2012 03 20 Market Briefing

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7/28/2019 2012 03 20 Market Briefing


Two common questions

Is this insanity?

Or is this sustainable?

Strong YTD Performance of the PSEi and GlobalStock Markets

PSEi +17.7%

MSCI+12.2%

90

95

100

105

110

115

120

1/1 1/8 1/15 1/22 1/29 2/5 2/12 2/19 2/26 3/4 3/11

PSEi vs MSCI All Country World Index

Source: Bloomberg

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2011: Concerns of Liquidity Freeze and Contagion Resultingfrom Greece’s default

Extreme Pessimism & Easy Monetary Policy Fuel2012’s Stock Market Rally

0

100

200

300

400

500

600

Jan FebMar Apr May Jun Jul Aug Sep Oct NovDec

Spain CDS - 2011

0

100

200

300

400

500

600700

Jan FebMar Apr May Jun Jul Aug Sep Oct NovDec

Italy CDS - 2011

Source: Bloomberg

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2011: Growing Preference for US T-bonds despite ExtremelyLow Rates and Cheap Valuation of Stocks


+19%

-10%

60

80

100

120

140

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

US 30 Year Bond vs MSCI ACWI - 2011

30 Year Bond MSCI ACWI

Source: Bloomberg

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EuropeECB provided €490 Bil in 3-year cheaploans to banks

USA Better than expected economic indicators

Philippines

PPP shows progress

Early passage of 2012 budget

S&P upgraded ratings outlook


What has Changed?

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Market Drivers

Low interest rates

Shift from developed to developing economies

LT Outlook Remains Positive

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Interest Rates on a Downtrend

0

2

4

6

8

10

12

14

16

18

20

PDS 10-Year Reference Rate (%)

Source: Bloomberg

17.62

5.84

Low Interest Rates

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Interest Rates to Stay Low

Ample liquidity due to easy monetary policy globally

Strong likelihood of a ratings upgrade for the Philippines

Low Interest Rates

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Ample Liquidity Due to Easy Monetary Policy Globally

December January February

ECB provided €490 Bil in3-year cheap

loans to banks

BSP cutbenchmark rates

by 25 bps

BOJ added ¥10 Tril toits ¥20 Tril pool of funds set aside to buy

government bonds

Fed extended itsprevious pledge tokeep interest rateslow from 2013 to at

least late 2014

Cut reserverequirement by 50bps

Bank of Englandincreased its assetpurchase program by£50 Bil to £325 Bil

Low Interest Rates

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February March

Reduced reference rate by

25 bps

BSP cut benchmark rates by

another 25 bps

ECB extended another €529.5 Bil worth of cheap 3-

year loans to 800 banks

Central bank cut rates by 75bps

Low Interest Rates

Ample Liquidity Due to Easy Monetary Policy Globally

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Improving Government Finances

Low Interest Rates

Revenues/GDP Deficit/GDP Debt/GDP

2003 14.8% 4.6% 77.7%

2004 14.5% 3.8% 78.2%

2005 15.0% 2.7% 71.4%

2006 16.2% 1.1% 63.9%

2007 17.1% 0.2% 55.8%

2008 16.2% 0.9% 57.0%

2009 14.6% 3.9% 57.3%

2010 14.2% 3.7% 55.4%

2011 14.0% 2.0% 50.9%Source: Bureau of Treasury

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…and External Accounts Position

Low Interest Rates

In US$Bil Remittances CurrentAccount

GIR GIR to

External Debt

2003 7.6 0.3 17.1 29.7%

20048.6 1.6 16.2 29.5%2005 10.7 2.0 18.5 34.0%

2006 12.8 5.3 23.0 42.7%

2007 14.4 7.1 33.8 60.9%

2008 16.4 3.6 37.6 69.2%

2009 17.3 8.6 44.2 80.5%

2010 18.8 12.7 62.3 103.8%2011 20.1 5.1 75.3 120.6%

Source: BSP

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Imply Strong Likelihood of More Ratings Upgrade

Low Interest Rates

Ratings Agency New Rating Upgrade Date

S & P BB Nov-10

Moody’s B a 2 Jun-11

Fitch BB + Jun-11

S&P upgraded Philippines’ rating outlook from stable to positive

(December 2011)

Moody’s hints upgrading Philippines’ credit rating (March 2012)

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-12

-8

-4

0

4

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Stock Earnings Yield - Bond Yield

Stocks Now a Strong Alternative to Bonds

Low Interest Rates

Source: Bloomberg

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Strong Potential for Growth in Investor Participation

Low Interest Rates

0.1% 0.5% 1.0%

35.1%43.0%

50.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Indonesia Philippines Thailand HK Australia USA

Retail Investor Participation

Source: PSE, various stock exchanges

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Philippines’ Relatively Attractive Fundamentals

Absence of structural problems facing developed

economies

Strong banking system

Room for investment spending to grow

Government set to implement pump priming activities

Resiliency to external shocks

Shift from Developed to Developing Economies

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Structural Problems of Developed Economies

Ageing population

Highly leveraged consumers

Highly leveraged government


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Absence of Structural Problems Facing Developed

