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					Philippine Stock Market Outlook:
       Down but not Out?
          February 16, 2011
PSEi has fallen year-to-date

• The market has risen a cumulative 106% from 2008 – 2010.
• The Philippine Stock Exchange Index (PSEi) peaked at 4397.30
  on Nov. 4, but has since breached the major psychological
  support of 4,000 and the technical support of 3,800, losing
  14% from last year’s high and 10% ytd.
PSEi has fallen year-to-date
• The Philippines was the third worst-performing market ytd …

                             Worst Performing Index YTD

                                                                    -4.2  Istanbul
                                                                    -4.7 Colombia
                                                               -6.2        Jakarta
                                                             -6.6 Johannesburg
                                                           -7.2               Chile
                                                           -7.3           Thailand
                                                      -9.1                    Tunis
                                                     -9.3                      PSEi
                                          -11.7                           Bombay
               -21.2                                                         Egypt

         -25           -20          -15               -10            -5               0

                                          % change
PSEi has fallen year-to-date
• … Dragged down by heavy foreign selling.


                                                     Net Foreign Buying/(Selling)
                                                                 In Php mn
                                          40,000                                     30,915
    Net Foreign Buying/(Selling) Php mn




                                          30,000
                                          20,000       11,844
                                          10,000
                                               -
                                          (10,000)     2007      2008       2009     2010     YTD 2011
                                          (20,000)                         (5,371)            (12,919)
                                          (30,000)
                                          (40,000)
                                          (50,000)
                                          (60,000)              (54,241)
PSEi has fallen year-to-date


• Has the market started to reverse to a bearish trend or can it
  muster the second wind to resume its uptrend?
Outlook remains positive

• The fundamental picture supports the market’s continued
  uptrend.

   1.   Positive macroeconomic outlook generally remains intact
   2.   Risk factors mostly external.
   3.   Market correction has brought valuations to even more attractive
        levels.
   4.   Corporate earnings outlook remains bright.
Positive macroeconomic outlook
      generally remains intact
Positive economic outlook
                                               2009           2010           2011           2012
Real GDP growth (%) 1                                  1.1            7.3            5.1             6.0
Inflation (%) 2                                        3.2            3.8            4.4             3.5
BSP overnight borrowing 1                             4.03            4.0            4.5             4.5
BSP overnight lending 1                               6.03            6.0            6.5             6.5
Year-end Peso-dollar rate 1                        46.20        43.885          42.00              40.00
Average Peso-dollar rate 1                         47.64        45.110          42.94              41.00
Budget Surplus (Deficit), Phpbn 2                 (298.5)       (310.4)        (290.0)               Na
Budget Surplus (Deficit) to GDP (%)                   (3.9)          (3.6)          (3.2)          (2.6)
OFW remittances, $bn 1                                17.3           18.8           20.0            21.5
Exports, $bn 1                                        38.4           51.4           55.3            59.4
Imports, $bn 1                                        43.1           54.3           57.6            61.2
BOP Surplus (Deficit), $bn 2                           6.4           14.4           6-8              Na
Gross International Reserves, $bn 2                   44.2           62.4      68 - 70               Na
Bank Loan Growth (%) 1                                10.0           10.0           10.0            10.0
1 Source: 2011 and 2012 are RCBC Securities’ forecasts.
2 Source: 2011 and 2012 are official government forecasts.
3Since July 2009
Positive economic outlook

              GDP growth to remain strong


                             Consumption
                             Investments- PPP, power, mining,
  Expenditure side           real estate

                             Dampener: Government spending


                              Industry- mining, construction,
                              electricity, gas and water
    Supply side
                              Services- trade, financial, real
                              estate
Positive economic outlook
 Consumption spending will continue to drive the economy
                                      GDP at Constant 1985 Prices
                                  % Share of Expenditure Items to GDP
                                      FY2005    FY2006   FY2007    FY2008      FY2009   FY2010
        Personal Consumption             78%       78%      77%          78%     80%      79%
        Government Consumption            6%        7%       7%           6%      7%       7%
        Capital Formation                18%       18%      18%          18%     17%      18%
        Exports                          47%       50%      50%          47%     40%      47%
        Imports                          53%       51%      46%          45%     43%      49%
        Net exports                      -6%       -1%       4%           2%     -3%      -2%
        Statistical discrepancy           4%       -1%      -6%          -5%     -1%      -2%
        GDP                             100%      100%     100%         100%    100%     100%

                                     REAL GDP GROWTH RATE (%)
                                        by Expenditure Share
                                     FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
        Personal Consumption            4.8%     5.5%       5.9%  4.7%   4.1%  5.3%
        Government Consumption          2.3%    10.4%       6.6%  0.4%  10.9%  2.7%
        Capital Formation              -8.8%     5.7%     12.4%   2.3%  -9.9% 17.0%
        Exports                         4.8%    13.4%       5.5% -2.0% -13.4% 25.6%
        Imports                         2.4%     1.8%      -4.1%  0.8%  -1.9% 20.7%
        GDP                             5.0%     5.3%       7.1%  3.7%   1.1%  7.3%
Positive economic outlook
OFW remittances will support consumption spending.
   • Remittances have grown at a CAGR of 11.3% from 2005 – 2010.

