MON 03 FEB 2020

Top Stories:

MWC: Prime Metroline Holdings, Inc. acquires 25% stake in MWC

CEB: Government issues travel ban order amidst nCov outbreak
NIKL: Reducing estimates as LME nickel price declines (AS OF JAN 31, 2020)

BPI: 4Q19 earnings expands 11.6% y/y; in line with estimates INDICES
Close Points % YTD%
PSEi 7,200.79 -191.89 -2.60 -7.86
All Shares 4,292.21 -100.34 -2.28 -7.69
Other News: Financials 1,724.93 -61.70 -3.45 -7.44
Holding Firms 6,900.31 -159.88 -2.26 -9.11
Industrial 8,921.44 -370.09 -3.98 -7.41
Economy: January inflation likely 2.5% to 3.3% Mining & Oil 7,663.26 146.28 1.95 -5.30
SMC, HLCM: PCC flags possible monopoly with SMC-HLCM deal Property 3,838.74 -79.22 -2.02 -7.60
Services 1,475.16 -26.53 -1.77 -3.65

Dow Jones 28,256.03 -603.41 -2.09 -0.99

Market Summary: S&P 500 3,225.52 -58.14 -1.77 -0.16

Nasdaq 9,150.94 -148.00 -1.59 1.99

The local equities market continued to drop last Friday, tracking the regional market
downtrend, as investors continued to sell shares following the spread of the novel INDEX GAINERS
Ticker Company Price %
coronavirus.
SCC Semirara Mining 22.00 10.00
DMC DMCI Hldgs Inc 6.10 2.35
The PSEi fell 191.89 points or 2.60% to close at 7,200.79. The main drags were SM (-2.41%), AC Ayala Corporation 726.50 0.76
AGI Alliance Global Inc 10.80 0.19
BDO (-3.90%), SMPH (-2.75%), MBT (-6.44%), and JGS (-4.04%). On the other hand, these
MPI Metro Pacific Inv Corp 3.21 0.00
were partially offset by gainers such as SCC (+10.00%), AC (+0.76%), DMC (+2.35%), and
AGI (+0.19%).
INDEX LOSERS
Ticker Company Price %
Value turnover increased to Php8.3Bil from Php5.5Bil in the previous session. Meanwhile, MER Manila Electric Company 256.00 -7.71
MBT Metrobank 57.35 -6.44
foreigners continued to sell shares, liquidating Php1.7Bil worth of shares.
GTCAP GT Capital Hldgs Inc 675.00 -5.79
FGEN First Gen Corporation 20.30 -5.58
LTG LT Group Inc 9.80 -4.85

TOP 5 MOST ACTIVE STOCKS

Ticker Company Turnover
ALI Ayala Land Inc 706,634,800
BDO BDO Unibank Inc 646,415,900
SMPH SM Prime Hldgs Inc 540,280,300
MBT Metrobank 430,176,600
URC Universal Robina Corp 412,423,500

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.
 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 03 FEB 2020

Top Stories:

Frances Rolfa Nicolas MWC: Prime Metroline Holdings, Inc. acquires

Research Analyst
25% stake in MWC
Manila Water Company
UNDER REVIEW Prime Metroline Holdings, Inc. acquires 25% stake in MWC. In a disclosure to the PSE,
N/A MWC announced that Prime Metroline Holdings Inc signed a subscription agreement for
the acquisition of 820Mil common shares of MWC at a price of Php13/sh. This represents
a 25% stake in the company. Note that Prime Metroline Holdings Inc., is an infrastructure
company owned by ports and casino tycoon, Enrique K. Razon, Jr. This transaction will
bring in Php10.7Bil in additional equity capital, which is expected to strengthen MWC’s
balance sheet, and allow the company to pursue its long-term strategic initiatives.

Rating under review. We think that the Php13/sh price acquisition, which is 7% higher
than last week’s closing price of Php12.16/sh, signals optimism from the buyer of a more
positive outcome on the talks regarding the new water concession contract. Nevertheless,
the details of the new contract will ultimately determine the value of the company as the
East Zone accounts for majority (~90%) of its value. As such, we are maintaining the
company under review until further details come to light.

Frances Rolfa Nicolas CEB: Government issues travel ban order amidst
Research Analyst
nCov outbreak
Cebu Air Inc.
UNDER REVIEW Government issues travel ban order amidst nCov outbreak. The government has
N/A issued a temporary travel ban order on China and other cities amidst the growing
number of Novel Coronavirus (nCov) cases being recorded in the region. The ban covers
all foreigners arriving from China, Hong Kong, and Macau, including those who visited
these areas within 14 days.

Travel ban to impact revenues. We expect this development to negatively impact CEB’s
revenues and bottom line. According to management, China flights account for ~3% of
seat capacity, Hong Kong flights account for 6%, while Macau and Taiwan flights account
for ~2%. We estimate that the total seat capacity of these four routes (~11-12%) translate
to ~16-17% of the company’s revenues. Moreover, we also expect other routes, both
domestic and international, to be affected as people opt to travel less given fears of
being infected by the virus.

