Morning Notes

r TOP NEWS HEADLINES

y 02 August 2017  Manufacturing PMI Lowest Since January. The Purchasing
1
Managers’ Index showed a seasonal adjustment with a reading of
52.8 for July from 53.9 in June and 56.3 from same period last year.
PHILIPPINES The crisis in Mindanao had affected sales, in which the martial law
PSEi 7,906.60 -111.45 -1.39% has been extended until the end of the year. But business optimism
Value Php 5.92 Bn remained intact as the 52.8 reading is still above the benchmark of
Net Foreign 50 which signals an expansion in manufacturing. Also, the weakness
(Php 0.33 Bn)
Selling
is seen to be temporary given that business optimism remains
INDEX GAINERS
elevated.
Company Ticker Price Change
LT Group Inc LTG 17.90 +1.70%  Indonesian Cement Firm Eyeing Davao Investment. PT Semen
First Gen Corp FGEN 17.54 +1.39% Indonesia (SMGR:IJ) is the largest cement producer in Indonesia,
Megaworld Corp MEG 4.85 +1.04% which holds a market share of ~40% in terms of domestic sales. We
Globe Telecom Inc GLO 2,130.00 +0.66% think SMGR’s potential move to invest a cement plant in the
Petron Corp PCOR 9.48 +0.21% Philippines is due to: (a) Burgeoning capacity, with Indonesia having
a surplus capacity of 16.9 Mn MT; and (b) attractive prospects in the
Company Ticker Price Change Philippines, with cement deficit expected to reach 25.0 Mn MT in
Universal Robina Corp URC 153.10 -4.91% 2025 even with the planned capacity expansion of local cement
JG Summit Holdings manufacturers. If SMGR pushes through with its plans, we believe
JGS 76.00 -4.40%
Inc that it will not affect the performance of existing players in the near
Robinsons Land Corp RLC 24.85 -3.31% `
term since it takes 4-5 years to build a cement plant (with a ~2.0 Mn
SM Prime Holdings Inc SMPH 33.85 -3.01% MT capacity). By then, demand should have surged enough to more
Ayala Land Inc ALI 41.00 -2.38% than offset the capacity coming onstream.
US  PHL Vows to Defend Outsourcing Empire as CHN Rises. In the
DJIA 21,963.92 +72.80 +0.33%
report released in June, China overtook Philippines to settle in 2nd
S&P 500 2,476.35 +6.05 +0.24%
place in Tholons Services Globalization Index 2017, while India
Nasdaq 6,362.94 +14.82 +0.23%
remained on top. In 2016, the Philippines was second only to India,
EUROPE due to its high rank in terms of talent pool and cost. However,
Stoxx 50 3,477.39 +28.03 +0.81% amidst the digital era, the Philippines slipped one notch due to its
FTSE 100 7,423.66 +51.66 +0.70% susceptibility to the digital onslaught and the need for innovation
DAX 12,251.29 +133.04 +1.10%
and technology. Aside from lack of digitization, the outsourcing
ASIA - industry is also under threat with the government’s plan to reduce
Nikkei225 19,985.79 +60.61 +0.30% tax incentives. This presents opportunities for telecom companies
Hang Seng 27,540.23 +216.24 +0.79%
[(GLO, Buy on Dips, TP: P 2,100), (TEL, Hold, TP: P 1,700)] to expand
Shanghai 3,292.64 +19.61 +0.60%
their digital offerings for existing BPO players to entice new
KOSPI 2,422.96 +20.25 +0.84%
investments into the country. On the other hand, property
ASX 200 5,772.37 +51.78 +0.91%
developers housing large BPO companies like MEG (Hold, P 5.20*)
STI 3,338.20 +8.68 +0.26%
and RLC (Buy, P 29.30) could experience a slowdown.
COMMODITIES
Nickel 10,290.00 +75.00 +0.73%
 SECB Profit up 8% in First 6 Months. SECB’s earnings reached P 5.2
Bn for 1H17, accounting for 49% of APS FY 2017 estimates, and 53%
Gold 1,268.76 -0.68 -0.05%
Oil 51.78 -0.94 -1.78%
of consensus forecasts. For 2Q17 alone though, the bank’s earnings
Copper 6,345.00 -24.00 -0.38%
ended at P 2.4 Bn (+32%). The strong bottomline was due to a
robust loan growth of 27% to P 340 Bn, outpacing the industry
PLDT ADR
average of 18% for the said period. Although we prefer SECB due to
USD/PHP 50.37
its aggressive expansion in the retail space, we believe the upside is
PLDT ADR 33.10 +0.63 +1.94%
limited at this point as it is trading at a 2018 P/B of 1.4x despite
TEL Parity 1,667
having an ROE of 10.6%. We have a HOLD rating on SECB with a
TEL Close 1,603
price target of P 230.00. Key upside risk is if SECB will be able to
utilize the capital infusion from BTMU last 2016 for the former to
return to its historical high ROE of 15.0%.

EARNINGS UPDATE

 8990 Holdings, Inc. (HOLD, P 8.60)

AP Securities, Inc. (formerly Angping & Associates Securities, Inc.) August 02, 2017

EARNINGS UPDATE 8990 Holdings, Inc.

HOUSE  1H2017 Earnings Below Estimates. HOUSE recorded 58% decrease in 2Q2017
Previous Close: P 5.75, earnings and ended 1H2017 earnings at P 1.2 Bn, which only accounts for 12% of
-1.71% the Company’s target of P 10.0 Bn net income for 2017. Decrease was mainly due
to continuing permit delays and labor shortage. Accordingly, housing production
HOLD and deliveries also declined by 24% and 53%, respectively.
Fair Value: P8.60,
+49.56%  Operating Cashflow More Than Doubled. Following its strategic move to
sacrifice growth for cash generation, HOUSE ended 1H2017 with P 3.1 Bn
operating cash flow, 153% up from P 1.2 Bn in the same period last year. Growth
was mainly driven by the 98% increase in HDMF take-out at P 2.2 Bn, which now
accounts for 78% of gross revenues.

 Estimates to be reviewed. We will be reviewing our estimates for HOUSE in light

of the disappointing 1H2017 results and looming external headwinds such as
permit delays, possible removal of VAT exemptions for affordable housing, and the
upcoming change in management following the announcement of current
President JJ Atencio’s retirement by the end of the year. We currently have a
HOLD rating on HOUSE with a price target of P 8.60 / share.