                       Historical Annual OFW Remittances
                                                                                                  18,600

                                            18,000
                                                                                         17,348
                                            17,000
              OFW Remittances (in $US mn)




                                                                                16,427

                                            16,000

                                            15,000                     14,460

                                            14,000

                                            13,000            12,761

                                            12,000
                                                     10,885
                                            11,000

                                            10,000
                                                     2005     2006     2007     2008     2009     2010

                                                                          Year
Positive economic outlook
OFW remittances will support consumption spending.
   • Increasing deployment abroad ensures increasing remittances going
     forward.
                                              Deployed Overseas Filipino Workers
                                                                2005-2009
                                                                                                 1,422,586
                                       1,400,000                                                             16.0%
                                                                                     1,236,013
                                                                                                  15.1%      14.0%
                                       1,200,000                                      14.7%
                                                                         1,077,623




                                                                                                                     Annual Growth in Deployed OFWs
                                                             1,062,567
                                                   988,615                                                   12.0%
             Number of Deployed OFWs




                                       1,000,000
                                                                                                             10.0%
                                        800,000
                                                              7.5%                                           8.0%

                                        600,000
                                                                                                             6.0%

                                        400,000
                                                                                                             4.0%

                                        200,000                                                              2.0%

                                                                          1.4%
                                              -                                                              0.0%
                                                   2005       2006        2007        2008        2009

                                                                           Year


                                                    Deployed OFWs                 Growth in Deployed OFWs

                                           Source: Philippine Overseas Employment Administration
Positive economic outlook

• Consumption spending indicators:

   – 2010 Ayala Land same-store sales of building and land leases: +7%
   – 2010 SM Prime same-store rental growth: +10%
   – 2010 Jollibee same-store sales: +5 - 9%, from 1 – 4% in 2009
   – Meralco electricity sales +11% in 9mos2010 compared with average of
     2% in past 5 years.
   – Auto sales, January to November 2011: +28.9%
Positive economic outlook

2011 inflation expected to fall within 3 – 5% despite rising
commodity prices …

        Commodity                                Price
                               Jan 2011             Ave. 2009         % change
     Dubai crude oil                $92/barrel        $61.39/barrel    +50%
     Australian thermal   $141.94/metric tonne    $77/metric tonne     +84%
     coal
     Wheat                  $326.54/metric ton   $223.43/metric ton    +46%
     Sugar                         32 cents/lb       18.15 cents/lb    +77%
Positive economic outlook
• 2011 inflation expected to fall within 3 – 5% despite rising
  commodity prices …
                                                       Average Annual Inflation (%) and
           Dubai Crude Oil Price ($/bbl)

                                                         Price of Dubai Crude ($/bbl)
                                                                                    94.34                     10%
                                           90
                                                                                                               9%
                                           80                                                             78.078%
                                           70                            68.19                                7%




                                                                                                                    Inflation Rate (%)
                                           60                 61.5                             61.39
                                                                                                              6%
                                           50      49.35                                                      5%
                                           40                                                                 4%
                                           30                                                                 3%
                                           20                                                                 2%
                                           10                                                                 1%
                                            0                                                                 0%
                                                2005       2006      2007        2008       2009       2010

                                                         Dubai Crude oil price          Inflation Rate


                                                            Source: National Statistics Office
Positive economic outlook

… Transport fares
   •Staggered taxi fare hike
   •Planned LRT/MRT fare hike in March 2011
   •Increase in toll fees


… and electricity costs

   •Off-grid electricity users to pay higher bills starting March --
   (+Php0.949/kwh in Luzon, +Php1.195/kwh in the Visayas and
   +Php1.468/kwh in Mindanao)
Positive economic outlook

• Interest rate rise to curb inflation likely to be modest


   – Inflationary pressures are coming from the supply-side => interest rate
     hike is not an appropriate policy tool.
   – But local interest rates will have to align with rising interest rates in
     the region (China has raised its deposit and lending rates 3x since
     October to 4% and 6%, respectively.).
   – Therefore, modest increase likely – 50 to 100 basis points – not
     enough to deter consumption and investment spending
Positive economic outlook
• Peso likely to strengthen further against the dollar:

                                                       Year-end Peso-Dollar Rate

                                           60
                                                  53.067

                                           50                49.132                   47.485     46.356
                                                                                                            43.885
            Year-end Php/$ Rate (Php/S1)