Estimates under review. In light of this development, we will be reviewing our estimates
on CEB.

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 03 FEB 2020

George Ching NIKL: Reducing estimates as LME nickel price

Senior Research Manager
declines
Nickel Asia Corporation
HOLD LME nickel price post sharp correction. The Indonesian government pushed through
Php3.34
with the total on nickel ore export on January 1, 2020. Despite the ban, the price of nickel
traded in the London Metal Exchange (LME) has corrected by 9% YTD (and after peaking
at US$8.1/lb at the beginning of October), and is now trading at US$5.75/lb. The
impact of the potential impact of the NCov2019 virus outbreak in China on the country’s
nickel demand, as well as the lingering impact previous stockpiling activities ahead of the
Indonesian nickel ore ban(Indonesia exported 4Mil MT of nickel ore in December alone,
2X higher than monthly forecast), were some of the major factors that is contributing to
nickel price’s weakness.

Based on our recent discussion with management, NIKL is aiming to produce 19.6Mil
MT of nickel ore this year, only a slight increase from the estimated 19Mil MT produced
in 2019. The main earnings catalyst this year remains to be the price of nickel. Current
LME price of nickel is at $5.75/lb, 11.5% lower compared to our 2020E estimate. On a
brighter note, despite the recent correction, the contract price (for 1.5% Ni ore) for ore
exports is at $29.5/MT, 14% higher compared to our forecast. However, it remains to be
seen how the outbreak of the NCov2019 virus in China will impact nickel demand and
contract prices in the near term. On a longer term outlook, management continues to
believe the impact of the increasing EV demand for nickel will lead to higher nickel prices
going forward.

Exhibit 1: LME nickel (US$/MT)

Nickel
20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0
12/29/201 7
01/29/201 8
02/28/201 8
03/31/201 8
04/30/201 8
05/31/201 8
06/30/201 8
07/31/201 8
08/31/201 8
09/30/201 8
10/31/201 8
11/30/201 8
12/31/201 8
01/31/201 9
02/28/201 9
03/31/201 9
04/30/201 9
05/31/201 9
06/30/201 9
07/31/201 9
08/31/201 9
09/30/201 9
10/31/201 9
11/30/201 9
12/31/201 9
01/31/202 0

Source: Bloomberg

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 03 FEB 2020

Reducing estimates, maintain HOLD rating. Due to the recent decline in LME nickel
price, we are decreasing our 2020E LME average selling price (ASP) forecast by7.7% to
US$6/lb, and our 2021E forecast by 7.5% to US$6.1/lb. As a result, we are lowering our
2020E earnings forecast by 7.1% to Php4Bil, and our 2021E earnings forecast by 8% to
Php3.5Bil. We are also reducing our FV estimate by 3.75% to Php3.34/sh, and maintaining
our HOLD rating on NIKL. While we remain positive on the long term outlook for nickel
due to the rising EV battery demand, we believe that nickel price could remain depressed
in the near term due to the impact of previous stockpiling activities ahead of the
Indonesian nickel ore ban. At its current price of Php2.86/sh, upside to our FV estimate
is limited at 16.8%.

John Martin Luciano BPI: 4Q19 earnings expands 11.6% y/y;

Senior Research Analyst
in line with estimates
Bank of the Philippine Islands
BUY 4Q19 earnings end in line with estimates. BPI’s 4Q19 net income expanded by 11.6%
Php106.00 y/y to Php6.8Bil, driven mainly by the growth in net interest income (+13.6% y/y) and
lower provisions (-40.1% y/y). Growth in operating expenses was also manageable at
12.8% y/y. This brought the bank’s full-year profits higher by 24.8% y/y to Php28.8Bil.
This ended in line with both COL and consensus estimates, representing 100.7% and
101.3% of full-year forecasts, respectively. The full-year results translated to a ROE of
11.1%.

Exhibit 1: Results Summary

% FY19E
In PhpMil 4Q18 4Q19 % Change FY18 FY19 % Change
COL Consensus
Net interest income 15,208 17,275 13.6 55,843 65,940 18.1 99.5 NA
Non-interest income 6,430 6,053 -5.9 22,681 28,390 25.2 98.2 NA
Provisions 2,079 1,245 -40.1 4,923 5,820 18.2 94.3 NA
Operating expenses 11,518 12,991 12.8 43,602 50,080 14.9 98.8 NA
Net income 6,068 6,770 11.6 23,078 28,801 24.8 100.7 101.3
source: BPI, COL estimates

Slightly faster loan growth and higher margins drive net interest income growth.
Net interest income in the fourth quarter grew 13.6% y/y to Php17.3Bil, slightly faster
than the 11.1% growth registered in the previous quarter. The faster growth can be
attributed to a sequential improvement in net interest margin and slightly faster loan
growth at 8.9% y/y. The bank’s loan portfolio expanded at a slightly faster pace from
the 8.2% y/y growth registered in the previous quarter. This is also slightly faster than
our ~7% growth forecast for the year. Overall, the loan growth was driven mainly by the
expansion in consumer loans at 13.4% y/y, while corporate and SME loans continued to
lag at 7.9% and 5.8%, respectively. Consumer and SME loans, which have higher yields
than corporate loans, now account for 23.6% of total portfolio from 21.1% in 2017. The

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 03 FEB 2020

bank continues to guide a 30/70 consumer and SME/ corporate loan mix in 3-4 years.
Going forward, we are forecasting loan growth to accelerate to 12-13% y/y, largely in line
with management’s 10-12% guidance for 2020.

