Strategy: Adjusting FV estimates to factor in improving outlook

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Stocks in Focus: WED 16 JUNE 2017 Strategy: Adjusting FV estimates to factor in improving outlook Improving outlook justifies lower risk premium.

1 Stocks in Focus: WED 16 JUNE 2017 Strategy: Adjusting FV estimates to factor in improving outlook Improving outlook justifies lower risk premium. We are cutting our risk premium assumption by 50 basis points to 5.0%to factor in the upside risk to corporate profitability given the improving outlook of the global economy and the approval of the tax reform program by the House of Representatives. Improving global economic outlook. The outlook of the global economy has improved significantly since we last increased our risk premium assumption in Growth of developed economies such as the U.S., Europe and Japan is picking up due to various factors including fiscal stimulus and cyclical rebound from economic recessions. Coupled with the rebound in China s economy, the resulting increase in demand for commodities and other imports is in turn benefiting developing and emerging economies including the Philippines. Recall that during the first quarter of 2017, Philippine exports increased by 18.3% while OFW remittances grew by 7.7%, exceeding expectations. Approval of the tax reform bill. On May 31, the House of Representatives approved the comprehensive tax reform package, bringing it one step closer to being passed into law. As discussed in our previous reports, the passage of the tax reform program is crucial for the government to execute its aggressive infrastructure spending plan. Recall that the government plans to increase infrastructure spending from 5% of GDP in 2016 to 7% of GDP in The passage of the tax reform program is also necessary for the government to fulfill its plan of cutting personal income taxes from 32% to 25%. Based on our computations, the reduction in personal income taxes will lead to a 20% increase in disposable income for 93% of tax payers. The said factors should enable the economy to sustain a faster growth of more than 7% going forward without hurting the country s finances. Other News: Mining Sector: Ban on open-pit mines still in effect MWC: Boracay Water gets approval for rate hike Economy: Cash remittances declined 5.9% y/y in April, below consensus estimate Economy: Foreign portfolio investments reversed to net outflows in May Market Summary: The PSEi ended flat on Thursday, losing 1.52 points or 0.02% to close at 7, Index decliners led gainers 18 to 10, while 2 issues remained unchanged. Sectoral indices ended mixed with Mining & Oil (-0.76%) leading the three decliners and Industrial (+0.31%) leading the three gainers. Significant index decliners were RLC (-3.73%), DMC (-2.42%), MBT (-2.05%), ICT (-1.52%), and AGI (-1.39%). Meanwhile, significant index gainers were MEG (+2.94%), PGOLD (+2.23%), and URC (+1.85%). (AS OF JUNE 15, 2017) INDICES Close Points % YTD% PSEi 7, All Shares 4, Financials 1, Holding Firms 7, Industrial 11, Mining & Oil 12, Property 3, Services 1, Dow Jones 21, S&P 500 2, Nasdaq 6, INDEX GAINERS Ticker Company Price % MEG Megaworld Corporation PGOLD Puregold Price Club Inc URC Universal Robina Corp GTCAP GT Capital Hldgs Inc MER Manila Electric Company INDEX LOSERS Ticker Company Price % RLC Robinsons Land Corp DMC DMCI Hldgs Inc MBT Metrobank ICT Int'l Container Term AGI Alliance Global Inc TOP 5 MOST ACTIVE STOCKS Ticker Company Turnover TEL PLDT Inc 717,065,700 ALI Ayala Land Inc 672,318,700 MER Manila Electric Company 632,611,500 ICT Int'l Container Term 393,992,300 SM SM Investments Corp 309,505,400 Value turnover decreased to Php8.1Bil from Php22.9Bil the previous session. Meanwhile, foreigners continued to be net buyers for the 13th consecutive day, accumulating Php519Mil 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.

Stocks in Focus: APRIL LYNN TAN, CFA VP & HEAD OF RESEARCH Strategy: Adjusting FV estimates to factor in improving outlook Improving outlook justifies lower risk premium.