                                           40
                                                                        41.401


                                           30



                                           20



                                           10



                                            0
                                                2005       2006       2007          2008       2009       2010
                                                                             Year
Positive economic outlook

 • Peso likely to strengthen further against the dollar:
    – Due to OFW remittances and rising BOP revenues which will continue
      to buoy the current account surplus.
Positive economic outlook
  BPO revenues are expected to hit $25bn by 2016.
                                                          BPO Revenues
                                                             2005-2010
                                  9,000                                                               90%
                                             86%
                                  8,000                                                               80%




                                                                                                            BPO Revenue Growth Rate (%)
          BPO Revenues ($US mn)




                                  7,000                                                               70%
                                  6,000                                                               60%
                                  5,000                         48%                                   50%
                                  4,000                                                               40%
                                                       36%
                                  3,000                                                               30%
                                                                             24%                25%
                                  2,000                                               18%             20%
                                  1,000                                                               10%
                                     0                                                                0%
                                          2005     2006      2007      2008        2009     2010

                                                                    Year

                                                 BPO Revenues              BPO Revenue growth
Positive economic outlook

• Remittances and BOP revenues will boost the current account
  surplus.


                                                     Current Account Surplus                                                           Current Account Surplus as % of GDP
                                                             ($US mn)
                                    10,000                                                                                           6.0




                                                                                               Current Account Surplus as % of GDP
                                                                                       8,788                                                                                          5.5
 Current Account Surplus ($US mn)




                                     9,000                                                                                           5.0                            4.9
                                     8,000                         7,112                                                                               4.5
                                     7,000                                                                                           4.0
                                     6,000               5,341                                                                       3.0
                                     5,000
                                                                                                                                     2.0      2.0                            2.2
                                     4,000                                     3,627

                                     3,000                                                                                           1.0
                                             1,980
                                     2,000
                                                                                                                                     0.0
                                     1,000
                                                                                                                                           2005     2006     2007         2008     2009
                                        0
                                             2005        2006       2007       2008    2009                                                                  Year
                                                                    Year
 Positive economic outlook

• Peso likely to strengthen further against the dollar.

   – BSP expected to adjust interest rates higher to keep peso stable
     relative to other currencies.
   – Foreign borrowings for 2011 targeted at $5.6bn will augment the
     capital account.
Positive economic outlook
• Peso likely to strengthen further against the dollar.
   – Surpluses in the current and capital accounts will result in a BOP
     surplus and an increase in GIR.
                                              Balance of Payments Surplus &
                                               Gross International Reserves
                                                                                                      62,371
                               60,000

                               50,000                                                     44,243
              ($US millions)




                               40,000                                          37,551
                                                                  33,757
                               30,000
                                                       22,967
                                            18,494
                               20,000
                                                                8,557
                               10,000                                                   6,421
                                          2,410      3,769
                                                                               89
                                   0
                                           2005       2006       2007          2008      2009         2010

                                                                        Year

                                        Balance of Payments Surplus            Gross Int'l Reserves
Positive economic outlook
• Private investments an emerging growth driver.
  Annual capital formation grew at an annual CAGR of 6.0% from 2005 to
  2010. Share to total GDP has risen to 18.5% in 2010 from 17.5% in 2005.

                                                             Annual Capital Formation

                                                300                                                             284         20%
            Annual Capital Formation (Php Bn)




                                                                                                                                   % change in Annual Capital Formation
                                                                             252         258                          17%
                                                                                                    243                     15%
                                                250               224
                                                      212                          13%
                                                                                                                            10%
                                                200
                                                                        6%                                                  5%
                                                150                                            2%
                                                                                                                            0%
                                                100
                                                                                                          -6%               -5%
                                                50          -9%                                                             -10%

                                                  0                                                                         -15%
                                                      2005        2006       2007     2008          2009        2010

                                                                                   Year

                                                      Annual Capital Formation (Php bn)                           %change
Positive economic outlook
• Private investments an emerging growth driver
   – PPP Projects ready for 2011

                                   Project         Project cost
                                                      (Pbn)
 Privatization of LRT 1 Operations & Maintenance             7.7
 LRT 2 East Extension                                      11.3
 Privatization of MRT 3 Operations & Maintenance             6.3
 LRT 1 South Extension Project                             70.0
 New Bohol Airport                                           7.6
 Puerto Princesa Airport Development                         7.6
 New Legaspi Airport Development                             3.2
 Privatization of Laguindingan Airport O&M                   1.5
 NAIA Expressway                                           10.6
 CALA Expressway – Cavite side section (27.5km)            11.8
 Total                                                    137.6
Positive economic outlook
• Private investments an emerging growth driver
   – Additional PPP Projects in the Pipeline beyond 2011

