Stocks in Focus FRI 28 JUNE 2019

FGEN: Raising FV estimate on the removal

of holding discount on EDC stake
Removing holding company discount on EDC stake. We are removing our holding
(AS OF JUNE 27, 2019)
company discount on FGEN’s stake in EDC. This was mainly due to EDC’s de-listing from
INDICES
the Philippine Stock Exchange in November 2018. With the de-listing, investors (particularly
Close Points % YTD%
investors in pure renewable energy companies) that want to invest in EDC may only PSEi 8,057.64 44.07 0.55 7.92
do so through owning FGEN. Furthermore, risks associated with the operational issues All Shares 4,924.31 26.80 0.55 9.00
surrounding EDC’s geothermal plants have also abated. Financials 1,738.57 -0.31 -0.02 -2.32
Holding Firms 7,725.34 92.83 1.22 5.22
Industrial 11,873.82 33.71 0.28 8.42
Raising FV estimate, maintaining BUY rating for FGEN. After removing our holding Mining & Oil 7,527.47 -55.11 -0.73 -8.21
company discount (20%) on FGEN’s stake in EDC, our FV estimate in FGEN increased by Property 4,302.79 0.04 0.00 18.60
Services 1,717.06 9.21 0.54 19.02
13.3% to Php30.20/sh. We are maintaining our BUY rating on FGEN. FGEN’s share price
has increased by 32.4% since the beginning of this year, outperforming the PSEi’s 7.61% Dow Jones 26,526.58 -10.24 -0.04 13.71
increase. We believe that the sentiment on the stock will remain positive in the near S&P 500 2,924.92 11.14 0.38 16.68
term, given EDC’s recent delisting, and FGEN’s relative stable cash flow (89% of capacity Nasdaq 7,967.76 57.79 0.73 20.08

contracted) in light of oversupply concerns in the power industry. Based on FGEN’s market
price of Php26.10/sh, upside to our FV estimate is significant at 15.7%. INDEX GAINERS
Ticker Company Price %
Top Stories FGEN First Gen Corporation 27.05 3.64
SM SM Investments Corp 975.00 2.63
GTCAP GT Capital Hldgs Inc 940.00 2.17
BDO, SM: SM agrees to purchase ~US$100Mil worth of BDO from Khazanah ICT Int'l Container Term 146.90 1.73
Property Sector: President Duterte signs PEZA moratorium in MM MEG Megaworld Corporation 6.10 1.67
Economy: US and China set temporary truce before the G20 summit
INDEX LOSERS
Other Stories Ticker Company Price %
RRHI Robinsons Retail Hldgs Inc 73.70 -2.83
CHP: CHP still hopes to increase capital ALI Ayala Land Inc 50.60 -0.78
PGOLD Puregold Price Club Inc 44.35 -0.67
PIP: PIP sees better sales volume this 2019
AP Aboitiz Power Corp 35.00 -0.57
MPI Metro Pacific Inv Corp 4.81 -0.41
Market Summary
TOP 5 MOST ACTIVE STOCKS
The local equities market advanced, tracking regional markets, as investors awaited for the
Ticker Company Turnover
meeting between US President Donald Trump and Chinese President Xi Jinping. SMPH SM Prime Hldgs Inc 771,548,300
ALI Ayala Land Inc 543,646,100
The PSEi gained 44.07 points or 0.55% to close at 8,057.64. The top movers were SM AC Ayala Corporation 377,950,300
BDO BDO Unibank Inc 316,518,600
(+2.63%), ICT (+1.73%), GTCAP (+2.17%), MER (+1.57%), TEL (+1.16%). On the other hand,
FGEN First Gen Corporation 290,367,800
these were partially offset by decliners such as ALI (-0.78%), RRHI (-2.83%), URC (-0.29%),
JFC (-0.35%), and BPI (-0.25%).

Value turnover increased to Php8.4Bil from Php8.1Bil in the previous session. Meanwhile,
foreigners continued to be net sellers, liquidating Php139Mil worth of shares.

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.
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FRI 28 JUNE 2019

Stocks in Focus

George Ching
Senior Research Manager
FGEN: Raising FV estimate on the removal of
holding discount on EDC stake
First Gen Corporation
BUY Removing holding company discount on EDC stake. We are removing our holding
PHP30.20 company discount on FGEN’s stake in EDC. This was mainly due to EDC’s de-listing
from the Philippine Stock Exchange in November 2018. With the de-listing, investors
(particularly investors in pure renewable energy companies) that want to invest in EDC
may only do so through owning FGEN. Furthermore, risks associated with the operational
issues surrounding EDC’s geothermal plants have also abated. In July 2017, more than
50% of EDC’s geothermal plants went on outage due to an earthquake. In December
2017, 20% of EDC’s geothermal capacity also went on outage due to Typhoon Urduja.
As a result, EDC’s core earnings declined from Php9.5Bil in 2016 to Php8.8Bil in 2017 and
Php9.2Bil in 2018. However, the operational issues surrounding EDC’s geothermal plants
have been resolved and EDC’s earnings are expected to improve this year.

