Property, retail top experts’ stock picks

PHILIPPINE stocks gained sharply in the first half of 2016, and analysts noted there was still room for further growth, despite external risks and a local market already considered “expensive.”

Ample global liquidity could continue to drive up the benchmark Philippine Stock Exchange Index (PSEi),  which has gained about 12 percent in the first semester of the year to end at almost 7,800.

Analysts noted that potential gains would come despite high domestic valuations, global worries over Britain’s exit from the European Union, and the so-called “ghost month” that discourages some Chinese investors from making big bets.

“The liquidity in the market is substantial, and we’re still seeing strong foreign capital inflows,” Jose Mari Lacson, BPI Securities deputy head of research, said in an interview.

PNB Securities president Manuel Antonio Lisbona, citing the company’s research, noted the PSEi  was seen to remain bullish early on in the third quarter, which was within the first 100 days of the Duterte administration.

PNB Securities said there were indications the 6.9-percent economic growth seen in the first quarter would be sustained in the second quarter of 2016. Lisbona said that outlook—viewed through market capitalization to gross national income and subsequently, market valuations—would help “fuel the PSEi rally further.”

“This will also be supported by global equity investors as the Philippines remains a top destination for them,” Lisbona said.

Certain risks remain. Brexit woes and “execution risks” under the Duterte administration were among those, Alexander Tiu, senior equity analyst at AB Capital Securities Inc., said in an interview.

April Lee-Tan, research head at COL Financial Group Inc., expected the third quarter to be a “bit more volatile.”

“Aside from August being a historically weak period for the market, valuations are already elevated,” she said in an e-mail. She said the PSEi was trading at about 20 times earnings for the year.

“Global markets are also performing poorly due to uncertainty brought about by Brexit. Although the Philippines is fundamentally more resilient, we might be negatively affected by contagion,” Tan noted.

With these concerns and opportunities in mind, analysts shared their top stock picks that investors can still consider.

These stocks represent companies which are considered a “buy” for today. As with previous published stock picks, most of the choices tap the internal strength of the Philippine economy, which is its massive consumer market.

Published price targets are for the standard 12 month period.

LACSON: Semirara Mining and Power Corp., Metro Retail Stores Group Inc. and SM Investments Corp.

Jose Mari Lacson

Deputy head of research

BPI Securities

Stock Picks: Semirara Mining and Power Corp. (BPI Securities research team recommendation), Metro Retail Stores Group Inc. and SM Investments Corp.

SM Investments:

“We’re pushing for a premium on stability of earnings and returns. This is given concerns over the global economy.

“If you wanted a proxy for the Philippines, this is the stock we’re pushing for. For SM Investments, 70 percent of its value and earnings are dedicated to the consumer—the end (Filipino) consumer.”

Target Price: P1,105 per share.

Semirara (SCC):

“Its dividend yield is comparable to Aboitiz Power Corp. but it is 30 percent cheaper if you look at it in terms of P/E  (price to earnings ratio). Yield has increased because of concerns surrounding mining.

“The market is too bearish on the news of Gina Lopez’s appointment as Environment and Natural Resources Secretary. It failed to consider that you have to be rational about energy needs.

“Our view here is that if you try to remove coal, you face brownouts. The rational strategy for government is for you to maintain coal at its current level.”

Target price: P143 per share

Metro Retail:

“It’s a Visayas and Mindanao play and President Duterte’s regionalization strategy  bodes well for its portfolio.

“It continues to have strong same store sales.”

Target price: P4.90

TAN: Megaworld Corp., First Gen Corp. and East West Banking Corp.

April Lee-Tan

Research head

COL Financial Group Inc.

Stock Picks: Megaworld Corp., First Gen Corp. and East West Banking Corp.

Megaworld:

“One of the largest property companies in the Philippines with an attractively located landbank all over the country.

“Due to significant expansion, leasing businesses now account for 43 percent  of Ebit.

“Very conservative (debt to equity ratio) of 0.07 times.

“Attractive valuation, trading at 13.3 times 2016 estimated price to earnings ratio, 37 percent discount to NAV (net asset value).”

Target price: P5.58 per share

First Gen:

“A defensive play as 90 percent of capacity is covered by LT supply contracts, providing stability.

“Attractive valuation (16E P/E of 13.3 times, dividend yield of 2.6 percent).”

Target price: P32.57 per share.

East West Banking (EW):

“Focus on consumer lending market which is a faster growing, less competitive market, and where margins are more attractive.

“Factors that dragged profits since 2013 are no longer in play. These include substantial increase in operating expenses (brought about by its rapid branch expansion program from 2012 to 2014), rising nonperforming loans (NPL) which resulted to higher provisions, lower trading income, and one-time accounting reclassification of fees.”

“The turnaround in EPS growth was already evident during the first quarter of 2016 as EW reported a 31 percent jump in profits.”

“Attractive valuations, trading at 9.8 times 16 estimated P/E [price to earnings], 0.8 times X 16 estimated P/BV (price to book value).”

Target price: P26 per share.

TIU: BDO Unibank, Puregold Price Club Inc. and Megaworld Corp.

