Dec 2014: COLing The Shot Stock Picks

Dec2014_COLingTheShots

In summary, the performance of the stock market last month reminds us that “you can’t be too bearish when there is so much liquidity.” As we approach 2015, it looks like liquidity will continue to be a major factor affecting the performance of the stock markets globally. Maintain positive! – Edward Lee, COL Chairman

Positives:

  • Competition in the retail industry is showing signs of easing as evidenced by the improving same store sales growth and margins of PGOLD and SM Retail. This could pave the way for the improvement in the performance of the share of price of PGOLD and COSCO which fell significantly earlier during the year.
  • Lopez owned power companies EDC, FGEN and FPH continued to outperform expectations due to the better than expected performance of most of their power plants and lower than expected operating expenses. This in turn could have a favorable impact on the share price performance of the three issues.
  • DNL disclosed 9M14 earnings that beat our expectations. The major reason for the company’s better than expected performance was the strong result of its newly consolidated subsidiary Chemrez which reported a 65% jump in 9M14 profits. Consequently, we increased our FV estimate on the stock to Php16.00/sh and advise investors to buy DNL on pullbacks below Php13.90/sh.

Negatives:

  • Several companies owned by the Andrew Tan group namely RWM, EMP and AGI reported below expected earnings results. The said companies were hurt by competition in the industries where they belong.
  • MBT delivered weaker than expected non-interest income, prompting us to reduce our FV estimate on the stock to Php106.00/sh. Nevertheless, we maintain our BUY rating on MBT due to valuation. At its current price of Php83.50/sh, the stock is trading at only 1.4X 2015E P/BV, below the 1.6X average 2015E P/BV of banks in our coverage list. Moreover, while MBT’s noninterest income week, its core lending business remained strong. Its dominant position as one of the big three banks in the country also gives it an advantage in capitalizing opportunities in the industry.
  • EEI continued to deliver below expected earnings results. However, we are maintaining the stock in our “COLing the Shots” stock picks as the company’s backlog continued to grow, implying that earnings should eventually pick up.
  • TEL delivered disappointing results due to competition and higher expenses. Management also cut its earnings guidance for 2014 by 6.3% as it remains concerned about competition (both from other telcos and substitutes to its SMS service).
  • Cebu Pacific reported 3Q14 net loss of Php1.1 Bil, worse than the Php750 Mil loss registered in 3Q13. However, we are maintaining our positive view on the stock. Note that the 3Q14 loss was largely due to the fact that the third quarter is a seasonally weak period. Moreover, bulk of the loss was due to the booking of Php911 Mil worth of forex losses which was a result of the quarter on quarter depreciation of the peso. CEB’s operating statistics remained strong (market share up 7.5%, average yield up 13.5%) while oil prices continue to drop and should have a favorable impact on 4Q14 profits.

Source: CitiSec COLing the Shot Monthly Publication, 12.01.2014 Issue

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