Raising FV estimate, maintaining BUY rating for FGEN. After removing our holding
company discount (20%) on FGEN’s stake in EDC, our FV estimate in FGEN increased
by 13.3% to Php30.20/sh. We are maintaining our BUY rating on FGEN. FGEN’s share
price has increased by 32.4% since the beginning of this year, outperforming the PSEi’s
7.61% increase. We believe that the sentiment on the stock will remain positive in the
near term, given EDC’s recent delisting, and FGEN’s relative stable cash flow (89% of
capacity contracted) in light of oversupply concerns in the power industry. Based on
FGEN’s market price of Php26.10/sh, upside to our FV estimate is significant at 15.7%.

Raising FV estimate, maintaining BUY rating for FPH. As a result of the increase in our FV
estimate for FGEN, we are raising our FV estimate on FPH by 9.3% to Php134.7/ sh. We are
maintaining our BUY rating on FPH. Given FGEN’s improved earnings outlook and FPH’s
64.4% ownership in FGEN, we view FPH as a cheaper way to own FGEN. FPH is trading at
a huge 48% discount to its market based NAV of Php156/sh. Based on FPH’s market price
of Php81.60/sh, upside to our FV estimate is significant at 65.1%.

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Top stories:

Charles William Ang, CFA BDO, SM: SM agrees to purchase ~US$100Mil

Deputy Head of Research
worth of BDO from Khazanah
John Martin Luciano
Senior Research Analyst SM agrees to purchase ~US$100Mil worth of BDO from Khazanah. Khazanah
Nasional Bhd. is offering 83Mil shares of BDO at Php136.80/sh pesos in private placement.
BDO Unibank, Inc. Meanwhile, SM has agreed to purchase ~US$100Mil worth of BDO shares. The transaction
HOLD price represents a 4% discount to BDO’s previous close. Meanwhile, we estimate that this
PHP130.00 transaction will increase SM’s stake on BDO from ~45% to ~46%. On the other hand,
Khazanah will not hold any BDO shares after the sale.

Maintain HOLD. We maintain our HOLD rating on BDO with a FV estimate of Php130.00/
sh based on 1.60X 2019E P/BV. We believe that the transaction will have limited impact on
BDO’s share price given that the shares sold are secondary shares and that the discount is
relatively small. While overnight placements at a discount are usually viewed negatively in
the short term, SM absorbing about half of the shares should cushion the impact.

Richard Lañeda, CFA Property Sector: PEZA moratorium to have limited

Senior Research Manager
impact on developers
Ayala Land, Inc.
BUY President Duterte signs PEZA moratorium in MM. Malacañang has imposed a
PHP49.33 moratorium of new ecozone in Metro Manila, leaving room only for project proposals
that are already pending the President’s approval. Administrative Order No. 16, signed
Filinvest Land Inc.
BUY on June 17, took effect on June 22, 2019. According to the Philippine Economic Zone
PHP2.41 Authority of PEZA, it has approved and endorsed 22 Metro Manila-based proposal to
Malacañang and so these will be considered for accreditation. However, there are 131
Megaworld Corporation
ecozone development proposals that were not endorsed to Malacañang.
BUY
PHP7.20
Negative to BPO sector growth. The moratorium on PEZA accreditation for Metro Manila
Robinsons Land Corporation projects will be a hindrance to the future growth of the BPO sector. This will effectively
BUY
diminish future supply of office spaces for BPO operators. We note that although we
PHP26.80
are seeing more BPO operators setting up shop outside Metro Manila, the capital is still
SM Prime Holdings, Inc. the preferred location for their main headquarters. Thus, this may be detrimental to new
HOLD companies looking to put up offices in the Philippines. According to Leechiu Property
PHP40.70
Consultants (LPC), there are 1.1Mil sqm of PEZA-accredited space to be completed
Vista Land & Lifescapes between 2019 and 2023 in Metro Manila, 1.54 Mil sqm are still under application for
HOLD PEZA, while 608,000 sqm are non PEZA space. So around 34% of new office supply for
PHP6.67

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2019-2023 are already PEZA accredited while 47% are under application. With an annual
demand of around 400,000sqm, the current supply of PEZA accredited (not assuming
more accreditation) supply will be good for less than three years.

Offshore gaming, traditional businesses could take non-PEZA space. We believe the
impact of the moratorium to listed developers will not be as negative as it would have
been a few years ago. The demand for office space in Metro Manila is no longer purely
BPO. Based on LPC data, the demand from offshore gaming operators or POGO and
traditional offices (including shared workspace operators) has been growing in the past
two years. POGO accounted for 30%, 24% and 37% of demand in 2017, 2018, and 1H19
while non-BPO non-POGO offices accounted for 24%, 40% and 31% of demand for 2017,
2018, and 1H19.

Impact to property developers will be limited Impact. Impact to listed property

developers under our coverage would be minimal as their expansion is focused outside
Metro Manila and their Metro Manila developments are already PEZA-accredited,
meaning future buildings in the PEZA-accredited townships are already covered.

