MEG - COL Financial

FRIDAY, 11 APRIL 2014

STOCKS IN FOCUS:

MEG: FY13 income meets estimates, raising FV to Php5.48

FY13 core net income up 12.54%. Megaworld’s net income for FY13 grew 23% to Php8.97 Bil. This, however, includes a non-recurring gain of Php763 Mil from a recent acquisition. Excluding this one-off gain, net income for the year jumped 12.54% to Php8.21 Bil. This is in line with COL and consensus estimates. Growth was driven by higher realized gross profit and higher rental revenues. We are raising our FV on MEG from Php4.54 to Php5.48 as we raise our valuation for MEG’s residential development segment following MEG’s statement that unbooked revenues amount to around Php100 Bil, giving us more confidence in its ability to translate reservation sales into revenues.

(As of 10 April 2014)

INDICES INDICES PSEi All Shares Financials Holding Firms Industrial Mining & Oil Property Services Dow Jones S&P 500 Nasdaq

Close Points 6,638.89 51.40 3,992.65 33.34 1,585.38 21.30 6,059.51 76.59 10,104.75 63.64 15,016.64 260.37 2,590.90 1.15 1,954.36 0.99 16,170.2 1,833.1 4,054.1

-267.0 -39.1 -129.8

% 0.78 0.84 1.36 1.28 0.63 1.76 0.04 0.05

YTD% 12.72 10.47 11.02 11.60 16.28 26.00 17.48 4.73

-1.62 -2.09 -3.10

-2.45 -0.83 -2.93

CPG: Earnings disappoints on higher construction costs and taxes

Full year earnings down to Php1.8Bil. Century Properties reported 4Q13 net income of Php223Mil, a decline of 48% from the same period of the previous year. The weak 4Q13 results brought full year net income to just Php1.8Bil, a 2% decline from the previous year and below expectations as it accounts for only 81% and 80% of COL and consensus forecasts respectively. Weakness was brought by higher construction costs which weighed on gross margins. Moreover, CPG stated that the company paid additional taxes from its joint venture projects due to a new BIR revenue regulation. We have a BUY rating on CPG with a FV estimate of Php2.60/sh. However in light of higher expenses, we are going to review our estimates for a possible downgrade.

INDEX GAINERS INDEX GAINERS Ticker SCC MEG AGI LTG MPI

Company Semirara Mining Corp Megaworld Corporation Alliance Global Inc LT Group Inc Metro Pacific Inv Corp

MARKET SUMMARY: The PSEi rebounded from its previous decline, gaining 51.40 points or 0.78% to close at an eightmonth high of 6,638.89. Investor sentiment was lifted as the index tracked gains in the US market, which was lifted by hints from the Fed that the raising of interest rates may be delayed. Index gainers led decliners 22 to 6 while 2 issues were unchanged. All sectors closed higher last session, led by Mining & Oil (+1.76%). Notable gainers were SCC (+3.56%), MEG (+3.20%), AGI (+3.11%), LTG (+2.98%), and MPI (+2.26%). On the other hand, significant decliners were ALI (-1.62%), GLO (-1.13%), and DMC (-0.71%). Value turnover increased to Php10.5Bil from Php7.6Bil last Tuesday. Foreigners were net buyers, accumulating Php1.2Bil worth of shares.

% 3.56 3.20 3.11 2.98 2.26

INDEX LOSERS

OTHER NEWS: PAL: To open flights to NY and major US cities following FAA upgrade rating ALI: Secures regulatory approval for Php15Bil bond sale Economy: Exports jump to 24.4% growth in February Economy: FDI up 5.3% to US$1Bil

Price 407.00 4.51 29.80 17.30 4.97

INDEX LOSERS Ticker ALI GLO DMC BLOOM MWC

Company Ayala Land Inc Globe Telecom Inc DMCI Hldgs Inc Bloomberry Resorts Manila Water Co

Price 30.40 1,660.00 69.50 9.90 24.70

% -1.62 -1.13 -0.71 -0.50 -0.40

TOP 5 MOST ACTIVE STOCKS TOP 5 MOST ACTIVE STOCKS Ticker SMPH MEG SM TEL ALI

Company SM Prime Hldgs Inc Megaw orld Corporation

SM Investments Corp Phil Long Distance Co

Ayala Land Inc

Turnover 816,964,500 576,284,700 545,260,800 514,874,300 463,924,700

PHILIPPINE EQUITY RESEARCH

STOCKS IN FOCUS:

MEG: FY13 income meets estimates, raising FV to Php5.48

FY13 core net income up 12.54%. Megaworld’s net income for FY13 grew 23% to Php8.97 Bil. This, however, includes a non-recurring gain of Php763 Mil from a recent acquisition. Excluding this one-off gain, net income for the year jumped 12.54% to Php8.21 Bil. This is in line with COL and consensus estimates. Growth was driven by higher realized gross profit and higher rental revenues. Exhibit 1. Results summary in Php Bil Real estate revenues Net realized gross profit Rental revenues Core net income