                        Proposed Project                   Cost (Phpbn)
    Development of City Terminal for DMIA                 To be determined
    NLEX – SLEX Link expressway                                21.00
    Supply of treated bulk water for Metro-Manila         To be determined
    Kabulnan-1 multi-purpose irrigation & power project        13.83
    Logistics support for the fishery supply chain              1.44
    Wind farm power project                                     5.41
    Northwind Pamplona project                                  3.25
    Northwind Aparri project                                    4.30
    43 other power projects                                   348.50
    28 other projects                                         263.50
    Total                                                     661.23
Positive economic outlook
• Private investments emerging as a key growth driver

   – Strong cash position and low leverage of corporates will support more
     aggressive investment spending. Average net debt-equity of
     companies in RSEC’s basket was 0.38 as of end-3Q2010.


                                 Balance sheet
                                metrics of Listed
                                  companies
Positive economic outlook
• Power investments

   – The Department of Energy’s Power Development Plan for 2009-2030
     estimates that 17Gw of new capacities will be needed over the time
     period. Of these, only 1,338MW will be provided by projects already
     committed.
                                         Committed Power Projects
   Grid               Project Name       Capacity       Target                Location                Proponent
                                          (MW)        Completion
  Luzon        2x300 Coal Fired Power      600         4th Q 2012        Mariveles, Bataan            GN Power
                       Plant
                     Subtotal Luzon        600
 Visayas        3x80 CFB Power Plant       240      Unit I- Mar 2010     Brgy. Daanlungsod,        Cebu Energy Dev’t
                  Expansion project                 Unit II- June 2010    Toledo City, Cebu       Corporation (Global
                                                    Unit III- Jan 2011                           Business Power Corp.)
                2x100MW Cebu Coal-         200      Unit I- Feb 2011         Naga, Cebu           KEPCO SPC Power
                  Fired Power Plant                 Unit 2- May 2011                              Corporation (KSPC)
               17.5MW Panay Biomass       17.5            2011            Brgy. Cabalaguan,       Green Power Panay
                   Power project                                             Mina, Iloilo             Phils., Inc.
              Nasulo Geothermal Plant      20             2011            Nasuji, Valencia,      Energy Development
                                                                          Nagros Oriental            Corporation
                2x80 CFB Power plant       160      Unit I- Sept 2010    Brgy. Ingore, La Paz,    Panay Energy Dev’t
                                                    Unit II- Dec 2010            Iloilo              Corporation
                     Subtotal Visayas      638
Mindanao        Sibulan Hydroelectric      43       Unit I- Feb 2010     Sta Cruz, Davao del      Hedcor Sibulan, Inc.
               Power (Unit I- 16.5MW,               Unit II- Apr 2010            Sur
                   Unit II- 26MW)
              Cabulig Mini-Hydro Power      8          June 2011          Plaridel, Jasaan,       Minadanao Energy
                        Plant                                             Misamis Oriental          Systems, Inc.
               Mindanao 3 Geothermal       50           July 2014        Kidapawan, North        Energy Development
                                                                             Cotabato                Corporation
                 Subtotal Mindanao         101
Total Philippines:                        1,338
Positive economic outlook
• Power investments
      Capacity expansion of listed power companies
                                 2011        2012    2013
      Aboitiz Power
        Ambuklao                             105.0
        Binga                                        30.0
        Hedcor Sibulan           14.75
        Hedcor Tamugan                               15.0
        Therma Marine            42.67
        Toledo                   143.5
      Total Aboitiz Power        200.0       105.0   45.0
      EDC
        Bacon-Manito                         37.5    112.5
        Nasulo                   20.0
      Total EDC                  20.0        37.5    112.5
      Grand Total                220.0       142.5   157.5
Positive economic outlook
• Mining investments

                                Mining sector Investments
                2010A                          2011F         2012F
             $955.85mn                        $3,417mn      $3,855mn
       Source: Mines and Geosciences Bureau
Positive economic outlook
Mining investments
         – There were 676 mining permits/contracts approved as of September
           30, 2010. However, there were only 28 operating metallic mines as of
           the same period:

                   2006    2007   2008   2009   3Q2010             Operating Mines
Copper (with        1       1      2      3       3      Padcal, Canatuan, Toledo
Au and Ag)
Copper(with         0       1      1      1       1      Rapu Rapu
Au, Ag & Zinc)
Gold (with Ag)      7       7      8      8       8      Victoria, Teresa, Paracale,
                                                         Acupan, Banahaw, Apex Maco,
                                                         Masbate, Diwalwal
Chromite            4       4      2      1       1      Dinagat
Nickel              5       11     10     10      15     Including Rio Tuba, Cagdianao
                                                         (Nickel-Asia), Sta. Cruz
                                                         (Benguet), Berong (Atlas)
Total               17      24     23     23      28
Positive economic outlook
• Real estate investments