In terms of margins, we estimate that net interest margin in the third quarter improved ~20
bps y/y and ~13 bps q/q to 3.31%. Management noted that the sequential improvement
was driven by the faster decline in funding cost vs asset yields. We believe the bank was
able to hold the pricing in corporate loans steady, while the faster growth in the higher
yielding consumer loans also caused favorable loan mix. In 2020, the bank is still guiding
a 10 bps expansion in NIMs, driven mainly by the continued improvement in funding
cost. For the full-year 2019, net interest income reached Ph65.9Bil, up 18.1% y/y. This
ended in line with our forecast, representing for 99.5% of our estimate.

Non-interest income normalizes amidst absence of strong trading gains. The

bank’s non-interest income in the fourth quarter declined by 5.9% y/y to Php6.1Bil. As
expected, the bank’s 4Q19 non-interest income normalized vs the Php8.8Bil booked in
the third quarter following the sequential drop in trading gains. The bank booked only
Php515.5Mil in trading and FX gains during the fourth quarter vs the Php3.1Bil booked
in the third quarter. Going forward, we expect trading gains to continue to normalize as
the bank has already sold a large portion of its securities portfolio in the first nine months
of last year. The full-year trading gains reached Php6.1Bil, more than doubled from the
Php2.8Bil booked in 2018. This ended slightly below our forecast, representing 96.4% of
our full-year target.

Maintain BUY. We reiterate our BUY rating on BPI with a FV estimate of Php106/sh based
on 1.65X 2020 P/BV. We continue to like BPI because it is poised to take advantage of the
country’s healthy economic growth on the back of its strong and highly liquid balance
sheet as well as its large branch network. We believe this gives the bank an advantage
in growing its loan portfolio given its access to low-cost funding as seen in its high
CASA ratio of 69.1% as of end-December 2019. Furthermore, the bank is operationally
efficient as it has the lowest cost to income ratio among its peers as it is quite prudent in
expanding its branch network.

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 03 FEB 2020

Other News:

Research Analysts SMC, HLCM: PCC flags possible monopoly with SMC-HLCM deal
John Martin Luciano, CFA
Frances Rolfa Nicolas The Philippine Competition Commission (PCC) has flagged competition concerns in SMC’
Justin Richmond Cheng s proposed acquisition of HLCM citing monopoly, increased market power, and potential
Adrian Alexander Yu
collusion arising from the merger. The PCC also said that the acquisition will result in a
Kerwin Malcolm Chan
substantial lessening of competition in the market for cement in four key areas in the
country namely, Northwest Luzon, Greater Metro Manila, Central Luzon, and Northeast
Luzon. Note that the PCC included Northern Cement and EAGLE as part of SMC’s group
due to interlocking officers and directors among the companies. Moreover, the PCC
rejected the voluntary commitments presented by both SMC and HLCM as it did not
clearly and sufficiently addressed the elimination of competition in the identified relevant
markets. (source: PCC)

Economy: January inflation likely 2.5% to 3.3%

According to BSP, January 2020 inflation may have settled at the range of 2.5% to 3.3%,
mainly driven by rising food and liquefied petroleum gas prices and a higher tax on
tobacco products. The central bank also mentioned that inflation could have been
moderated by lower electricity rates in Metro Manila and rollbacks in fuel prices. Inflation
in January and December 2019 was at 4.4% and 2.5%, respectively. The PSA is set to
release January inflation results on February 5. (Source: BusinessWorld)

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 03 FEB 2020

Calendar of events

JANUARY 2020
SUN MON TUE WED THU FRI SAT

1 1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 17 18 19
19 20 21 22 23 24 25
26 27 28 29 30 31

KEY EVENTS HOLIDAY

JAN 1 JAN 21
HOLIDAY: NEW YEAR CAT: ANNUAL SHAREHOLDERS MEETING

JAN 2 JAN 25
EMP: EX-DATE PHP0.05 CASH DIVIDEND HOLIDAY: CHINESE NEW YEAR

JAN 7 JAN 29
APL: ANNUAL SHAREHOLDERS MEETING TFC: ANNUAL SHAREHOLDERS MEETING

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 03 FEB 2020

I M P O R TA N T R AT ING 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.

I M P O R TA N T DISC L AIM ER
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.

CO L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
[email protected]

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
[email protected] [email protected] [email protected]

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
[email protected] [email protected] [email protected]

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
[email protected] [email protected]

C OL F INANC IAL G R O UP, IN C.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 8