For Megaworld, their only township that is not PEZA-accredited is Arcovia in Pasig.
However, the company has been identified as a location for POGOs. In fact, the first
building scheduled for completion in 2019 is already 100% leased out to POGO.
Megaworld has a lot of office projects outside Metro Manila (Cebu, Iloilo, Pampanga,
Bacolod) ready to capitalize on the push for rural development

For RLC, around 81% of their future buildings in Metro Manila are already PEZA accredited.
We believe the remaining 19% could easily be taken up by POGO or traditional offices.

For FLI, all pending buildings inside Metro Manila has pending PEZA applications thus
falling under transitory provision while Alabang projects are already PEZA accredited.
A big part of FLI’s expansion will come from Clark and Cebu which are also already
PEZAaccredited, putting them in position to capitalize on the government’s push for
rural development. For ALI, the impact would also be minimal as the buildings with
pending approvals are already in Malacañang, fulling under transitory provision. All
else in their pipeline are headquarter-types and Cebu-based. Should demand shift to ex
Metro Manila, ALI is positioned to take advantage given its nearby estates eg Vermosa,
Nuvali, Evo City in Cavite, Altarazza in Bulacan and Alviera in Pampanga. In Cebu, ALI has
CBP, Cebu IT Park and Gatewalk Central and a few others in Visayas and Mindanao.

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Justin Richmond Cheng Economy: US and China set temporary truce before
Research Analyst
the G20 summit
The US and China have tentatively agreed on a truce in the ongoing trade war in order
to focus on talks in the G20 summit aimed at resolving disputes. With this agreement,
Trump has decided to delay an additional round of tariffs expected to be slapped on
US$300Bil worth of Chinese imports. Recall that since the trade war was initiated almost
a year ago, President Trump has already imposed 25% tariffs on US$250Bil worth of
Chinese goods. Some sources of South China Morning Post said that Trump’s decision
to delay the upcoming tariffs was in exchange for a sit-down with Xi Jin Ping in Osaka
during the summit. (source: South China Morning Post)

Other Stories

Research Analysts CHP: CHP still hopes to increase capital

Andy Dela Cruz
John Martin Luciano In a disclosure to the PSE, CHP said that it still hopes to increase its capital to fully fund
Frances Rolfa Nicolas the ongoing Solid Cement plant expansion, improve its capital structure, and provide
Justin Richmond Cheng
balance sheet flexibility. Recall that the company failed to secure the approval of majority
Adrian Alexander Yu
(2/3) of its shareholders to increase authorized capital stock in its last meeting. The
company noted that it continues to undertake activities with the objective of completing
the capital increase in 2019. CHP’s board of directors is expected to disclose certain
details of the transaction in 3Q19. (source: CHP)

PIP: PIP sees better sales volume this 2019

PIP is expecting to deliver better sales volume this 2019 as the market becomes more
comfortable with the higher prices of sweetened beverages due to TRAIN law. Note
that PIP saw its volumes drop by as much as 20% due to the excise taxes on sweetened
beverages. According to management, it took other countries like Mexico over five years
to recover from the effect of sugar taxes. However, despite feeling the impact just last
year, PIP is already starting to see promising numbers. As such, management says they
are looking at a much faster recovery period compared to others. (source: PIP)

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Change in shareholdings:

Acquired or Price per

Stock Volume Person (Designation)
Disposed share
5,000 140.00 Jaime C. Yu
BDO D
10,000 141.14 (Senior Executive Vice President)
53,850 140.00
70,000 141.14 Edmundo S. Soriano
BDO D
8 141.30 (Executive Vice President)
19,250 142.32
3,000 142.10
3,000 142.20
Roy Allan V. Magturo
BDO 3,000 D 142.50
(Senior Vice President)
3,000 142.80
3,000 143.00
Robert W. Sy
BDO 10,000 D 143.00
(Senior Vice President)
1,000 143.00
Edna R. Tarroza
BDO 1,000 D 143.20
(Senior Vice President)
1,000 143.30
300,000 4.80 Artemio V. Panganiban
MPI D
100,000 4.81 (Independent Director)
Jonathan T. Gotianun
EW 11,300 A 11.48
(Chairman)
15,000 18.64 Juan G. Barredo
COL 19,300 D 18.68 (VP - Head of Sales and Customer Support Services /
400 18.72 Assistant Corporate Secretary)
100 18.50 Edward K. Lee
COL A
8,000 18.60 (Chairman of the Board)
Source: PSE

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IMPORTANT RATING 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.

IMPORTANT DISCLAIMER
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.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

ANDY DELA CRUZ JOHN MARTIN LUCIANO FRANCES ROLFA NICOLAS

SENIOR RESEARCH ANALYST SENIOR RESEARCH ANALYST RESEARCH ANALYST
andy.delacruz@colfinancial.com john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com

JUSTIN RICHMOND CHENG ADRIAN ALEXANDER YU

RESEARCH ANALYST RESEARCH ANALYST
justin.cheng@colfinancial.com adrian.yu@colfinancial.com

COL FINANCIAL GROUP, INC.

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