Citi names top stock picks

Global banking giant Citigroup sees selective opportunities in the Philippine stock market and is particularly upbeat on consumer and infrastructure issues.

Citi’s top five stock picks are Energy Development Corp., Metro Pacific Investments Corp., Ayala Land Inc., Banco de Oro and Alliance Global Group Inc., according to the October 19 equities research written by a team led by Citibank Philippines head of research Minda Olonan and economist Jun Trinidad.

“We favor liquid stocks which have been relative underperformers through the recent downturn and have dominant industry positions and are leveraged on domestic consumption and infra themes,” the research said.

Citi believes that while the Philippines would not be spared from a global downturn, it could still eke out a modest economic growth of 3.7 percent this year and 3.9 percent next year.

The factors seen cushioning downside risks in the Philippines were the following: strong reserve position; stable demand on resilient overseas remittance flows and lower inflation pressure; an improving fiscal position; abundant onshore liquidity; healthy banking and corporate sector; and stable political environment.

With a much better macroeconomic picture than during the last global recession in 2008, the bank said in the research that there would be limited downside risks to its expected Philippine corporate earnings growth of 6.7 percent this year and 13.8 percent next year.

Taking into account higher risk-aversion conditions, Citi sees the Philippine Stock Exchange index trading in line with the historical mean of 14.7 times expected 2012 earnings, or at about 4,500.

On its top stock picks, Citi noted that EDC was the country’s largest geothermal producer and the only listed pure renewable energy player. It also sees potential upside from EDC’s new projects such as wind power generation and overseas ventures and cites its healthy free cash flow and manageable debt level.

MPIC was cited as a play on the infrastructure theme. Citi cited MPIC’s solid existing businesses, noting that this was the country’s largest toll-road operator, sole water distributor in west zone of Metro Manila and owner of Manila Electric Co., the country’s largest electric distribution utility.

Citi sees upside from MPIC’s potential expansion and acquisition plans as well as healthy and improving cash flows of subsidiaries.

The research said ALI was “the biggest integrated Philippine property company professional management with reputation of strong corporate governance; improving margins due to cost-cutting initiatives, improving return on equity from diversification across market segments (commercial, high-to-middle market residential market, business process outsourcing offices) and geographical expansion.

BDO was cited as the largest commercial bank with a dominant market share in the corporate and consumer-lending fields and a strong retail deposit franchise.

AGI was cited as a first mover in the country’s budding gaming industry and one of the leading property developers. Citi said it has been able to leverage on the growing synergies of its leisure and tourism-related operations while holdings in hard liquor (Emperador) and fast-food network McDonalds were a play on consumption.