TUE 02 NOV 2021

Top Stories:

AP: 9M21 core net income exceed forecast (AS OF OCT 29, 2020)
SCC: 9M21 net income exceed estimates INDICES

URC: Cost pressures continue to weigh down earnings Close Points % YTD%
CHP: 3Q21 core income down 11.7% y/y, beats estimates on lower-than- PSEi 7,054.70 -103.03 -1.44 -1.19

expected costs and expenses All Shares 4,386.79 -34.06 -0.77 2.67
Financials 1,533.09 -17.56 -1.13 5.90
Holding Firms 6,937.40 -91.66 -1.30 -5.67
Industrial 10,831.23 -45.64 -0.42 15.31
Other News: Mining & Oil 10,095.86 -8.92 -0.09 5.96
Property 3,118.89 -45.81 -1.45 -14.89
Services 1,889.14 -37.42 -1.94 24.77
PX: PX eyes Php3Bil from stock rights offering
Banking Sector: September bank lending expands faster at 2.7% y/y Dow Jones 35,730.48 240 0.68 16.74
S&P 500 4,596.42 44.74 0.98 22.37
Nasdaq 15,448.12 212.28 1.39 19.86

COVID-19 Update:
INDEX GAINERS
Total Cases Total Deaths Total Recoveries Ticker Company Price %
GTCAP GT Capital Holdings Inc 565.00 2.63
Philippines 2,790,375 (+3,117) 43,276 (+104) 2,703,914 (+5,124)
RRHI Robinsons Retail Hldgs Inc 62.25 1.97
PGOLD Puregold Price Club Inc 42.25 1.68
USA 46,888,834 (+32,787) 767,026 (+305) 36,852,963 (+102,103)
AC Ayala Corporation 863.00 1.53
Worldwide 247,804,755 (+323,522) 5,019,824 (+4,583) 224,506,012 (+350,766) GLO Globe Telecom Inc 2996.00 0.81

INDEX LOSERS

Market Summary: Ticker Company Price %

ICT Intl Container Term 180.00 -4.76
JGS JG Summit Hldgs Inc 60.20 -3.37
The local equities market fell on Friday ahead of the long weekend as the government CNVRG Converge ICT Solutions Inc 31.80 -3.20
kept Metro Manila under Alert Level 3. TEL PLDT Inc 1642.00 -3.07
SM SM Investments Corp 965.00 -2.72

The PSEi dropped by 103.03 points or 1.43% to close at 7,054.70. The main drags were
ICT (-4.76%), JGS (-3.37%), CNVRG (-3.20%), TEL (-3.07%), and SM (-2.72%). On the other TOP 5 MOST ACTIVE STOCKS
hand, these were partially offset by gainers such as GTCAP (+2.63%), RRHI (+1.97%), Ticker Company Turnover
SMPH SM Prime Hldgs Inc 639,809,800
PGOLD (+1.68%), AC (+1.53%), and GLO (+0.81%).
SM SM Investments Corp 503,508,800
ALI Ayala Land Inc 428,129,500
Value turnover rose to Php7.7Bil from Php7.2Bil traded on Thursday. Meanwhile, net ICT Intl Container Term 345,354,900
foreign selling increased to Php1.2Bil from the Php656.6Mil in net outflows logged on BDO BDO Unibank Inc 340,518,800

Thursday.

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

TUE 02 NOV 2021

Top Stories:

George Ching AP: 9M21 core net income exceed forecast

Senior Research Manager
9M21 core net income exceed forecast. AP’s 3Q21 core earnings rose 88% to Php5.6Bil.
Aboitiz Power Corporation
This brought 9M21 core earnings to Php15.7Bil, up 143% y/y, exceeding forecasts,
BUY
representing 106.2% of COL forecast and 96% of consensus forecast. The company said
Php44.94
the improvement in its performance in 3Q21 was due to the commissioning revenue
from GNPower Dinginin Unit 1, higher water inflow (which improved the earnings of
hydro plants), better availability of coal plants, and higher WESM sales. We will release a
more detailed analysis of the 3Q21 results once the F/S is available.

