PH energy, infra seen winning big in China swivel

Certain publicly listed companies could be natural buy-in targets in President Duterte’s planned pivot to China, which is seen to lure investments in energy, mining and transportation infrastructure, local stock brokerage Papa Securities said.

In a commentary entitled “Crouching Tiger, Spending Dragon” dated Oct. 4, Papa Securities said that based on historical trends of China’s investment strategy in other countries in the region, the Chinese would likely invest in energy companies, especially coal which remains the cheapest energy resource.

“Because the Philippines is not under threat from a lack of energy supply and is in fact projected to experience the opposite in a few years, there might be no need for capital for expansion. We think that if the Chinese wanted a strategic stake in the Philippine energy sector, it would be in the form of buy-ins into those with already existing plants or those with upcoming pipelines looking for additional funding,” the brokerage said.

Papa Securities said investments into mining could also be considered. The Philippine government is also seen to request funding for infrastructure projects, which the brokerage said was also in line with China’s objectives.

“Which specific companies would see partnerships or direct investments from China is in the realm of speculation at this point. Having said that, we feel that some companies’ ties with Chinese firms might make them natural targets,” Papa Securities said.

“This is by no means an exhaustive list, but a quick survey of the team produced interesting names—Ayala Corp. (AC) has previously partnered with the Power Construction Corp. of China for construction contracts. AP (Aboitiz Power), when compared to other energy firms, is also open to joint ventures,” the brokerage said.

Papa Securities also noted Philex Petroleum (PXP) had untapped resources in the Scarborough Shoal, which “could serve as a symbolic olive branch between governments if allowed to extract alongside Chinese oil firms.”

In mining, the brokerage cited those with existing joint ventures or are large suppliers of China, led by nickel companies such as Nickel Asia (NIKL) and Global Ferronickel Holdings (FNI).

“We think the focus should be on the sectors affected rather than on specific companies. Overall, the important takeaway from this is to not get caught off-guard and to quickly act should the wind change direction to the west,” the brokerage said.

Elsewhere in the region, the brokerage noted how China had poured in big investments into energy, transportation infrastructure and mining.