瑞信-亚太地区-投资策略-菲律宾综合企业部门：合众之战 II-2019.3.22-65页.pdf

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.22 March 2019Asia Pacific/PhilippinesEquity ResearchConglomerates Philippine Conglomerates Sector SECTOR REVIEWResearch AnalystsChesca Bugia-Tenorio63 2 858 7752chesca.bugia-tenoriocredit-Battle of the conglos IIFigure 1:AC,LTG,and GTCAP are the top pick conglos,NAV upside-3.9%-6.0%19.0%18.5%-11.0%-7.6%30.8%2.0%-2.1%-20%-10%0%10%20%30%40%SMCSMACGTCAPMPIAGILTGJGSDMCSource:Company data,Credit Suisse estimatesConglos remain liquid alternatives to the Philippine market.Since the Philippine conglomerates form the largest group of stocks in the PSEi in terms of earnings(87%,including listed subs)and market capitalisation(37%,conglos only),they have clearly warranted increasing interest and a comparative analysis.Upside through conglo discounts narrowing with ROE and earnings as catalysts.Average conglomerate discount today in the covered basket of conglos is 23%vs three-year avg.of 11%.We think that several names could warrant a narrowing discount as an additional upside catalyst to their undervalued NAV.Our analysis shows the highest correlation(as much as 90+%)to historical conglo discount/premium to its real-NAV is ROE.Among conglos,we see AC expanding most of its ROE by 2020,delivering on earnings growth,followed by LTG and GTCAPgiven their recovery story.AC tops our updated conglo 10-factor selection model.Aside from a narrowing discount providing upside,we update our 10-factor ranking model to support selective top conglos.AC comes out as the top ranked conglo.It ranks high in parent FCF,liquidity,good governance,most value creation execution,diversified portfolio,top ROE,earnings quality,and for having the most NAV upside showing its undervalued state.Maintain MARKET WEIGHT on conglos;reiterate AC as top pick.The top five conglomerates who ranked highest in our selection model are AC,JGS,SM,GTCAP,and LTG.While AC(OP,TP P1,100)scored the highest in most of the selection factors,with valuation in the picture and key macro-sector drivers,we also highlight,GTCAP(OUTPERFORM,TP P1,137)and LTG(OUTPERFORM,TP P22),as undervalued conglos.We downgrade JGS to NEUTRAL and switch to GTCAP as our pick for a recovery story,given GTCAPs stabilising demand and JGS facing more downside risks from its food and cyclicals.With majority of the conglos having limited upside to market,we remain MARKET WEIGHT on the sector.Coming into 2019,with inflation expected to cool down and fuel prices falling,we expect the consumer-and bank-exposed conglos to benefit.We prefer players in the sector who have higher-than-sector growth,returns,and catalysts.22 March 2019Philippine Conglomerates Sector2Focus charts and tableFigure 2:5-year average conglo prem/disc to RNAVFigure 3:Average ROE 2018-20E-60.0-50.0-40.0-30.0-20.0-10.00.010.020.030.040.050.02014201520162017201813.3 9.5 18.6 11.3 10.3 9.3 9.4 12.3 8.2 0.02.04.06.08.010.012.014.016.018.020.0ACAGIDMCGTCAPJGSLTGMPISMSMCSource:Company data,Credit Suisse estimatesSource:Company data,Credit Suisse estimatesFigure 4:Earnings growth estimates 2018-20EFigure 5:SOTP-NAV upside keeping disc constant19%8%4%13%14%20%4%13%11%0%5%10%15%20%25%ACAGIDMCGTCAPJGSLTGMPISMSMCSource:Company data,Credit Suisse estimatesSource:Company data,Credit Suisse estimatesFigure 6:Philippine conglos valuation summaryNameTicker RatingPrice TP U/D McapP/EEV/EBITDAROEROAEPS CAGR LCY bn US$18E19E20E18E19E20E18E19E20E 18E19E20E 17-20E Ayala CorporationAC.PSO9291,100 18%11.117.7 15.6 12.7 9.0 7.6 6.5 12.7 12.9 14.1 3.0 3.1 3.6 16.4 Alliance Global Group IncAGI.PSN15.615.641%2.99.6 8.5 8.3 6.0 5.4 5.0 9.6 9.9 9.4 2.7 2.8 2.8 8.4 DMCI Holdings,Inc.DMC.PSU12.111.04-9%3.010.7 10.7 9.8 5.7 5.8 5.3 18.8 17.0 16.7 8.1 7.6 7.7 3.5 GT CapitalGTCAP.PSO 1,006.0 1,137.0 13%3.811.9 10.3 8.8 9.0 7.9 6.9 10.4 10.9 11.6 5.0 5.5 6.0 14.6 JG SummitJGS.PSN60.965.27%8.319.3 17.1 14.5 9.6 8.7 7.8 8.1 8.5 9.3 2.9 3.2 3.5 0.9 LT Group,Inc.LTG.PSO16.522.0 33%3.411.0 10.5 8.7 5.7 5.8 4.6 12.1 11.5 12.4 1.6 1.5 1.7 23.9 Metro Pacific InvestmentsMPI.PSN4.95.4 10%2.99.4 9.5 8.8 7.2 6.8 6.1 9.9 9.1 9.2 3.0 2.8 2.8 10.0 SM InvestmentsSM.PSN944.5854.0-10%21.530.5 