Morning Notes

r
y 01 August 2017 TOP NEWS HEADLINES
1
 Copper Jumps Nearly 7.4% in July ($ 6,369 /ton). Year-to-date,
PHILIPPINES copper has gained by 16.1%, aided by rising demand from China as
PSEi 8,018.05 -53.42 -0.66% the country said that it is considering banning imports of scrap
Value Php 07.48 Bn metal (for extracting copper) starting end of next year. With China
Net Foreign making up ~50% of copper consumption (23.0 Mn tons a year),
(Php 00.09 Bn)
Selling expectations are that demand for imported refined copper could
INDEX GAINERS rise if the ban is pushed through. Other factors such as the
Company Ticker Price Change weakening dollar, and falling production mainly due to various labor
Aboitiz Equity strikes in BHP Billiton (world’s largest copper mine) should support
AEV 75.95 +1.54%
Ventures Inc
the bullish outlook on the red metal. This should be beneficial for
Jollibee Foods Corp JFC 225.00 +1.35%
Metropolitan Bank & both AT and PX.
MBT 87.00 +0.99%
Trust Co
Robinsons Land Corp RLC 25.70 +0.98%  Ban on Open Pit Mining Stays. Before being finally rejected for the
BDO Unibank Inc BDO 125.90 +0.72% post, former DENR Chief Lopez banned the open-pit mining method
for future projects for the extraction of copper, gold, silver, and
Company Ticker Price Change complex ores in the country. Current DENR Secretary Cimatu will
PLDT Inc TEL 1,637.00 -3.71% not rescind the order just yet, and will be tackling the issue in 3
Megaworld Corp MEG 4.80 -2.83% weeks at the next inter-agency MICC meeting. Projects affected
LT Group Inc LTG 17.60 -2.76% ` include the $2-Bn Silangan mine in Surigao del Norte that should
Bank of the Philippine replace PX’s Padcal mine with its mine life ending in 2022. On the
BPI 104.60 -2.61%
Islands
Ayala Corp AC 865.00 -2.59%
other hand, the decision on mine closures and suspensions will be
moved to end-August. Mines still either suspended or for closure
US
include BC, MARC, WIN, ORE, AT/DMC, and LC. Meanwhile, NIKL
DJIA 21,891.12 +60.81 +0.28%
(Buy, P 10.44) is currently unaffected by this and should benefit
S&P 500 2,470.30 -1.80 -0.07%
from the lower threat of new entrants in the industry.
Nasdaq 6,348.12 -26.55 -0.42%
EUROPE  Bank Loans Up 19% to P6.43 Tn in June. Data from the BSP showed
Stoxx 50 3,449.36 -18.37 -0.53%
a 19.0% loan growth in June compared to the 18.7% recorded in
FTSE 100 7,372.00 +3.63 +0.05%
May, attributed to higher disbursements to the real estate and
DAX 12,118.25 -44.45 -0.37%
manufacturing sectors. Based on this there is still a good appetite
ASIA - for credit demand, which should further translate to robust loan
Nikkei225 19,925.18 -34.66 -0.17%
growth for banks. We reiterated that our top picks for the banking
Hang Seng 27,323.99 +344.60 +1.28%
sector are MBT (BUY, P 110.00) and SECB (HOLD, P230.00).
Shanghai 3,273.03 +19.79 +0.61%
KOSPI 2,402.71 +1.72 +0.07%
 TECH Targets $120.0 Mn Revenues For This Year. TECH said
ASX 200 5,720.59 +17.77 +0.31%
yesterday that it acquired Quintel, a US-based antenna solutions
STI 3,329.52 -1.23 -0.04%
provider to telecoms for $77.0 Mn (P 3.9 Bn). TECH expects Quintel
COMMODITIES to add another $20.0 Mn (1.0 Mn) to its revenues in 2017 and
Nickel 10,215.00 +15.00 +0.15%
$100.0 Mn in 2018, with the transaction translating to a 2018
Gold 1,269.44 -0.20 -0.02%
TV/Sales of 1.3x, relatively cheap compared to similar transactions
Oil 52.72 +0.20 +0.38%
with TV/Sales of 1.5x based on Bloomberg consensus. Assuming this,
Copper 6,369.00 +44.00 +0.70%
2018E EPS of TECH could reach P 2.39 or a PER of 13.4x as compared
PLDT ADR to 2018E PER of IMI at 13.9x. Thus, the recent price rally of TECH
USD/PHP 50.46
could have already factored in the said acquisition.
PLDT ADR 32.47 -1.25 -3.71%
TEL Parity 1,638
TEL Close 1,637 EARNINGS UPDATE

 BDO Unibank, Inc. (HOLD, P 131.50*)

AP Securities, Inc. (formerly Angping & Associates Securities, Inc.) August 01, 2017

EARNINGS UPDATE BDO Unibank, Inc.

BDO  Recommendation to HOLD BDO shares with consensus TP at P 131.50,

Previous Close: P 125.90, translating to a 2018 P/BV of 1.8x. While we like BDO due to its high capital ratios
+0.72% (increased capacity to absorb infra loans) and large scale with target to increase
branches by another 100 in 2 years, its valuations are no longer at a bargain since
HOLD it is currently the second most expensive bank, as compared to 2018 P/BV of the
Fair Value: P131.50, industry at 1.7x. We would like to see ROE to recover first at its historical of 13%
+4.4% to 14% (prior to the P 60.0 Bn SRO) as compared to its current level of 11%,
before the stock warrant higher valuations.

 2Q17 Earnings Underperform. BDO booked recurring earnings of P 13.3 Bn

(+16% excluding extraordinary gains from the consolidation of BDO Life last
2Q16), but below street estimates as it accounted for only 47% of full year 2017
consensus forecast. We believe that the underperformance is primarily due to
higher than expected OPEX (+20%) as the bank aggressively grows its branch
network following its P 60.0 Bn rights offer last 1Q17. Loan growth remains
volume-driven, as its loans portfolio expanded by 17.0% to P 1.6 Tn.