0%to factor in the upside risk to corporate profitability given the improving outlook of the global economy and the approval of the tax reform program by the House of Representatives.

2 Stocks in Focus: APRIL LYNN TAN, CFA VP & HEAD OF RESEARCH Strategy: Adjusting FV estimates to factor in improving outlook Improving outlook justifies lower risk premium. We are cutting our risk premium assumption by 50 basis points to 5.0%to factor in the upside risk to corporate profitability given the improving outlook of the global economy and the approval of the tax reform program by the House of Representatives. Improving global economic outlook. The outlook of the global economy has improved significantly since we last increased our risk premium assumption in Growth of developed economies such as the U.S., Europe and Japan is picking up due to various factors including fiscal stimulus and cyclical rebound from economic recessions. Coupled with the rebound in China s economy, the resulting increase in demand for commodities and other imports is in turn benefiting developing and emerging economies including the Philippines. Recall that during the first quarter of 2017, Philippine exports increased by 18.3% while OFW remittances grew by 7.7%, exceeding expectations. Consequently, from 3.2% in 2015 and 3.1% in 2016, the IMF now projects world output growth to accelerate to 3.5% in 2017 and 3.6% in Approval of the tax reform bill. On May 31, the House of Representatives approved the comprehensive tax reform package, bringing it one step closer to being passed into law. As discussed in our previous reports, the passage of the tax reform program is crucial for the government to execute its aggressive infrastructure spending plan. Recall that the government plans to increase infrastructure spending from 5% of GDP in 2016 to 7% of GDP in The passage of the tax reform program is also necessary for the government to fulfill its plan of cutting personal income taxes from 32% to 25%. Based on our computations, the reduction in personal income taxes will lead to a 20% increase in disposable income for 93% of tax payers. The said factors should enable the economy to sustain a faster growth of more than 7% going forward without hurting the country s finances. Below are the new FV estimates of stocks in our coverage list. The median increase in our FV estimate is 7.3%. Because of the adjustments in our fair value estimates, we upgraded our rating on three stocks - CEB, AC and SMPH. Corrections are opportunities to buy. After rallying by around 8% since the start of April, the PSEi may undergo a correction soon. However, in light of the improving outlook of the global and local economies, we recommend investors to buy the dip as we don t expect another steep drop, similar to those that took place in the second half of 2015 and 2016, to materialize this time around. COL Financial Group, Inc. 2

3 Current New Price FV estimates Rating FV estimates Rating Banks BDO HOLD HOLD BPI HOLD HOLD CHIB HOLD HOLD EW BUY BUY MBT BUY BUY PNB HOLD HOLD SECB HOLD HOLD UBP BUY BUY Commercial & Industrial ABS BUY BUY CEB HOLD BUY EEI HOLD 9.80 HOLD GMA BUY 8.60 BUY ICT HOLD HOLD IMI BUY BUY MWC HOLD HOLD Conglomerates AC HOLD 1, BUY AEV HOLD HOLD AGI BUY BUY COSCO BUY BUY DMC HOLD HOLD FPH GTCAP 1, , HOLD 1, HOLD JGS HOLD HOLD MPI BUY 8.45 BUY SM HOLD HOLD Consumer CIC HOLD HOLD CNPF HOLD HOLD DNL HOLD HOLD EMP BUY 8.07 BUY JFC HOLD HOLD PGOLD BUY BUY RRHI BUY BUY URC HOLD HOLD Gaming BEL HOLD 3.57 HOLD BLOOM BUY BUY MRP BUY BUY RWM HOLD 3.79 HOLD Mining NIKL HOLD 5.20 HOLD PX HOLD 8.10 HOLD SCC BUY BUY Power AP HOLD HOLD EDC BUY 8.73 BUY FGEN MER BUY BUY Property ALI BUY BUY CPG FLI HOLD 1.88 HOLD MEG BUY 5.59 BUY RLC BUY BUY SMPH HOLD BUY VLL BUY 6.70 BUY Telecoms GLO 2, , HOLD 1, HOLD COL TEL Financial Group, Inc. 1, , HOLD 2, HOLD 3

