the 18.1% growth
in March. The NFA position of BSP reflected the increase in the country’s level of gross
international reserves, while the NFA of banks expanded at a faster pace as banks’ foreign
liabilities declined anew on account of lower bills payables. (source: BSP)

Changes in Shareholdings

Date of Acquired or Price per

Stock Volume Person (Designation)
Disclosure Disposed share
32,450 190.00
5,000 190.10
13,060 190.20
21,440 190.30
Antonio Chua Poe Eng
31-May JFC 6,500 D 190.40
(Director)
7,410 190.50
7,140 190.60
1,000 191.00
6,000 192.90
Conrado F. Bate
31-May COL 300,000 D 4.18
(President and CEO)
Alexander C. Yu
31-May COL 2,000 D 4.14
(Vice Chairman)
Alexander C. Yu
31-May COL 1,000 A 4.05
(Vice Chairman)
Source: PSE

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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, CFA
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

C OL F INANC 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
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WEBSITE: www.colfinancial.com

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