                        Residential projects for 2011

             Ayala Land    Filinvest   Megaworld     Robinsons       SM
                             Land      Corporation     Land      Development
  No. of       20,000       14,000       11,110         n.a.       >10,000
  units
  Value         57.0         13.0         20.0          9.0        7.5-10.0
  (Php bn)
Positive economic outlook

• The financial system can support investment spending by
  companies in view of low Loans/Deposits ratio of 57% and
  modest NPL ratio of 3.4% as of end-3Q2010.
    Positive economic outlook
    • Only government spending would be the dampener on the
      demand side because of fiscal constraints:
                  – Budget deficit targeted to be narrowed to 2% of GDP by 2013, partly
                    thru the passage of the fiscal responsibility bill and improved tax
                    administration/collection
                           Budget Surplus/(Deficit)                                                                                                  Budget Surplus/(Deficit) as % of GDP
                                        2001-2010
                                                                                                                                         0.0%
    -310.0                                                                     2010
                                                                                                                                                 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
                                                                                                                                                                               -0.2%




                                                                                               Budget Surplus/(Deficit as % of GDP (%)
         -298.5                                                                2009
                                                                                                                                         -1.0%
                                                               -68.1           2008

                                                                       -12.4 2007
                                                                                                                                         -2.0%
                                                                                        Year
                                                               -64.8           2006

                                            -146.8                             2005
                                                                                                                                         -3.0%
                                 -187.1                                        2004
                                                                                                                                                 -4.0%                                          -3.6%
                               -199.9                                          2003                                                      -4.0%
                          -210.7                                               2002

                                            -147.0                             2001                                                      -5.0%

-350.0       -300.0   -250.0       -200.0      -150.0    -100.0        -50.0          0.0                                                                -5.3%
                          Budget Surplus/(Deficit) in Php bn                                                                             -6.0%
Risk factors mostly external

• Foreign investors returning to advanced markets, encouraged
  by perceived strengthening recovery of the US economy
Risk factors mostly external
                              6.0%                           US Real GDP Growth Rate (%) 5.0%
                                                                      2007-2010
                                                                                                            3.7%
                              4.0%           3.2%                                                                                3.2%
                                                           2.9%
                                                                                                                          2.6%
                                                    2.3%
US Real GDP Growth Rate (%)




                                                                                                     1.6%          1.7%
                              2.0%
                                      0.9%
                                                                          0.6%

                              0.0%

                                                                  -0.7%                      -0.7%
                              -2.0%


                              -4.0%
                                                                                 -4.0%
                                                                                         -4.9%
                              -6.0%

                                                                                     -6.8%
                              -8.0%
Risk factors mostly external

• China raising interest rates to thwart potential overheating.
  China raised its deposit rate by another 25 bps to 4% last
  week, the third hike since October. January inflation of 4.9%
  portends further tightening going forward.

• Geopolitical tensions (Egypt, North and South Koreas) driving
  investors toward safer havens. These issues are likely to be
  protracted.
Risk factors mostly external


• The major domestic risk items pertain to inflation and
  President Pnoy’s political administration and its capacity to
  keep consumer and investor confidence high.
 Market correction has brought
valuations to even more attractive
              levels.
PSEi has fallen 9.6% ytd
PSEi has fallen 9.6% ytd
Philippine and other Southeast Asian markets fell or were flat
ytd, while US markets rallied.
                                Feb 14      End-2010     % change
                                Index
        US DJIA                 12,273.30    11,577.51       +6.0%
        US S&P 500               1,329.15     1,257.64       +5.7%
        US NASDAQ                2,809.44     2,652.87       +5.9%
        Phils (PSEi)             3,796.73     4,201.14       -9.6%
        China (Shanghai)         2,885.35     2,808.08       +2.8%
        Hong Kong (HSI)         23,073.00    23,035.45       +0.2%
        Indonesia (JCI)          3,424.55     3,703.51       -7.5%
        Malaysia (KLCI)          1,509.75     1,518.91       -0.6%
        Singapore (STI)          3,110.72     3,190.04       -2.5%
        Taiwan (TWSE)            8,685.47     8,972.50       -3.2%
        Thailand (SET)            964.56      1,032.76       -6.6%
        Vietnam (Ho Chi Minh)     514.05       484.66        +6.1%
PSEi has fallen 9.6% ytd
Foreigners dumped Philippine shares.

