2h10 fundamental outlook 2010-07-22-ph-strategy

8/8/2019 2H10 Fundamental Outlook 2010-07-22-PH-Strategy

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2H10FundamentalOutlook2H10FundamentalOutlook u yu y

Presentedby:Presentedby:Ms.Apri LynnTan,CFAMs.Apri LynnTan,CFA

HeadofResearchHeadofResearch


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PhilippineiswellpositionedforPhilippineiswellpositionedforgrowthgrowth

Wealthier consumers

opportunities

Strongfinancial

system


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OFWRemittances(US$Bil) BPORevenues(US$Mil)

70%14,000. -

50%

60%

10,000

12,000

37.3% 5-yr CAGR

20%

30%

4,000

6,000

,

0%

10%

0

2,000

Source:BSPBPORevenue Growth

Drivers of the 3.7% 11-year CAGR of real GNP per capita


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NumerousInvestmentNumerousInvestmentOpportunitiesOpportunities

LowlevelofinvestmenttoGDPLowlevelofinvestmenttoGDP

14%

Source:NSCB


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NPLRatioNPLRatio

Bankshealthy&liquidbalance

sheet

3.4%NPLratio93%NPLcover16%CAR

Source:BSP


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NewAdministrationtobeNewAdministrationtobecatalystforgrowthcatalystforgrowth

mprove Governance

InvestorCon ence

conom cReforms


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NewAdministrationtobeNewAdministrationtobecatalystforgrowthcatalystforgrowth

HighlightsofInauguralSpeech:Appointleaderswhoareethical,honestandtruepublicservants

Improvegovernment

finances

to

fund

objectivesforthepublicwelfare

Cuttingred

tape

dramatically

LevelingtheplayingfieldforinvestorsMakinggovernmentanenabler,notahindrancetobusiness


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PrioritizingFiscalDeficitPrioritizingFiscalDeficitProblemProblem

2010Deficittoreach3.9%ofGDP

Source:DOF


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Deterioratingtaxcollectionefficiency

Source:DOF


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Conse uencesofballoonin bud etdeficit:


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Step1:Appo ntcompetentan et ca o c a s


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Goal:Cutdeficit/GDPfrom4%to2%in3yearsbyimprovingtaxcollection

efficiency

ACTIONSTEPS

BIR BOC Runaftertax

evaders

(RATE)

Identify

smugglers Taxprofessionals Taxinformal

Identifycorruptofficialsthrough


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Successessofar:

ev ewo pen ng axevas oncase

against

Richard

Gomez


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WeaknessinGlobalMarketsWeaknessinGlobalMarketsActasHeadwindActasHeadwind

Ma orconcerns:

anend

Sovereign

debt

crisis

in

Europe


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USeconomyhasroomtogrow Stimulusspending

Cautiousbusinesses row ngexports

n ma r s o e au n urope


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Only54%ofUS$787Biloffiscalstimuluspackagespentsofar

Source:Recovery.gov


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Capexspendingremainslimiteddespitereboundinprofits


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Temporaryhiringupstronglydespiteelevatedunemployment

Source:Bloomberg


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Exportstohelpfuelgrowth

USDollarExchangeRate

US$ down 28% vs. 2001

Driversofexports: WeakerUS$ Stronggrowthinemerginganddevelopingeconomies

+6.8%2010,+6.4%2011(IMF)

Fallingshare

of

exports

to

EuropeandJapan19.7%in2009vs.24.5%in1997

Source:Bloomberg


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US$700Bil

TARP

EUandIMF EUROPEEUROPEEUROPEEUROPE USAUSAUSAUSA


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Country 2010EPE EPSGrowth(%)

Australia 13.9 15.4

. .

HongKong 15.8 20.0

India 17.1 24.4

Indonesia 14.8 20.3

Korea 9.0 53.2

Malaysia 15.6 23.4

NewZealand 13.8 (12.9)

Philippines 13.1 28.0

. .

Taiwan 13.0 89.1

Thailand 11.7 18.9

s aex apan . .

