TUESDAY, JANUARY 8, 2013

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2013 Outlook

PSEi posts stellar growth on back of surging domestic economy

Equities to extend gains... stay long.

Select conglomerates and stocks with exposure to infrastructure, property and power will be top plays for 2013; gaming and media stocks to be active in 1H13. PSEi maximum target price at 7,400 for a 25% upside.
PSEi poised for more gains after record-setting 2012. After a spectacular performance in 2012, where the main index jumped a solid 33% gain, the market is set to see further gains in 2013 due mainly to sustained economic growth backed by strong government spending, a robust domestic consumer sector, increasing inow of foreign investments and remittances, improving standing within the global economic community with an expected rating upgrade to investment level, and stable political environment. Public and private infrastructure spending to lead growth. With the National Government increasing total infrastructure budget by almost 20% year-onyear to more than PhP400 billion, companies with exposure to infrastructure and construction (such as DMC, MPI, AC, SMC, EEI, LRI, HLCM) stand to benet from the development and upgrade of roads, bridges, air and seaports until 2016 when the Aquino administration ends. Property market to remain robust as demand outstrips supply. Accelerating economic growth and the sustained inow of remittances from overseasbased Filipinos continue to fuel demand for real estate units in the sector. New ofce spaces expanded by more than 25% last year to a new high while units of residential condominium units are set to increase at its fastest rate in the next two years. In the retail sector, the opening of more shopping malls within and outside Metro Manila are expected to add roughly 650,000 square meters of area in a couple of years. Meanwhile, land values and rent prices rise steadily last year and residential vacancy rates have been at. Major property industry players ALI, SMPH, RLC, MEG, SMDC posted an average annual revenue growth of 22.2% as of end September 2012, reecting the healthy demand in the sector. Threat of power undersupply to accelerate long-term investments into sector. The looming threat of a widening power shortage across the country have already seen an increase in investments in the power sector. Under the governments Philippine Energy Plan, up to PhP3.1 trillion in investments are needed for power generation projects to add 10,500 MW of capacity by 2030, or almost double the countrys current total. Current industry players such as AP, FGEN, EDC and MER are already well positioned to benet from a long-term investment boom in the sector. Conglomerates AC, SMC and DMC are new comers entering the power industry through joint venture investments with both local or foreign companies with expertise. Gaming, media and consumer-related stocks offer medium-term potential. This years national elections are likely to lift media and broadcasting shares (ABS, ABSP, GMA, GMAP) as election advertisements boost revenues for up to

ACCORD CAPITAL EQUITIES CORP 2013 OUTLOOK

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TUESDAY, JANUARY 8, 2013

2013 Industry and Market Outlook

three quarters within a nancial year, offering medium-term trading opportunities this year. Gaming stocks (AGI, BLOOM, BEL, LR, MIH) and hotel-leisure shares (BHI, GERI) could provide market excitement this year as the local gaming/casino industry opens its doors to foreign players along with the projected increase in tourist arrivals this year. The newly liberalized local gaming industry, set to grab a piece of the Asian gaming pie from Macau and Singapore, is forecast to triple in size to US$3.0bn in gross revenues by 2015 when the PAGCOR Entertainment City is fully operational. BLOOMs Solaire is the rst to open on 1Q13, followed by BELs Belle Grande by 2H13. Concurrently, the domestic hotel and leisure industry could experience faster expansion this year on the back of rising tourist arrivals. Foreign tourist arrivals is expected to grow by 22% this year to a new record of 5.5m, up from a 15% year-onyear growth last year. Hotel and leisure shares such as BHI or companies with related businesses (ALI, MEG, GERI, RLC) are also likely to gain from the tourism sectors growth. Buy and hold nancially healthy and attractively valued stocks. Property developer MEG, with its low debt level (Debt/Equity 29%), healthy margins (3 year net margin avg. 30.4%), and a PER of 11.4x, makes it a market gem for 2013, with SMDC taking second position. Among holding companies, JGS, DMC, AGI and MPI have been strongly protable in the last three years and yet still attractively priced with all four companies positioned and well to benet from high-growth industries. Power and utility stocks AP, MWC, and EDC are undervalued at current levels and are likely to provide longer-term gains. In terms of dividend yield meanwhile, telecoms TEL and GLO, although struggling with revenue growth, give good value at 4.6% and 5.9%, respectively. Market valuation surging to record levels. 2012s bull market rally has elevated its 2012 price-to-earnings ratio (PER) to 18.8x, its highest in 11 years. At current market level, PER is pegged at 17.6x this years estimated earnings, slightly ahead of its closest regional peers (Jakarta, Kuala Lumpur, Bangkok and Singapore) but signicantly higher compared to the MSCI Asia excluding Japans PER of 11.5x. Accelerating economic growth due to the countrys solid macroeconomic position could further boost corporate earnings higher this year, justifying the market and share prices premium on valuation. This and the expected recovery of most Asian economies as a result of easing concerns from the US and Europe are likely to push regional equity markets higher in the next 12 months. Philippine equities hit a PER multiple of 22x in 2002 when the economy posted its fastest growth rate after the 1998 Asian currency crisis. Set against this backdrop, local equities may again test this multiple as the domestic economy continues its strong upward momentum. Assuming a premium PER multiple of 22x, the PSEi holds a maximum target of 7,400 for 2013, a potential upside of 24.7% from current levels. Hold.

ACCORD CAPITAL EQUITIES CORP. G/F East Tower, PSE Center, Exchange Road, Ortigas Center, Pasig City 1605 Contacts: Telephone: 02 588 1919 Fax: 02 687 3738 Internet: www.philstocks.ph Email: ldeleon@accordcapital.ph, mail@accordcapital.ph

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ACCORD CAPITAL EQUITIES CORP 2013 OUTLOOK

www.philstocks.ph

TUESDAY, JANUARY 8, 2013

Stock Picks With Valuation and Financial Highlights (Price as of January 4, 2013)
Stock Sector PER (x) 11.5 12.7 12.0 14.2 16.0 17.8 11.7 14.0 17.0 19.2 16.6 P/Book (x) 1.3 1.4 1.7 3.8 2.2 1.5 3.6 2.7 4.1 4.0 3.1 Div Yield (%) 1.1 0.8 0.4 2.2 2.1 0.5 3.5 1.8 1.4 4.6 5.9 ROE 3year avg (%) 10.7 15.4 15.0 31.7 15.0 7.3 40.7 18.8 14.7 40.5 20.9 Debt-toEquity (%) 29.0 47.0 52.5 70.0 77.6 49.7 88.6 132.8 156.6 90.2 131.5

Megaworld (MEG) SM Devt Corp (SMDC) JG Summit Holdings (JGS) DMCI Holdings (DMC) Alliance Global Group (AGI) Metro Pacic Investments Corp (MPI) Aboitiz Power Corp (AP) Manila Water Co. (MWC) Energy Devt. Corp (EDC) Phil. Long Distance (TEL) Globe Telecom (GLO)

Property Property Holdings Holdings Holdings Holdings Power/Utility Power/Utility Power/Utility Telecom Telecom

PSEi Historical Price / Earnings Multiple

22 22 18.8 17.5 16 13.6 11 13.4 12.8 13.8 12.1 13.1 15.5 15.2

16.5

17.7

5.5

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E 2014F

ACCORD CAPITAL EQUITIES CORP 2013 OUTLOOK

www.philstocks.ph