                                                       Net Foreign Buying/(Selling)
                                                                   In Php mn
                                            40,000                                     30,915
      Net Foreign Buying/(Selling) Php mn




                                            30,000
                                            20,000       11,844
                                            10,000
                                                 -
                                            (10,000)     2007      2008       2009     2010     YTD 2011
                                            (20,000)                         (5,371)            (12,919)
                                            (30,000)
                                            (40,000)
                                            (50,000)
                                            (60,000)              (54,241)
PSEi has fallen 9.6% ytd
Foreigners dumped Philippine shares.
               Stocks with highest net foreign selling ytd
                              Feb 15, 2011
              Stock             Amount           % Price change
                             (in mn pesos)
               AGI              (1,397)               -8.8%
              MBT               (1,181)              -19.2%
               SM               (1,044)              -16.6%
               SCC               (849)               +11.5%
              BDO                (842)               -18.1%
               AC                (816)               -13.8%
               AP                (784)               -11.6%
               TEL               (733)                -7.6%
              MEG                (715)               -19.0%
              MER                (638)                -3.1%
PSEi has fallen 9.6% ytd
Consequently, Philippine 2011 market PE has fallen from 13.8x as
of end-2010 to the current 12.2x, among the lowest in the
region.
                                   2011 PE     2012 PE

           US DJIA                      12.9        11.5
           US S&P 500                   13.9        12.2
           US NASDAQ                    17.9        14.9
           Phils (PSEi)                 12.2        10.9
           China                        14.7        12.3
           Hong Kong (HSI)              12.3        10.7
           Indonesia (JCI)              13.5        11.2
           Malaysia (KLCI)              14.8        13.3
           Singapore (STI)              14.1        12.8
           Taiwan (TWSE)                12.9        11.5
           Thailand (SET)               11.5        10.0
           Vietnam (Ho Chi Minh)        11.5         9.5
Corporate earnings outlook remains
              bright
9 month 2010 corporate earnings
support bright 2011 outlook

• 9 month earnings were mostly in line or above expectations.

• Net income of all listed companies grew 22% in the 9mos2010
  to Php343.7bn on 22% revenue growth to Php1.973 trillion.

• Only six out of 32 of companies below reported disappointing
  earnings.

• Interim results confirm our estimates of 68% market eps
  growth in 2010 and 21% in 2011.
9 month 2010 corporate earnings
support bright 2011 outlook
           9mos 2010   9mos 2009   % change    Results vs
                                              expectations
Banks
BDO          6,400       4,050      +58%         In line
BPI          9,100       7,300      +24%         Above
MBT          6,009       4,161      +44%         In line
PNB          2,450       2,100      +16%         Above
RCB          3,660       2,800      +30%         Above
SECB         3,300       2,200      +51%         Above
UBP          4,253       3,394      +25%         Above
Power
AP          18,538       3,795      +388%        In line
EDC          6,440       5,080      +27%         Below
FGEN         $56.3       $24.2      +132%        Below
MER          9,154       5,091      +80%         Below
9 month 2010 corporate earnings
support bright 2011 outlook
                    9mos 2010   9mos 2009   % change    Results vs
                                                       expectations
Holding Companies
AC                    6,782       5,782      +17%         In line
AEV                  16,430       5,330      +208%        In line
AGI                   5,391       1,704      +316%        Above
DMC                   5,773       3,232      +79%         Above
MPI                   2,941       1,210      +142%        Above
SM                   12,475      10,782      +16%         In line
Property
ALI                   3,935       2,919      +35%         Above
FLI                   1,991       1,198      +66%         In line
MEG                   4,080       3,000      +36%         Above
SMPH                  5,600       5,100      +11%         In line
VLL                   2,160       1,860      +16%         In line
9 month 2010 corporate earnings
support bright 2011 outlook
                   9mos 2010   9mos 2009   % change    Results vs
                                                      expectations
Telecoms & Media
GLO                  7,100       9,400      -25%         Below
TEL                 31,423      30,951       +2%         In line
ABS                  1,896       1,349      +40%         Above
GMA7                 2,272       2,150       +6%         Below
Food
JFC                  2,100       1,800      +16%         In line
RFM                  524         280        +86%         In line
SMC                 12,696       7,731      +64%         Above
Mining
PX                   2,300       1,600      +15%         In line
SCC                  3,212       1,301      +147%        Below
Others
ICT                  $63.6       $37.2      +71%         Above
MWC                  2,975       2,273      +31%         Above
Sectoral analysis: Banking
Security Bank is far ahead in profitability while MBT generates
the most non-interest income.



