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2019, the median drop in the FV estimates of stocks in our coverage list reached 6.3%. Our end
Dow Jones 26,062.12 -92.55 -0.35 5.43
2019 PSEi target is 8,100. This is 9.3% higher than the PSEi’s current level of 7,413.56. S&P 500 2,888.80 -16.18 -0.56 8.05
Nasdaq 7,895.79 -114.25 -1.43 14.38
Economy: July cash remittances grow 5.2%; slightly higher than consensus URC Universal Robina Corp 145.30 2.83
JFC Jollibee Foods Corp 275.00 2.23
AC: AC expects Entrego to boost logistics business
RRHI Robinsons Retail Hldgs Inc 80.50 2.16
SMPH SM Prime Hldgs Inc 37.00 1.65
ALI Ayala Land Inc 41.60 1.46
Market Summary:
INDEX LOSERS
The PSEi ended flat on Monday, gaining only 0.41 points or 0.01% to close at 7,413.56. Ticker Company Price %
SECB Security Bank Corp 176.00 -3.30
Index gainers led decliners 16 to 13, while 1 issue remained unchanged. Meanwhile, sectors MEG Megaworld Corp 4.26 -2.74
AEV Aboitiz Equity Ventures Inc 47.00 -2.69
ended mixed, with Mining & Oil (-1.65%) leading the decliners and Industrial (+1.12%) leading
AGI Alliance Global Group Inc 12.44 -2.05
the gainers. Significant index gainers were URC (+2.83%), JFC (+2.23%), RRHI (+2.16%), SMPH RLC Robinsons Land Corp 20.50 -1.91
(+1.65%), and ALI (+1.46%). On the other hand, significant index decliners were SECB (-3.30%),
MEG (-2.74%), and AEV (-2.69%).
TOP 5 MOST ACTIVE STOCKS
Ticker Company Turnover
Value turnover decreased to Php3.9Bil from Php6.0Bil in the previous session. Meanwhile, BDO BDO Unibank Inc 228,677,800
foreigners continued to be net sellers, disposing Php251Mil worth of shares SMPH SM Prime Hldgs Inc 202,759,800
AC Ayala Corporation 196,285,900
GLO Globe Telecom Inc 171,719,000
ALI Ayala Land Inc 165,992,800
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DAILY NOTES I PHILIPPINE EQUITY RESEARCH
Stocks in Focus:
The Philippine 10-year bond rate is on the rise as can be observed from Exhibit 1. Rates are
increasing due to:
Rising inflation. For the month of August, Philippine inflation hit 6.4%, exceeding consensus
forecast of 5.9%. This brought inflation for the first eight months of the year to 4.8%.
The significant increase in inflation was brought about by several factors including the
implementation of the tax reform program, higher oil prices, higher rice and food prices, the
weak peso and second round effects.
Higher budget deficit. The government’s budget deficit is expected to increase to 3.0% of
GDP this year and 3.2% of GDP next year due to the Build Build Build program which seeks to
increase spending on infrastructure from 5.4% of GDP in 2017 to 7.4% of GDP by 2022. The
higher debt requirement of the government is expected to push up interest rates.
Rising Fed fund rates. Fed fund rates are expected to increase by a total of 100 basis points
this year and 75 basis points next year in response to strong economic growth in the U.S. and
as the Fed brings rates back to normal levels.
Contagion from other emerging markets. Due to the rising yields in the U.S. brought about
by the higher Fed fund rates, funds are shifting out of emerging markets like the Philippines to
the U.S. causing emerging market currencies to weaken and bond rates to climb.
Since factors pushing up rates are expected to remain in place, interest rates will most likely
stay elevated.
Source: Bloomberg
Adjusting FV estimates. Nevertheless, the negative impact of our higher risk-free rate
assumption was partly offset by the rollover of our estimates to 2019. For 2019, we forecast the
PSEI’s EPS to grow by 11%. After factoring in the increase in interest rates and the rollover to
2019, the median drop in the FV estimates of stocks in our coverage list reached 5.7%.
Our end 2019 PSEi target is 8,100. This is 9.3% higher than the PSEi’s current level of 7,413.56.
Due to the reduction in our FV estimates resulting from the higher risk-free rate assumption,
partly offset by the rollover to 2019, we downgraded our recommendations on DNL, PGOLD,
SMPH and GLO from BUY to HOLD. Meanwhile, we are downgrading our recommendation on
URC and RWM from HOLD to SELL due to valuations. We are maintaining our recommendation
on the rest of the stocks in our coverage list, although capital appreciation potential has
decreased.
Other News:
RESEARCH ANALYSTS Economy: July cash remittances grow 5.2%; slightly higher than
ANDY DELA CRUZ consensus
JOHN MARTIN LUCIANO
FRANCES ROLFA NICOLAS Cash remittances from Overseas Filipinos reached US$2.4Bil in July, up 5.2% y/y. This is slightly
JUSTIN RICHMOND CHENG higher than consensus forecast of 5.1%. Remittances from land-based workers grew by 4.5% y/y
ADRIAN ALEXANDER YU
to US$1.9Bil, while remittances from sea-based workers expanded by 7.8% y/y to US$511Mil.
Meanwhile, the primary contributors to the growth by country were the United States, Canada,
United Kingdom, and Germany. On a year-to-date basis, cash remittances climbed 3.0% y/y to
US$16.6Bil.
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.