4 Other News: RESEARCH ANALYSTS FRANCES ROLFA NICOLAS ANDY DELA CRUZ JUSTIN RICHMOND CHENG KYLE JEMMRIC VELASCO JOHN MARTIN LUCIANO Mining Sector: Ban on open-pit mines still in effect The order banning all prospective open-pit mines in the country still remain as the Department of Environment and Natural Resources (DENR) has yet to review it. Even with the new DENR chair, the order may not be countered anytime soon, as no talks for the reversal are in place. Among the biggest prospective open-pit mines are the over US$2.0Bil Silangan mine in Surigao del Norte and the US$5.9Bil Tampakan project in South Cotabato. (source: Philstar) MWC: Boracay Water gets approval for rate hike In a disclosure to the PSE, MWC announced that its subsidiary, Boracay Island Water Co. (BIWC), has received approval from the Tourism Infrastructure and Enterprise Zone Authority (TIEZA) Regulatory Office for a new water rate structure. BIWC will implement an upward adjustment equivalent to 30.14% based on the first tranche of rate rebasing starting July 1, Specifically, residential customers using up to 10cu.m will be charged Php349.5 per connection, up from Php268.5 previously. Meanwhile, commercial A customers will be charged Php873.6, up from Php671.3 and commercial B customers new rate will be Php524.1 from Php402.8 previously. (source: MWC, Businesswolrd) Economy: Cash remittances declined 5.9% y/y in April, below consensus estimate Cash remittances declined 5.9% y/y in April to US$2.1Bil, below consensus estimate which expects remittances to grow 8.5% y/y. The decline in remittances is mainly due to the 7.6% drop in cash remittances from land-based workers, which managed to offset the marginal increase in remittances (+0.3%) from sea-based workers. Note that the top countries that registered declines in cash remittances in April were Saudi Arabia, Singapore, Australia, and United Kingdom. Furthermore, the lower remittances could also be partly due to the depreciation of major host countries currencies against the US dollar, such as the Singaporean dollar, Australian dollar, pound sterling, and the euro. As a result, cash remittances from January to April reached US$9.0Bil, up 4.2% y/y. (source: BSP) COL Financial Group, Inc. 4

5 Economy: Foreign portfolio investments reversed to net outflows in May Overall foreign portfolio investments in May 2017 registered net outflows of US$24Mil. This resulted from gross inflows which declined 16.8% y/y to US$1.5Bil and outflows which grew by 19.0% y/y to US$1.5 Bil. According to the BSP, net outflows yielded in the month may be attributed to investors reaction to the weak 1Q17 earnings of some companies, as well as the weaker-than-expected GDP data of the country. These brought year-to-date figures to register net outflows of US$554Mil, largely due to the continued uncertainties arising from domestic and international developments. Similarly, this is a reversal from the US$178Mil in net inflows registered over the same period a year ago. (source: BSP) SUMMARY OF CHANGES IN SHAREHOLDINGS: Stock Volume Acquired or Disposed Price per share SMC 20,115 A COL 15,000 A Person (Designation) Joseph N. Pineda (Principal Officer/Deputy Chief Finance Officer) Hernan G. Lim (Director) source: PSE COL Financial Group, Inc. 5