Alexander Tiu

Senior equity analyst

AB Capital Securities Inc.

Stock picks: BDO Unibank, Puregold Price Club Inc., and Megaworld Corp.

BDO:

“It’s the biggest private bank in the Philippines. So it’s for any investor who wants banking exposure.

“It’s able to leverage its size, it’s client base. It can easily tap its client base when it introduces a new product.

“It acquired 100 percent of Generali Pilipinas Holdings. That increases BDO’s focus on insurance, given that right now, insurance is pretty under-penetrated.”

Target price:P123 per share

Puregold:

“The Philippines is a consumption-driven economy. Puregold would benefit from the growth in the economy if we are able to sustain a 6.5-percent growth (in GDP).

“We expect its revenue growth this year at 12 to 15 percent.

“Right now, it’s also moving out and expanding outside Metro Manila and into other key cities and provinces in the Philippines.”

Target price: P51.40 per share.

Megaworld:

“It’s targeting to build more BPO hubs. This is one of the key drivers of the economy.

“With these new township projects, they are trying to replicate their success in Eastwood City. They also have a vast landbank as well in key areas like Bonifacio Global City.

“We like that they’re increasing their recurring income streams. We see that residential supply in mid-rise and high-rise is already catching  up with demand. We’ve seen some companies’ residential sales flattening in the first quarter of 2016.”

LISBONA: Megaworld Corp. and Semirara Mining and Power Corp.

Manuel Lisbona

PNB Securities Inc. president

and PNB Securities research team

Stock picks: Megaworld Corp. and Semirara Mining and Power Corp.

Megaworld (MEG):

“Currently the best prime assets play in the market, MEG’s NAV (net asset value) of P8.87 per share is double its current share price. NAV is supported by MEG’s appreciating prime properties in BGC (Bonifacio Global City) and in  other parts of Metro Manila.

“MEG is also a bargain to its market valuations signifying sizeable upside for the stock.

“MEG sets a capex of P23 billion to increase office space in BGC to 700,000 square meters by 2018. It is also developing Maple Grove, its 21st township in General Trias, Cavite, and will construct One Republic Plaza and Emperador House which will provide an additional 30,000 sqm of office space in Davao.

“Leasing income from retail and office spaces are now around half of MEG’s net income. GLA (gross leasable area) is targeted to breach the 1 million mark this year and offsets waning real estate sales.”

Semirara (SCC):

“2016 net income is seen flat with slumping coal prices and the scheduled maintenance of SCPC (wholly-owned subsidiary Southwest Luzon Power Generation Corp.) Unit 2 in the first quarter of 2016. Its resumption and rising SLPGC earnings, however, point to a stronger 2017 performance.

“SCC counters slumping coal prices with higher production from its coal mining business. SCC benefits from higher grade coal from the Molave mine expansion and its 2×350 megawatts coal-fired power plant joint venture with MGen  (Meralco Powergen) in Calaca, Batangas.

Target price: P176.30 per share

Target price: P6 per share

ROXAS: Megaworld Corp. and Semirara Mining and Power Corp.

Joey Roxas

President

Eagle Equities Inc.

Stock Picks: Philippine National Bank, East West Banking Corp. and 8990 Holdings Inc.

Philippine National Bank:

“It’s undervalued right now. It has book value of P84 and it’s now way below this. Banks should be traded around 1.5 times their book value.”

East West Banking:

“Similar to PNB, it’s undervalued. It’s also below book value.

“I think our economy is expanding, in that sense, the banking sector will do well. There’s also a lot of spending, like for infrastructure.”

8990 Holdings:

“I still see a lot of upside with limited risk. It’s stayed at constant price levels. It’s price to earnings ratio is also at single-digit levels.

“The business, quarterly figures, are improving. And there’s still a huge housing backlog.

“Management also doesn’t pay themselves high salaries—they depend on dividends. I like that type of management.”

TELAGEN: Metro Retail Stores Group Inc., Xurpas and Max’s Group Inc.

Joylin Telagen

Head of research

I.B. Gimenez Securities Inc.

Stock picks: Metro Retail Stores Group Inc., Xurpas and Max’s Group Inc.

Metro Retail (MRSGI):

“I like this because of the Duterte administration’s focus on the south and MRSGI being the No. 1 Visayas retail formal. They’re poised to capture growth in this area.

“Compared to others in the retail industry, it’s much cheaper in terms of P/E.

“The business continues to grow in recurring sales.”

Target price: P7 per share.

Xurpas:

“It’s a play on the development of internet services in the Philippines. President Duterte talked about boosting internet services—Xurpas is expected to get more participation if that happens.

“Acquisitions are not contributing to earnings so much. But we see a lot of potential for it to achieve higher growth in the coming years.”

Target price: P25 per share.

Max’s Group:

“We like its expansion. The company is planning to roll out 60 to 70 stores this year, so that will boost earnings.

“Max’s would also benefit from the Duterte administration’s plan for tax reforms. Lowering the income tax will boost consumer demand. Max’s, since it caters to the middle-class, will benefit from this.”

Target price: P40 per share.