                          BDO     BPI     MBT     SECB    UBP
   Net interest margin    4.2%    3.4%    3.5%    5.0%    3.3%
   Net interest income*   25.35   17.36   20.06   4.57    5.16
   Non-interest income*   13.13   12.46   16.01   2.66    4.47
   % to Total Income      34.1%   41.8%   44.4%   36.8%   46.4%
   Net Income*            6.37     9.1    6.01    3.31    4.25
   Return on Equity       11.9%   16.2%   10.5%   22.0%   16.9%
Sectoral analysis: Banking
PNB’s prospective merger with Allied will keep it as the fourth
largest private bank. Both banks are among the least profitable.
                        Balance Sheet and Income Statement Figures
                                 As of September 30, 2010
                                          (Php bn)
                                     PNB           Allied Bank       Total
     Net interest income             5.73              5.14          10.87
     Non-interest income             7.39              2.53           9.93
     Net income                      2.45              1.01           3.46
     Return on equity                 7%               4%


     Resources                      306.95            184.10         491.05
     Loans                          102.30            84.18          186.48
     Deposits                       233.15            142.03         375.18
     Capital funds                   33.21            25.68          58.88
Sectoral analysis: Banking
Sectoral analysis: Banking

Sectoral view: Overweight
Weight to Rsec Basket: 14%

                                    Top Bank Picks
              Feb 14    Estimated       %        Basis of Recommendation/Valuation
               Price        FV        Upside
  Union         58.00       98.00       +69% Second-tier banks UBP and SecB are
  Bank                                       more profitable and are more cheaply-
  Security      80.40      122.00       +51% valued.
  Bank
                                             PNB’s PE ratio of 9x and PBR of 0.8x
  PNB           46.00       61.00       +33% leaves room for price upside.
  Metrobank     58.15       70.00       +20% Best-priced top-tier bank
Sectoral analysis: Property
SMDC, SMPH & RLC are the most profitable.
FLI’s profitability is being dragged by poor asset turnover and low
leverage
                  DuPont Breakdown of Property Companies
                               9 mos. 2010*
                       ALI     FLI      MEG      RLC    SMPH             SMDC

ROE                       9.4        4.8        4.8        13.6   15.5   17.7

Net margin               15.9       27.8        26.3       32.0   34.2   32.2

Asset turnover (x)       0.31       0.10        0.22       0.21   0.21   0.25

Equity Multiplier (x)     1.9        1.5        1.7         2.0   2.1    1.9



*except for RLC which is for Fiscal Year ending Sept. 30, 2010
Sectoral analysis: Property
Sectoral analysis: Property

• Sectoral view: Overweight
• Weight to RSec basket: 11.8%

                              Top Property Stock Picks
         Feb 14   Estimated     % Upside       Basis of Recommendation/Valuation
          Price       FV
 RLC     12.80      18.00         +41%      Current 2011 8.7xPE and 1.2x PBR low
                                            considering 14% ave. ROE 2010 – 2012
 FLI      1.06      1.40          +32%      Trading at 0.5x PBR
 SMDC     7.19      9.00          +25%      Valued at a premium to market PE of 13x
                                            due to 14% ROE, 2010-2012 EPS growth
                                            forecast averaging 30% & brand franchise

 MEG      2.01      2.40          +19%      Valued at 12x PE which is MEG’s historical
                                            average PE and the market’s current PE.
Sectoral analysis: Holding companies
Sectoral analysis: Holding companies
Sectoral analysis: Holding Companies
 • Sectoral view: Overweight
 • Weight to RSec basket: 25.5%
                                  Top Property Stock Picks
             Feb 14   Estimated     % Upside       Basis of Recommendation/Valuation
              Price       FV
  Conviction BUY
  DMC        33.15      45.00         +36%      28.5% forecast average ROE from 2010-
                                                2012 justifies 14x PE valuation.
  Conditional BUY
  LPZ         4.60      10.70        +133%      Subject to price trigger/momentum play
  AEV        37.35      64.00         +71%      Valued at 12x historical average PE of
                                                utilities. Hold for now due to AP’s possible
                                                loss of IPPA contract on Pagbilao
  JGS        19.60      30.00         +53%      Subject to momentum play.
Sectoral analysis: Power
• Power generation companies will benefit from prevailing
  power shortage and the long time it will take to put up new
  power capacity.
• First to move stands to benefit the most.
• Valuations are compelling, but uncertainties in listed
  companies require a HOLD recommendation.
      AP               Pagbilao IPPA contract may not be enforceable if Quezon
                       province auctions off power plant.
      FPH, FGen, EDC   Northern Negros Geothermal field being reevaluated due
                       to underproduction. Write-off possible.


• Buy once uncertainties are resolved in favor the power
  company.
Sectoral analysis: Power
Sectoral view: HOLD
Weight to Rsec Basket: 18.7%
Sectoral analysis: Power

Meanwhile, San Miguel may by default take over as a play on the
power sector as its power business will start full year contribution
to revenues and earnings this year.
Sectoral analysis: Power
Sectoral analysis: Food

Rising commodity prices have squeezed profit margins.

