First Metro Asset Management Inc

Driving domestically, by Gus Cosio

7:55 pm  Thursday  10 Novemebr 2011
 
Philippine stocks were down today, but looking back as far as Thursday last week when the local stock index closed at 4210.25, I do not think that we are in bad shape.  We could be trading in a range between 4210 and 4350 which is not so bad.  The DJIA seems to be trading in a range between 11800 and 12200.  Both indices are in a short term range of around 3.3%.  What appears interesting to me is that in both markets, investors look to be bottom fishing whenever bad news come out of Europe.  I think many are focusing their buy strategies on bottom up strategies, i.e. looking at fundamentals of individual stocks rather than the broad market.  This is but likely because 75% of companies in the S&P 500 reported results which were better than expected.  Furthermore, while the U.S. economy is not roaring ahead, it is not at all slipping but merely chugging along.  The latest 3Q-2011 GDP growth estimate was 2.5% – not very strong, but not so weak either.
In the Philippines, some companies have reported 3Q-2011 results already.
ALI’s 3Q2011  net income came in 30% higher YoY at P1.85B with total revenues up 21% at P11.38B.  Net income for 9M2011 rose 33% YoY at P5.2B  due to steady completion and strong bookings from the residential segment.  Real estate revenues were up 17% YoY at P29.19B for 9M2011.  For the last 7 quarters (since 1Q2010), ALI net income has been growing at a 7.5% CAGR.  ALI appears to be on track to meet its “5-10-15” target which means in 5 years, earn net income of P10B and ROE of 15%.
MPI 9M2011 core income came in at P3.9B, 34% higher from 9M2011.  Headline net income was P3.4B, up 33% YoY and core income rose largely due to the 27% increase in earnings contribution from Maynilad, Meralco/Beacon, and the Hospital group.  Tollways income contribution was down 7%  due to the expiration of its Income Tax Holiday.  FY2011 core income guidance was raised by the company from P4.8B to P5.0B.   Net debt to equity ratio was 7% (net cash) as of 9M2011with parent company at a net cash balance of P4.5B with cash of P11B and interest bearing debt at P6.5B.
GMA net income in 9M2011 fell 30% to P1.58B as revenue declined 7 percent. 3Q2011 net income was 525 million pesos.  It said it will miss its P3B profit target for 2011.
GLO showed strong revenue growth of 13% YoY in 3Q2011  to P17B.  GLO sustained the same profit level reached in 2Q2011 despite 3Q being traditionally low season.  Core income was up 34% YoY to P2.6B bringing 9M11 core earnings to P8.18B – a 15% increase and 84% of our full-year estimate of P9.72b.   9M2011 earnings areup 15% ahead of full-year growth estimate of 7%.
SECB net profit in 9M2011 was P4.0bn , up 21% YoY,  ahead full-year middle consensus forecast of P4.4bn.  Operating profit of P4.4bn (+12%) was also ahead estimates despite a 20% drop in non-interest income on lower trading gains.

NIKL  9M2011 rises P3.26B, up 131%YoY driven by higher volumes and prices of nickel ore exports. China is now their largest market, paying higher prices than traditional Japanese buyers. Revenues for jumped 74% to P10.2B and volumes reached 8.25m wmt.

What I would like to highlight here is the fact that most companies are reporting excellent results in both 3Q and 9M 2011 periods.  This to me is important because while a lot of traders have been making portfolio decisions based on contagion fears in Europe, companies have in fact been doing well in spite of the international developments.  Whether one is an investor or a trader, it is important to assess the risk reward not merely on news headlines, but rather on strong fundamental factors.  Philippine companies are able to give guidance on earnings because their are fully aware of domestic conditions.  Domestic conditions are precisely where the strength of our economy lies.  Exports have been dropping, but earnings of most companies remain robust because the Philippines is one of the more domestically driven economies in the region.
I am one who has been a contrarian of late because I noticed that on down days of the market, we see net foreign buying and counter directional move of some stocks.  Of course, one should keep a close eye on what is going on in the world; but one’s eyes should not be jaundiced toward the strong conditions under which local listed companies operate.  Having mentioned some companies here, I am now constructive in my views of SECB, PNB, GLO, ALI, MPI and LR.  I remain positive on AGI, MBT, DMC, RLC, PX and AT.  Of course, I have maintained positions on ORE and NI with enough patience to see these issues through.
Last night, some press people commented that these – referring to NI and ORE – were speculative issues.  I guess some people do not really understand that when you invest in a market, you are speculating that prices will move up.  Everybody who bets money speculates, but it is he who researches properly that makes the money.

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First Metro Asset Management Inc