Exhibit 1: AP 3Q21 results summary

source: AP, COL estimates

Maintaining BUY rating. We are maintaining our BUY rating on AP with a FV estimate
of Php44.94/sh. We like AP as we believe that the company’s earnings have already
bottomed out (with 1H21 earnings increasing by 143% y/y out following a 24.6% decline
in 2020 due to the impact of the Covid-19 pandemic). Furthermore, valuation is also very
cheap, trading at 12.1X FY22 P/E, compared to 17X FY22 P/E of domestic peers and AP’s
10 year historical P/E of 13.7X. Based on its 2022 projected cash dividend of Php1.0/sh,
this provides a decent dividend yield of 3.1%. The upside to our FV estimate is very high
at 40%.

George Ching
SCC: 9M21 net income exceed estimates
Senior Research Manager

9M21 net income exceed estimates. SCC’s 3Q21 earnings increased 435% to Php4Bil.
Semirara Mining Corporation
BUY This brought 9M21 earnings to Php10.3Bil, up 244% y/y, above COL forecasts (95%)
Php34.55 and consensus forecast (87%). The sharp rise in earnings was mainly driven by the coal
mining segment’s profits. Coal sales volume rose 50% to 12.7MT, representing 98% of
our full year forecast. Meanwhile, 9M21 ASP for coal increased 37.5% to Php2,353/MT,
in line with our full year forecast. We will provide a more detailed analysis of the 9M21
results after SCC’s briefing.

COL Financial Group, Inc. 2


TUE 02 NOV 2021
Justin Richmond Cheng, CFA
Senior Research Analyst
Universal Robina Corporation
BUY
Php196.00
COL Financial Group, Inc.
DAILY NOTES I PHILIPPINE EQUITY RESEARCH
Maintaining BUY rating. We have a BUY rating on SCC with a FV estimate of Php34.55/
sh. We like SCC given that we believe that earnings have bottomed out in 2020(with
9M21 earnings increasing by 244% y/y following a 66% decline in 2020 due to the impact
of the Covid-19 pandemic). Despite the 86% increase in SCC’s share price in the YTD
period, the stock is still extremely cheap. It is trading at 9.2X FY22 P/E. compared to 17X
FY22E P/E of domestic peers and its 10 year historical P/E of 11.6X. Even At our Php34.55/
sh FV estimate, SCC is trading at 2022 P/E of 12.3X, nearly at par with its historical P/E.
Based on its actual 2021 cash dividend of Php3/sh, this provides a very high dividend
yield of 11.5%. Upside to our FV estimate is also very high at 33%.
URC: Cost pressures continue to weigh down earnings
3Q21 core earnings drop due to input cost pressures. URC’s headline income in 3Q21
increased by 25.3% y/y, bringing nine-month 2021 earnings to Php10.5Bil, up 40.4%.
Earnings growth was boosted by a one-time gain on sale of idle land and impact of
the CREATE law. Excluding these one-off items, URC’s core income declined by 9.5%
y/y in 3Q21. 9M21 core earnings also declined by 1.5% y/y, in line with our estimates
accounting for 71% of full-year forecast. URC’s sales grew by 5.1% in 3Q21, primarily
led by the growth in its commodities division (+42%). The domestic branded business
recorded flattish sales during the third quarter, which is an improvement compared to the
7.1% decline in 1H21. On the other hand, the international branded consumer division
saw sales growth decelerate to 2.9% in 3Q21 from 13.3% in the first half. Meanwhile,
URC’s gross margin declined by 270 bps as the company was negatively affected by
higher input costs from commodities like palm oil and wheat.
Exhibit 1: Results Summary
Source: URC, COL Estimates, Bloomberg
DBCF sees improving topline, but cost pressures weigh down margins. Sales from
URC’s domestic branded consumer foods (DBCF) improved in 3Q21, ending flattish
(-0.6%) y/y but up 5.8% q/q. Key branded consumer categories continued to record a
decline during 3Q21. Nevertheless, the decline in some categories decelerated to low-to-
mid single digits coming from double-digit declines in previous quarters. URC continued
to grow ahead of the market, sustaining its market share gains in categories like snacks,
candies, cup noodles, and RTD tea, among others.
3
 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

TUE 02 NOV 2021

Despite the steady improvement in sales, DBCF operations were negatively affected by
higher input costs and an unfavorable sales mix. This caused DBCF operating profit to
decline by 13% y/y in 3Q21. Management has implemented staggered price increases
since the middle of the year to combat higher costs, but margins will likely remain
contracted in the near term as price increases will take time to offset the significant
increase in input costs.