Economies


USA Europe Japan Philippines

% Population >65 year old 13.1% 18.4% 22.9% 4.3%

Population average age 37 42 45 23

Household debt/disposableincome

114.0% 99.3% 128.0% 9.2%

Public debt/GDP 69.4% 85.4% 208.2% 49.4%

Deficit/GDP -8.9% -6.2% -8.5% -2.0%

As of 2011, except for public debt/GDP & deficit/GDP for Europe (2010), and household debt/disposable

income (latest available data)

Sources: CIA World Fact Book, OECD Fact Book, European Commission, South East Asian Central

Banks Research and Training Centre

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Strong banking system


Banking Statistics

(Universal & Commercial Banks)

NPL Ratio Provision/NPL

2003 14.1% 53.0%

2004 12.7% 60.4%

2005 8.2% 77.5%

2006 5.7% 82.6%

2007 4.4% 93.3%

2008 3.5% 100.0%

2009 3.0% 112.3%

2010 2.9% 118.3%

2011 2.2% 126.4%

Capital Adequacy Ratio

Minimum

Requirement BSP 10.0%

Basel III(2019)

10.5%

Philippine Banks(3Q11) 17.0%

Source: BSP

Source: BSP

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Room for Investment Spending to Grow


20%

21%23%24%23%

25%26%23%

19%18%

22%24%

23%22%22%

18%17%19%17%

21%22%

0%

5%

10%

15%

20%

25%

30%

Investments to GDP (%)

Source: NSCB

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Room for Investment Spending to Grow


Regional Investments-to-GDP Ratio

Country Inv-to-GDP

Philippines 22%

India 31%

Indonesia 32%

Malaysia 20%

Thailand 26%

Vietnam 39%

Source: Bloomberg, BSP, NSCB, COL estimates

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Government set to implement pump priming activities

Increase spending by 18%

Spending on capital outlay to increase by a faster pace

of 24.3%

72.1% of allocation for capital outlays have already

been released

Roll out of 17 PPP projects, 15 of which will have a

combined value of Php196.8 Bil or US$4.6 Bil


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Resiliency to External Shocks


6.9 7.68.6

10.7

12.814.4

16.417.3 18.8

20.1

1.6

5.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0.0

5.0

10.0

15.0

20.0

25.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

OFW Remittances US$Bil

Source: BSP

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Resiliency to External Shocks


1,475

2,4203,257

4,8756,061

7,200

9,000

11,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2004 2005 2006 2007 2008 2009 2010 2011

BPO Revenues (US$ Mil)

Source: BPAP

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ST Risks

Prices have run ahead of fundamentals

Market up 18%, while 12E EPS growth is only 15%

Minimal upside risk to earnings forecasts based on

2011 earnings results

More stocks trading close to our above consensus FV

estimates

Continuous rise in oil prices could dampen economic

growth

A Possible Correction in the Short Term

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Above Inline Below

SECB BDO CEB

AP BPI EDC

JFC CHIB ICT ALI MBT MER

FLI PGOLD MPI

SMPH SM MWC

URC SCC

ACTEL

GLO

Total: 6 7 10

Percentage: 26.1% 30.4% 43.5%

More stocks trading close to our above

consensus FV estimates

Source: COL Estimates

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More stocks trading close to our aboveconsensus FV estimates


Capital Appreciation Potential

> 15% 35%

Between 0% to 15% 39%

< 0% 26%

Source: COL Estimates

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Oil prices up by 9.4% for YTD period, and could

dampen economic growth


70

80

90

100

110

120

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Crude Oil (NYMEX)

Source: Bloomberg

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Stay invested Manage risks through diversification and buying only

stocks that remain cheap

Be prepared to buy during pull backs Three themes:

Growth

Dividends

Small cap value

Strategy

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Model Portfolio

Themes: Growth, Dividends & Small Cap Value

FV Current Price Buy Below PriceGrowth Stocks

MBT 108.00 90.00 94.00

MPI 4.70 4.16 4.08

AC 452.00 423.00 393.00

AGI 14.90 13.22 12.80 ALI 21.65 21.35 18.70

Dividend Plays

BPI 80.00 75.30 69.50

RLC 19.90 16.90 17.30

MWC 29.00 23.45 25.20

Small Cap Value

FLI 1.69 1.27 1.47

MEG 2.97 1.87 2.58

EEI 7.10 5.75 6.17

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Summary

The Philippine market is in a long term uptrend driven by

low interest rates and the country’s attractive fundamentals

relative to developed economies

However, a correction could take place in the short term

given the market’s sharp rise for the year to date period, lack

of catalyst for earnings upgrades in the short term, and the

possible downside risk on economic growth brought about by

rising oil prices

Sustainable Insanity

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Summary

We expect three themes to outperform in 2012: Growth,

Dividends and Small Cap Value

Among the stocks in our list, MBT, RLC, MWC, FLI, MEG

and EEI can still be bought since they continue to trade at

attractive valuations. Meanwhile, wait for pullbacks to buy ALI,

MPI, AC, AGI and BPI

Sustainable Insanity

7/28/2019 2012 03 20 Market Briefing


2012 03 20 Market Briefing

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