4Q12

4Q13

% change

FY12

FY13

% change

3,565 1,208 1,381 1,708

4,816 2,003 1,698 1,723

35.1% 65.8% 23.0% 0.9%

18,173 5,501 4,995 7,294

21,251 7,423 6,038 8,209

16.94% 34.94% 20.88% 12.54%

% of full year estimate COL Consensus 99.37% 113.40% 104.80% 101.49% 98.83%

Source: MEG, Bloomberg, COL estimates

Realized gross profit better than expected. Net realized gross profit for FY13 was Php7.42 Bil, better than our forecast of Php6.5 Bil. This was due to higher gross margins for sales booked during the year, and also high realized gross profit on prior years’ sales. This is a good sign that MEG has been able to translate past and present real estate sales into profits. We expect this trend to continue going forward and this should improve the outlook on its residential development segment.

Richard Lañeda, CFA Ticker: MEG Rating: Buy Target Price: Php5.48 Share Price Movement 140 130 120 110 100 90 80 10-Jan-14

10-Feb-14 MEG

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Rental revenues better than expected. Rental revenues had s strong 4Q13, growing by 23% y/y to Php1.7 Bil. This brought full-year rental revenues to Php6.04 Bil, beating our full-year forecast of Php5.76 Bil. We believe that strong holiday sales and completion of two more office building swith a total of 17,500sqm of GLA during the fourth quarter led to the strong revenues. We expect more of the same this year as MEG plans to add 112,000sqm to its office portfolio and 70,000sqm to its retail portfolio for a total of 621,000sqm and 240,000sqm of office and retail GLA respectively. This will drive rental revenues up by another 16,5% to Php7.04 Bil. Residential sales weak in 4Q13 but rebounds in 1Q14. Total reservation sales of the Megaworld Group (including Suntrust and Empire East) reached Php68.2 Bil for FY13, up 8.3% from Php63Bil the year earlier. Sales were weak during the fourth quarter of last year, just Php12.2 Bil compared to Php16.5 Bil in 4Q12. We believe this was due to the natural calamities that hit the Philippines, primarily typhoon Yolanda. This was no indication of weak demand for MEG’s projects as sales rebounded in 1Q14 to Php19.6 Bil, an 8.9% improvement from 1Q13. Unbooked revenues at Php100 Bil. According to MEG, net unbooked revenues of the company currently amount to around Php100 Bil. With this, MEG expects to book around Php88 Bil in real estate sales over the next three years. This gives us better clarity on MEG’s real estate revenue going forward. This also eases some concerns about MEG’s ability to translate reservation sales into revenues. Raising FV estimate to Php5.48. We are raising our FV on MEG from Php4.54 to Php5.48 as we raise our valuation for MEG’s residential development segment following MEG’s statement that unbooked revenues amount to around Php100 Bil, giving us more confidence in its ability to translate reservation sales into revenues. We also raised our landbank valuation estimate as we factored in MEG’s recent land acquisitions in Pasig and Davao. Our new estimate also reflects higher land values in its existing landbank. Lastly, we also factored in MEG’s planned retail and office completions this year.


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CPG: Earnings disappoints on higher construction costs and taxes

Full year earnings down to Php1.8Bil. Century Properties reported 4Q13 net income of Php223Mil, a decline of 48% from the same period of the previous year. The weak 4Q13 results brought full year net income to just Php1.8Bil, a 2% decline from the previous year and below expectations as it accounts for only 81% and 80% of COL and consensus forecasts respectively. Weakness was brought by higher construction costs which weighed on gross margins. Moreover, CPG stated that the company paid additional taxes from its joint venture projects due to a new BIR revenue regulation. Higher construction costs weighed on gross margins. Century Properties stated that they saw constriction costs accelerated in 2013 as they continue to build their brand. According to CPG, their affordable to middle income segments had lower margins compared to their luxury projects such as Cenutry Spire and Trump Tower. As a result, gross margins declined from 45% in 2012 to just 42% in 2013. CPG said that they believe that margins will stabilize at current levels. Pre-sales remain strong. Pre-sales remain strong, reaching Php24.6Bil, up by 15% from the previous year. In addition pre-sales represented 124% of new launches, showing signs that CPG is able to sell at a faster rate that building inventory. On the other hand, unbooked revenues reached Php35.1Bil, up by 26% from the previous year and gives good earnings visibility for the next two years.

Kervin Sisayan, CFA Ticker: CPG Rating: Buy Target Price: Php2.60 Share Price Movement 120

110

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80 10-Jan-14

10-Feb-14 CPG

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Estimates under review. We currently have a BUY rating on CPG with a FV estimate of Php2.60/sh. However in light of the lower gross margins and higher taxes, we are going to review our forecast for a possible decrease in FV estimate. Nonetheless, strong pre-sales and unbooked revenues should signal strong earnings growth in the next two years.