International branded business saw softer sales amid lockdowns. URC’s international
branded business saw softer sales growth in 3Q21, up only 2.9% y/y from 13.3% in 1H21.
The slowdown in topline growth was largely due to COVID-19 lockdowns. Specifically,
URC’s factories in Thailand, Vietnam, and Malaysia suffered from reduced capacity
and factory shutdowns as these countries were negatively affected by government
restrictions following the spread of the Delta variant. On the other hand, URC’s Oceania
business performed relatively better compared to the said regions as Australia and New
Zealand benefitted from some additional pantry stocking. The international business
also suffered from higher costs, partially offset by operating efficiencies and managed
A&P spending.

Agro-industrial and commodities grow, boosted by business additions. The agro-

industrial and commodities division saw higher sales in 3Q (+27%) and 9M21 (+9%),
boosted by the growth of its sugar business amid the contribution of new businesses
(La Carlota and Roxol). In fact, sales from the sugar business grew by 26% as of 9M21.
However, agro-industrial sales declined (-7%) in 9M21 due to the higher base last year.
The farms business saw lower sales due to the downsizing of this business. This was
partly offset by the growth in URC’s animal nutrition and pet foods business.

Similar to URC’s other businesses, agro-industrial and commodity EBIT margins declined
in 3Q21 and 9M21 as the company suffered from higher wheat prices.

Numerous initiatives and cost savings to combat cost inflation. URC is looking to
expand and accelerate its cost saving initiatives in order to combat the impact of rising
cost of raw materials. In 2019, the company committed to save Php1Bil in three years
through its lean manufacturing program for the domestic business. URC is expected to
exceed Php1Bil in cost savings as the group enjoys incremental cost efficiencies coming
from its international business. Moving forward, URC aims to harvest an additional
Php5Bil in savings or around Php1Bil each year. This will be achieved through continued
savings in manufacturing coming from usage variances, better yields, lower wastes, and
direct labor variances. These efforts are expected to cushion the impact of the higher
costs on URC’s gross profit margin. The group is also working on improving procurement
efficiencies and supply chain processes (i.e. improving shipment procedures and
consolidating warehouses). Finally, the company is looking to upgrade and improve its
digital processes by mid-2022.

COL Financial Group, Inc. 4

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

TUE 02 NOV 2021

Maintain BUY rating. We currently have a BUY rating on URC with a FV estimate of
Php196/sh. We continue to like URC for its market leadership position in several fast-
moving consumer goods categories and favorable long-term growth prospects.
Valuations are also attractive with URC trading at 24X 2022E P/E, a discount to its
historical average P/E of 28X. Upside to our FV estimate is significant at 42%.

Frances Rolfa Nicolas

CHP: 3Q21 core income down 11.7% y/y, beats
Research Analyst
estimates on lower-than-expected costs and
Cemex Holdings Phils Inc. expenses
BUY
Php1.70 3Q21 core income down 11.7% y/y, beats estimates on lower-than-expected costs
and expenses. CHP’s 3Q21 net income reached Php94Mil, down 85.0% y/y. However,
this includes non-core items such as other expenses and forex losses amounting to
Php342Mil. Excluding these, 3Q21 core net income dropped at a slower pace, 11.7% y/y,
to Php435Mil. The decline in core net income was mainly due to the lower gross margin
in 3Q21, which resulted from lower ASP and higher cost of sales. This brought 9M21 core
net income to Php1.3Bil, up 109.2% y/y. Results ended ahead of both COL and consensus
estimates accounting for 110.1% and 196.1% of full year forecasts respectively. The beat
in our estimate was due to lower-than-expected costs and selling and administrative
expenses.

Exhibit 1: Results Summary

source: COL estimates, CHP, Bloomberg

Revenues decline sequentially on lower volumes. CHP’s 3Q21 revenues dropped by

1.9% y/y to Php5.4Bil mainly due to lower ASP, down 3% y/y, as volumes grew by 1% y/y.
Recall that construction activities remained stable during the quarter regardless of the
quarantine status in the country. On a sequential basis, volumes declined by 4% due to
the rainy season. Meanwhile ASP grew by 1% q/q due to price adjustments implemented.
Management also noted that the market share of imports weakened in 3Q21 due to
higher freight costs and lower availability of vessels.