                      Gross & Operatin Profit Margin (%)
Jollibee Foods Corporation      2009       1Q2010      2Q2010     3Q2010
Gross profit margin             21.1        20.2           20.1    17.8
Operating profit margin         6.9          7.0           7.3     5.7


Universal Robina Corp.        1Q2010       2Q2010      3Q2010     4Q2010
Gross profit margin             30.2        30.8           29.0    25.2
Operating profit margin         15.9        14.3           13.2    9.8
Sectoral analysis: Food
Sectoral view: Underweight
Weight to Rsec Basket: 13.3%
Sectoral analysis: Telecoms




 Sectoral analysis: Media
               Sectoral analysis: Telecoms
• Sectoral view: Underweight
• Weight to RSEC Basket: 12.9%
        Feb 14    Estimated   % change      Basis of Recommendation/Valuation
         Price        FV
 TEL   2,360      2694        +14%       Dividend play due to dividend yield of
                                         between 8 – 9%. Market has matured for
                                         now but ROE remains top-notch at around
                                         41%.


                 Sectoral analysis: Media
 • Sectoral view: Underweight
 • Weight to RSEC Basket: 1.4%
 • No stock recommendation due to threat posed by entry of
   TV5 and low liquidity.
Sectoral analysis: Mining & Others

 Most mining companies with the exception of Philex,
 Semirara and Nickel Asia are losing money.

                     Net Income of Selected Mining Companies
                          9mos 2009 & 2010 (in mn pesos)
           Company             9 mos. 2010      9 mos. 2009    % change

     Atlas Mining                      -84.51      -1,633.57       94.83%
     Benguet Corporation               -58.27        -149.44       61.01%
     Lepanto Consolidated             -420.43        -229.12      -83.50%
     Manila Mining                      -5.33          -3.40      -56.76%
     Nickel Asia                       1,919            372       415.86%
     Philex Mining                   2,115.50       1,743.01       21.37%
     Semirara Mining                 3,212.34       1,301.31      146.85%
Sectoral analysis: Mining & Others
               Status of Mining Projects of Listed Companies
                                  Projects                     Status            Estimated
                                                                                project cost

Atlas Mining     Berong Nickel Corporation             Under maintainance       n.a.

                 Carmen Copper Corp.                   Operational              $45mn
Benguet Corp.    Acupan gold-copper project, Benguet   Operational; Expanding   n.a.

                 Irisan Lime Project, Baguio City      Operational              n.a.

                 Sta. Cruz nickel mine, Zambales       Operational              n.a.


Lepanto          Victoria project, Mankayan, Benguet   Operational              n.a.
Consolidated
                 Teresa project, Mankayan, Benguet     Operational              n.a.


Manila Mining Placer project, Surigao del Norte        Mapping and sampling     n.a.

                 Kalaya-An project, Surigao City       Mapping and sampling     n.a.
Sectoral analysis: Mining & Others

                Status of Mining Projects of Listed Companies
                                Projects                            Status                     Estimated
                                                                                              project cost
Philex Mining   Padcal gold-copper project, Benguet   Operational                           $31mn

                Silangan copper-gold mine             Under development; Target to          $44mn
                                                      start operations in 2014

                Bulog prospect, Negros Island         Drilling and exploration activities   n.a.

                Bulawan mine                          Ceased operations
                                                                                            n.a.
Semirara        Panian mine, Semirara Island          Operational                           n.a.
Mining
Sectoral analysis: Mining & Others
             Status of Mining Projects of Listed Companies
                            Projects                                Status      Estimated
                                                                               project cost
San Miguel   Tampakan gold-copper project, South      On hold                $110mn
Energy       Cotabato
                                                                             n.a.
             Daguma Agro Minerals, South Cotabato
             & Sultan Kudarat                                                n.a.

             Bonanza Energy Resources , Daguma                               n.a.
             Area

             Sultan Energy, South Cotabato & Sultan   Operational            n.a.
             Kudarat
Sectoral analysis: Mining & Others
Sectoral analysis: Mining & Others

 Sectoral view: Neutral
 Weight to RSEC Basket: 6.1%

              Feb 14 Price   Estimated   % change            Basis of
                                 FV                   Recommendation/Valuation
   Semirara     206.20        239.00      +16%      Valued at 13x. Premium reflects
                                                    high ROE of 30%, only worthy
                                                    play in mining & move towards
                                                    power generation through SEM-
                                                    Calaca.
   Manila        17.98         19.18      +35%      Valued at 12x PE historical
   Water                                            average for utilities
                      Conclusion

• Target prices point to a PSEi of 4,518, reflecting a
  19% increase in share prices and equivalent to a
  2011 market PE of 14.3x.
Valuation Summary




       Valuation
       Summary
                     Acknowledgment


Special thanks to:

   Mr. Mike Ricafort and entire staff of Economics & Research
            Division, Corporate Planning Group, RCBC
Thank you !

				
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