OTHER NEWS:

PAL: To open flights to NY and major US cities following FAA upgrade rating

Philippine Airlines (PAL) will fly to New York, Chicago, Florida and other major cities in the United States within a year following the FAA’s restoration of the Philippines to Category 1 rating, suggesting that the Philippines has complied with international aviation safety oversight standards. At present, the firm is the only local carrier that services flights to the US. It currently operates 26 weekly flights to the United States, with services to Los Angeles, San Francisco, Honolulu and Guam. Moving forward, PAL said that it would deploy 6 Boeing 777-300ERs for US flights within a month’s time. These aircraft are more fuel-efficient and would result in big fuel savings for the flag carrier.

Jed Frederick Pilarca Garie Ouano Meredith Hazel Cua

(source: Inquirer)

ALI: Secures regulatory approval for Php15Bil bond sale

Ayala Land, Inc. (ALI) has secured regulatory approval to sell up to Php15Bil worth of 11-year fixedrate bonds due 2025. The bonds will be issued in scripless form in minimum denominations of Php50,000 each, and in multiples of Php10,000 thereafter, having an interest rate of 5.3%-5.9%. The Php15Bil will be raised in one or more tranches, with the first tranche consisting of a principal amount of Php8Bil with an oversubscription option. Net proceeds, amounting to Php7.9Mil, will be used to partially finance the company’s capital expenses and general corporate purposes. (source: BusinessWorld)


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Economy: Exports jump to 24.4% growth in February

The NSO reported that exports jumped 24.4% in February, faster than the 9.2% growth reported for January. Seven out of ten major commodities registered positive growth during the month. Electronic products, which accounted for 40% of total exports, posted an increase of 26.6%. According to Philippine Exporters Confederation Inc. President Sergio Ortiz-Luis, Jr., 10% growth in exports this year would be “easy to meet.” The Confederation is also optimistic on the recovery of electronic products. (source: NSO, Philstar)

Economy: FDI up 5.3% to US$1Bil

According to the BSP, net FDI inflows rose by 5.3% in January, reaching the US$1Bil mark and reversing from the 7.9% decline during the same month last year. For the full year, the BSP forecasts net FDI inflows to reach US$2.6Bil. The increase in FDI during January was due to higher inflows in debt instruments and equity capital despite a reversal into net outflows in foreign portfolio investments. Net placements in debt grew by 7.3% to US$687Mil in January and accounted for 67% of total FDI. Meanwhile, net equity inflows rose by 10.5% to US$278Mil. (source: BSP)


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Calendar of Key Events

APRIL MON

TUES

WED

THURS

1

2

3

7

8 PRC: Ex-date Php0.06 Cash DD: Equity Offering Dividend PF: Ex-date Php48.00 Cash GLO: Annual Shareholders Dividend Meeting CPV: Annual Shareholders DD: Listing Meeting ALI: Annual Shareholders CHI: Annual Shareholders Meeting Meeting PBC: Annual Shareholders Meeting ISM: Annual Shareholders Meeting 14 15 IPO: Ex-date Php0.06 Cash SMPH: Annual Shareholders Dividend Meeting

9

4 PMPC: Ex-date Php0.10 Cash Dividend NIKL: Ex-date Php0.30 Cash Dividend IMI: Annual Shareholders Meeting MWC: Annual Shareholders Meeting 10 11 MER: Ex-date Php6.45 Cash ABS: Ex-date Php0.60 Cash Dividend Dividend LFM: Ex-date Php1.00 Cash ABSP: Ex-date Php0.48 Dividend Cash Dividend COL: Ex-date Php0.60 Cash AC: Annual Shareholders Dividend Meeting BPI: Annual Shareholders PHN: Annual Shareholders Meeting Meeting ICT: Annual Shareholders Meeting

16

17

18

24 MVC: Annual Shareholders Meeting ATI: Annual Shareholders Meeting

25 BDO: Annual Shareholders Meeting EW: Annual Shareholders Meeting BMM: Annual Shareholders Meeting

21 GMA7: Ex-date Php0.27 Cash Dividend LC: Annual Shareholders Meeting

22 CAT: Annual Shareholders Meeting

23 BLFI: Annual Shareholders Meeting ANS: Annual Shareholders Meeting

28 PSB: Annual Shareholders Meeting BEL: Annual Shareholders Meeting MA: Annual Shareholders Meeting

29 AT: Annual Shareholders Meeting SECB: Annual Shareholders Meeting RPL: Annual Shareholders Meeting BHI: Annual Shareholders Meeting PTC: Annual Shareholders Meeting

30 PMT: Annual Shareholders Meeting MBT: Annual Shareholders Meeting REG: Annual Shareholders Meeting SM: Annual Shareholders Meeting NXT: Annual Shareholders Meeting


FRI

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Investment Rating Definitions

BUY

HOLD

SELL

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 twelve months.

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 inline or underperform the market in the next six to twelve months.

We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to twelve months.

Important Disclaimers 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 it 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 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 ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.

2401-B East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City 1605 Philippines Tel: +632 636-5411


Fax: +632 635-4632

Website: http://www.colfinancial.com

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