Source:Bloomberg,IBES


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Focuson

valuation

relative

Catalysts

10yearaverageP/E:15.0X Datapointingtothesustainabilityoftheglobal

PSEicurrently

trading

12%

below2007peak,2010earnings

forecast to exceed 2007

economicrecovery

Improvementininvestor

earningsby21.6%

Prevailin

lowinflation

and

sentiment

interestrateenvironmentmay

justifyhighervaluations


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STHEADWINDSSTHEADWINDS

TAILWINDSTAILWINDSSTHEADWINDSSTHEADWINDSSTHEADWINDSSTHEADWINDS

TAILWINDSTAILWINDS

TAILWINDSTAILWINDS

StrongfundamentalsConcernson

StrongfundamentalsStrongfundamentalsConcernsonConcernson

economyeconomicgrowth

economy

economyeconomicgrowtheconomicgrowth

Relativelyfair

valuation

NewA ministration

&

Historicallycheap

Relativelyfair

valuation

Relativelyfair

valuation

NewA ministration

&

Historicallycheap

NewA ministration

&

Historicallycheap

valuationvaluationvaluation


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Overheating

GrowthgainsmomentumInflationpicksupCentralbankraisesinterestrates

Investorconfidenceisstrong

RecoveryGrowthpicksup SlowdownGrowthslowsdownEmploymentimprovingLowInflation

Value Growth

Inflationdrops

CashContraction

ContractinggrowthHighunemploymentLowInflationWe are hereWeakRevenuesDefensive Contrarian


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Stock

Picks Closing

Price

1H10 12Jan 20Jul

MWC 15.00 16.75 11.7%

EDC 4.80 4.50 6.3%

FGEN 9.60 9.70 1.0%

. . .

SECB 53.00 67.00 26.4%

. . .

PortfolioReturn 16.1%.


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Banks:Playonhigherinvestmentandconsumerspending

MBT 77.50 Rereting story

Tradingat

1.3X

11E

P/BV, below

average

P/BV

multiple

of

1.8X

SECB 78.00 Bestassetquality(2.9%NPL,209%NPLcover)

Tradingatonly8.2X2010EP/E


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Properties:Playonhigherconsumerspending

MEG 1.80 Hugelandbankinhighlyfavorablelocations

Hasthelargestportfolioandland bankofofficeleasingproperties

locatedinFortBonifacio

Tradingatasteep41.6%discounttoNAV,andonly8.5X10EP/E

RLC 17.25 Hasenoughlandbank tosupply45yearsworthofsalesforhigh

rise buildings

MajorbeneficiaryofREITlaw(malls60%ofNAV)

Tradingat34.9%discounttoNAV,10.9X10EP/E


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Properties:Playonhigherconsumerspending

FLI 1.26 Hasenoughlandbanktosupply3yearsworthofsalesformid

risebuildingsinManila

Tradingatasteep54.5%discounttoNAV,10.7X10EP/E

. uge an an ,mos aggress ve nres en a pro ec aunc es

BeneficiaryofREITlaw(malls24%ofNAV)

Bu

belowPh 14.00


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Others:

EEI 4.50 Playonglobaleconomicrecovery

.

DMC 20.00 Playonhigherinvestmentspending

Businessmodelnowfocusedonhighervalueaddedservices

BuybelowPhp17.50


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Others:

ICT 30.00 Playonstronggrowthofdevelopingandemergingeconomies

.

MWC* 22.50 Exampleofhowthegovernmentandtheprivatesectorcanwork

oge er o mprove n ras ruc ure

Expectearningsgrowthtoacceleratein2011dueto

implementationofratehike

*

theshortterm


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ThePhilippineeconomyhasastrongpotentialforgrowth,andthenew

administrationcould

be

the

catalyst

that

will

fuel

growth

ConcernsofadoublediprecessionintheUSandthedeteriorationof ,

relativelyfair

valuation

in

Asia

ex

Japan,

will

make

it

difficult

for

the

local

markettogoupinastraightpath.

However,wethinkinvestorsshouldfocusonthelongertermsince

concernsare

overblown

and

the

Phili ines

remains

chea

relative

to

its

historicalaveragevaluation.Correctionsshouldbeviewedas

opportunitiestoaccumulatestocks.


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ThankYou!ThankYou!

2h10 fundamental outlook 2010-07-22-ph-strategy

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