PSEi seen rising by 13.6%

Investment group CLSA Asia-Pacific Markets sees the main-share Philippine Stock Exchange index surging by about 13.6 percent to end at 4,900 next year.

This was based on expectations that corporate earnings will be aided by resilient domestic consumption, increased government spending and monetary easing.

In a research dated Dec. 9 titled “Looking Good in 2012,” which was written by head of research Alfred Dy, CLSA added Robinsons Land Corp. to its list of favored stocks. Other companies in its “conviction picks” are SM Investments, Ayala Corp., Metro Pacific, Cebu Pacific, and Philippine National Bank.

“In spite of a tough global macro backdrop which is expected to continue in 2012, we remain positive on the Philippines. For one, the Philippines is one of the few countries around which has a relatively low export-to-GDP (gross domestic product) ratio of 25 percent, suggesting that the fortunes of the economy is not really that linked to what is happening in Europe and the United States,” Dy said.

Dy said domestic consumption should continue to do well given favorable demographics and $3.245 billion in recurring cash inflows from overseas Filipino remittance, business process outsourcing and tourism.

The government, which has been widely criticized for the fiscal contraction in 2011, should have a better year next year in terms of infrastructure spending, privatization and monetary easing, he said.

“Sectors to watch out for are consumer, banking, infrastructure, construction, and gaming,” Dy said.

More PPP projects

Dy expects a couple of public-private partnership contracts to be awarded. Aside from the P2-billion Daang Hari-South Luzon Expressway, he expects the awarding of the P17-billion Connector Road (between North and South Luzon Expressway and the Department of Education’s project involving the construction of 10,000 classrooms in regions I, III and IV-A.

“Like the power privatization program in recent years, a couple of awarded contracts could snowball to more contracts in the coming years,” he said.

Dy said there would likewise be a couple of property deals given renewed corporate interest in assets like the Food Terminal Inc., Cebu Airport and parcels of land in Fort Bonifacio. “Of course, increased government spending and successful PPP launch should be positive for the construction sector,” he said.

Stock picks

RLC was added to CLSA’s “conviction picks” given its significant presence in shopping malls, hotels, office, and residential development.

“Among the property companies in our coverage, RLC has the biggest recurring revenue base at 72 percent followed by Filinvest Land at far second at 26 percent. In terms of earnings, RLC also has the biggest recurring earnings base at 80 percent which is followed by Ayala Land at 35 percent,” Dy said.

The key drivers seen for RLC’s earnings in 2012 were office rentals and hotels which were expected to grow in the mid-teens followed by residential development expected to grow by 10 percent.

Upbeat on RLC

“Given its presence in the shopping mall and hotel industry, RLC is also one of the best ways to play the country’s emerging tourism sector where tourist arrivals are expected to double from 3.5 million tourist in 2010 to 7 million tourists by 2017,” noting that the property company’s stock valuation was likewise very “compelling.”

On the banking side, CLSA expects the sector to remain “buoyant” but sees loan growth moderating at 12-14 percent compared with the growth over 20 percent in 2011.  “Unlike in 2011 where we saw net interest margins (NIMs) contracting by 50bps, we expect NIMs to stabilize in 2012,” Dy said.

Apart from the Philippine National Bank-Allied Bank merger finally happening by the second half of 2012, CLSA believes that Bank of the Philippine Islands (BPI) is the best positioned among the big three banks in the Philippines to do a major acquisition given its relatively high tier one and capital adequacy ratios. CLSA also noted that Banco De Oro had intimated that it was open to do “bite-size” acquisitions that could add 50 to 100 branches to its existing 750 branch network.

Outside of the banking and property sectors, we expect some M&A (merger and acquisition) action in the ports and mining sectors. For ports, we understand that ICTSI continues to be on the prowl for new ports in the Mediterranean and Africa. In mining, we understand that Philex is open to do some acquisitions,” Dy said.