6 Calendar of Events June S M T W TH F S DAILY NOTES I Key Events Holiday JUNE 1 PIZZA: Ex-date Php0.10 Cash Dividend CDC: Ex-date Php0.036 Cash Dividend PHN: Stock Dividend NOW: Annual Shareholdings Meeting JUNE 2 CLI: Listing JUNE 5 FMETF: Stock Dividend CEB: Ex-date Php2.75 Cash Dividend PBC: Annual Shareholdings Meeting CDC: Annual Shareholdings Meeting JUNE 7 CHP: Annual Shareholders Meeting CIC: Annual Shareholers Meeting JUNE 8 SPC: Ex-date Php0.40 Cash Dividend KEP: Annual Shareholders Meeting LPZ: Annual Shareholders Meeting BLOOM: Annual Shareholders Meeting JUNE 9 BDO: Ex-date Php0.30 Cash Dividend HLCM: Ex-date Php0.98 Cahs Dividend SBS: Annual Shareholders Meeting JUNE 13 LR: Ex-date Php Cash Dividend TEL: Annual Shareholders Meeting JAS: Annual Shareholders Meeting SMC: Annual Shareholders Meeting ELI: Annual Shareholders Meeting LAND: Annual Shareholders Meeting JUNE 14 APO: Annual Shareholders Meeting JOH: Annual Shareholders Meeting JUNE 15 VVT: Annual Shareholders Meeting FOOD: Annual Shareholders Meeting VLL: Annual Shareholders Meeting SSI: Annual Shareholders Meeting JUNE 16 SEVN: Annual Shareholders Meeting EEI: Annual Shareholders Meeting MRC: Annual Shareholders Meeting MEG: Annual Shareholders Meeting RCI: Annual Shareholders Meeting KPH: Annual Shareholders Meeting PMPC: Annual Shareholders Meeting JUNE 19 PRC: Annual Shareholders Meeting 2GO: Annual Shareholders Meeting WLCON: Annual Shareholders Meeting JUNE 20 LTG: Annual Shareholders Meeting SHNG: Annual Shareholders Meeting JUNE 21 CRWN: Ex-date Php0.05 Cash Dividend OV: Annual Shareholders Meeting H20: Annual Shareholders Meeting JUNE 22 BRN: Annual Shareholders Meeting AUB: Annual Shareholders Meeting LSC: Annual Shareholders Meeting SLI: Annual Shareholders Meeting DWC: Annual Shareholders Meeting JUNE 23 PRMX: Annual Shareholders Meeting ANI: Annual Shareholders Meeting JUNE 26 EURO: Ex-date Php0.05 Cash Dividend MRP: Annual Shareholders Meeting STR: Annual Shareholders Meeting RCB: Annual Shareholders Meeting JUNE 27 ACR: Ex-date Php Cash Dividend PNC: Annual Shareholders Meeting RRHI: Annual Shareholders Meeting JGS: Annual Shareholders Meeting JUNE 28 NRCP: Annual Shareholders Meeting BSC: Annual Shareholders Meeting PX: Annual Shareholders Meeting EURO: Annual Shareholders Meeting MACAY: Annual Shareholders Meeting URC: Annual Shareholders Meeting RLC: Annual Shareholders Meeting FNI: Annual Shareholders Meeting SRDC: Annual Shareholders Meeting JUNE 29 SFI: Annual Shareholders Meeting CA: Annual Shareholders Meeting MJIC: Annual Shareholders Meeting GERI: Annual Shareholders Meeting SGI: Annual Shareholders Meeting ZHI: Annual Shareholders Meeting OPM: Annual Shareholders Meeting CPG: Annual Shareholders Meeting ALHI: Annual Shareholders Meeting JUNE 30 ALCO: Annual Shareholders Meeting RLT: Annual Shareholders Meeting JFC: Annual Shareholders Meeting MJC: Annual Shareholders Meeting AGF: Annual Shareholders Meeting IPO: Annual Shareholders Meeting VITA: Annual Shareholders Meeting CNPF: Annual Shareholders Meeting APX: Annual Shareholders Meeting COSCO: Annual Shareholders Meeting COL Financial Group, Inc. 6

7 Important Rating 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. Important Disclaimer 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. COL Research Team 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 FRANCES ROLFA NICOLAS ANDY DELA CRUZ JUSTIN RICHMOND CHENG Research Analyst Research Analyst Research Analyst rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com KYLE JEMMRIC VELASCO Research Analyst kyle.velasco@colfinancial.com JOHN MARTIN LUCIANO Research Analyst john.luciano@colfinancial.com Contact COL FINANCIAL GROUP, INC D East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City 1605 Philippines Tel No Fax No Website: COL Financial Group, Inc. 7

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