COL Financial Group, Inc. 5

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

TUE 02 NOV 2021

Moving forward, we expect volumes to improve in the fourth quarter as more constructions
projects get implemented with the further easing of restrictions. Likewise, we expect ASP
to continue to increase as cement companies pass on expected higher costs. For next
year, management said that the growth in volumes might be slightly tempered as a result
of the election ban. Recall that the Commission on Elections announced that public works
ban for the elections will run from March 25 – May 8, 2022.

Rising costs weaken margins. CHP’s 3Q21 cost of sales grew 11.5% y/y to Php3.3Bil
despite the minimal increase in volume (1% y/y). The growth was mainly due to rising
input costs and the implementation of a maintenance shutdown in Apo Plant. Meanwhile,
distribution expenses dropped by 15.8% y/y to Php787Mil as the company continue to
increase the proportion of pick up sales. These led to the weakening of gross margin by
7.4pp to 38.4% and operating margin by 4.9pp to 10.3%. Despite the decline, the 3Q21
results ended better that our full year gross margin forecast of 38.0% and operating
margin forecast of 9.0%. Moving forward, we expect margins to further decline in 4Q21
due to continuous rising input costs, particularly fuel. Note that the company’s 4Q21 coal
requirements are no longer hedged.

Maintain BUY rating. In light of these, we are slightly increasing our gross margin
forecast for 2021 to 39.0% and lowering our operating expenses estimate by 3.4%. These
increased our 2021 net income forecast by 28.7% to Php1.5Bil. Accordingly, we are
maintaining our FV estimate of Php1.70/sh and BUY rating on CHP. Despite rising costs,
we remain optimistic on the construction industry’s recovery as the government ramps
up infrastructure building and as property firms resume their deferred projects this year.
Moreover, at its current price of Php1.24/sh, upside potential to our FV estimate remains
significant at 37%.

Exhibit 2: Changes in forecast summary

source: COL estimates

COL Financial Group, Inc. 6

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

TUE 02 NOV 2021

Other News:

Research Analysts PX: PX eyes Php3Bil from stock rights offering

John Martin Luciano, CFA PX’s Board of Directors approved a planned stock rights offering, which hopes to raise
Justin Richmond Cheng, CFA
around Php3.15Bil. However, the final terms of the offering will still need to be ratified
Frances Rolfa Nicolas
by the board. Net proceeds from the offering, together with other debt financing and
Adrian Alexander Yu
internally generated cash from PX, will be used to develop the Silangan Copper and Gold
Kerwin Malcolm Chan
Project and for general corporate requirements. The development of the Silangan project
Denise Joaquin
will be done through wholly owned subsidiaries Silangan Mindanao Exploration Co., Inc.
and Silangan Mindanao Mining Company, Inc. (Source: Businessworld)

Banking Sector: September bank lending expands faster at

2.7% y/y

Bank lending rose 2.7% y/y in September, faster than the 1.3% y/y expansion in August.
According to the BSP, the faster loan growth reflects the modest recovery in banks’ overall
lending attitudes as well as improved economic prospects owing to the gradual lifting
of pandemic containment measures. Outstanding loans for production activities grew
by 4.4% y/y in September (vs +3.1% y/y in August), driven mainly by the expansion in
loans for real estate activities (+7.2% y/y); information and communication (+26.6% y/y);
financial and insurance activities (+6.0% y/y); and manufacturing (+4.4% y/y). Meanwhile,
consumer loans to residents fell at a slower rate of 7.8% y/y (vs -8.4% y/y in August) due
to the softer contraction in credit card, motor vehicle, and salary-based general purpose
loans. (Source: BSP)

COL Financial Group, Inc. 7

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

TUE 02 NOV 2021

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

FIRST VICE PRESIDENT & CHIEF EQUITY STRATEGIST
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

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 SENIOR RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN DENISE JOAQUIN

SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com denise.joaquin@colfinancial.com

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

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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. 9