Philippines Stock Market Strategy Q1 2015: Mixed earnings results

The earnings performance of listed companies in FY14 ended mixed. Out of the 51 covered companies that have released earnings so far, 16 or 31.4% reported higher than expected profits, 18 or 35.3% reported below expected profits, while 17 or 33.3% reported profits that were in line with expectations. This improved from the previous period where 43.6% of companies missed estimates. Most of the companies that delivered better than expected earnings benefited from lower than expected interest expense. Meanwhile, there were no industry specific drivers that led to the below expected performance of companies.

  • Banking Sector: Core lending business remains strong
    Banks mostly reported stronger earnings for 4Q14. Among the 9 banks that we monitor, 8 banks posted growth rates of over 30% year-on-year. This was primarily driven by an average net interest income growth of 13% during the quarter. Meanwhile, SECB posted lower profits for the quarter on the back of a 30% jump in operating expenses. According to the bank, the large expense came as a result of its investment in people, branches, rebranding and retail bank transformation. For 2014, profits ended largely flat versus 2013, as the higher lending numbers were mostly offset by the largely anticipated drop in trading income.

Compared to our estimates, 3 (CHIB, PNB, UBP) posted higher than expected earnings; 3 (BDO, BPI, MBT) reported in line results; and 2 (EW, SECB) delivered below expected profits. CHIB and UBP outperformed on non-core revenues (miscellaneous income and trading gains) while PNB exceeded our estimates on lower-than-expected expenses. On the other hand, EW and SECB underperformed on higher provisioning and operating expenses respectively

  • Property Sector: Underlying demand remains upbeat Results were mixed for the property sector, with a number of companies reported weaker than expected results.

ALI and FLI both reported better than expected earnings while SMPH’s earnings were in line with expectations. On the other hand, MEG, VLL, and RLC reported disappointing earnings due to different reason. MEG’s underperformance was due to a spike in its operating expenses. VLL’s revenue recognition was slower than expected due to increasing contribution of high-rise buildings in its sales. Lastly, RLC’s underperformance was due to some foregone revenues as a result of changes in its tenant mix.

  • Power Sector: Mixed results Power companies delivered mixed FY14 results.

FGEN delivered better than expected results,  EDC, MER and SCC delivered in line results, while AP delivered below expected operating profits. However, there were no industry specific factors that could explain the performance of the different power companies.

  • Consumer Sector: Earnings up strongly on higher revenues.

Apart from CIC, all other consumer companies which we follow reported higher net income in 4Q14. Earnings growth averaged 12.5% in 4Q14 and 14.2% for 2014. Earnings results were mixed for the consumer sector in 2014. Out of the 11 companies that we follow, two outperformed expectations, five were in line, and four underperformed. PGOLD and RRHI outperformed due to higher-than expected margins. URC’s net income was in line with expectations despite operating income beating estimates due to higher finance costs and net losses from newly-formed joint ventures. JFC, CNPF, SSI and PIP also performed in line with expectations. CIC, DNL and RFM reported lower-than-expected net income largely due to the effects of port congestion. EMP underperformed because of disappointing revenues of Emperador and higher than expected tax expense.

  • Gaming Sector: Industry grows despite disappointing earnings

For 2014, combined core net profits (expect for BEL, wherein we used pre-tax figures for better comparability) of the four gaming companies increased from Php934 Mil last year to Php7.64 Bil driven by net income growth of BLOOM, RWM, and BEL. MCP’s net loss ballooned from Php2.46 Bil to Php6.30 Bil as the revenues during the one month of operations were not enough to offset huge jump in operating expenses. City of Dreams Manila opened its doors to the public in December. RWM’s income was in line with estimates while the others underperformed. BLOOM’s underperformance was largely due to a larger than expected income tax expense while BEL and MCP’s underperformance was due to the delay of the opening of City of Dreams Manila.


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