26.8 23.8 14.2 12.9 11.7 11.3 11.8 12.2 3.7 4.0 4.4 13.3 San Miguel CorporationSMC.PSN174.0180.03%7.816.9 14.9 13.7 4.8 4.3 4.0 7.9 8.3 8.4 1.6 1.7 1.8 13.1 Simple Average15.2 13.8 12.1 7.9 7.2 6.4 11.2 11.1 11.5 3.5 3.6 3.8 11.6 Source:Company data,Credit Suisse estimates22 March 2019Philippine Conglomerates Sector3Battle of conglos IIUpside through narrowing conglo discountsSince the Philippine conglomerates form the largest group of stocks in the PSEi in terms of earnings and market capitalisation,we think it merits interest and a comparative analysis.Average conglomerate discount today in the covered basket of conglomerates is hovering at 23%.This is more than double the value of its three-year average of only 11%discount.We think that several names could warrant a narrowing discount as an additional upside catalyst to their fundamentals.Among the conglomerates,we note AC and SM trading at premiums to their real-NAV versus the rest at discounts.We note GTCAP,LTG,MPI,and JGS trading at an average conglomerate discount of 33%today versus three-year average only at 9%.AGI and SMC have been trading at a wide range of 36-46%in the past 3-5 years.Catalysts:ROE and earnings expansionAs noted,we think it is only in the past year or so that the conglomerates basket of companies has generated a good period of track record in the past 5-7 years of actively traded,liquid and share price/NAV movement that we think is reflective of real and relevant analysis.Our analysis shows the highest correlation to historical conglomerate discount/premium to real-NAV is ROE.Correlation is as high as 90+%for stable and/or growing ROE.We believe then,that for selected names,clear catalysts such as ROE expansion and accelerating EPS growth could act as catalysts to narrowing discounts.Among conglomerates,we see AC expanding the most of its ROE by 2020 delivering on earnings growth,followed by LTG and GTCAPgiven their recovery story.SM also exhibits high correlation to its sturdy ROE but we expect ROE stable at 12.3-12.7%only.Winners/losers analysis AC prevailsAside from the correlation analysis proving ROE as a key catalyst to narrowing discount to real-NAV,we also update our 10-factor selection model for the conglos.We once again rank the conglos against each other using ten top factors we think make a top value and quality conglomerate.Ayala Corp comes out as the top ranked conglomerate getting the 1st or 2nd place in most factors.It ranks the highest in free cash flows to the parent,liquidity,good governance,and remains top for most value creation execution,diversified portfolio,top ROE,and top earnings quality.It also tops in terms of the most NAV upside,showing its undervalued state.JGS and SM follow reflecting their strong fundamentals but both rank low in NAV upside reflecting their fairly valued SOTP.GTCAP and LTG follow to complete the Top 5 ranked conglomerateshighlighting these names ranking high in NAV upside and earnings growth potential,in line with the recovery story of PNB,Toyota,and the tobacco businesses.Maintain MARKET WEIGHT;prefer AC and LTGThe top five conglomerates who ranked highest in our selection model are AC,JGS,SM,GTCAP,and LTG.While AC(OUTPERFORM,TP P1,100)scored the highest in most of the selection factors,with valuation in the picture and key macro-sector drivers,we also highlight GTCAP(OUTPERFORM,TP P1,000)and LTG(OUTPERFORM,TP P22),as undervalued conglos.We downgrade JGS to NEUTRAL and switch to GTCAP as our pick for a recovery story,given GTCAPs stabilizing demand and JGS facing more downside risks from its food and cyclicals.With majority of the conglos having limited upside to market,we remain MARKET WEIGHT on the conglomerates sector.The conglomerate sector has had mixed results in 2018 with an average earnings growth of 7.2%.Coming into 2019,with inflation expected to cool down and fuel prices falling,we expect the consumer-and bank-exposed conglos to benefit further and benefit from margin recovery.Risks to our view remain in the overall macro-economic environment.Any inflationary pressure,weakening peso,interest rate risks,commodity prices as well as regulatory risks.Average conglomerate discount today in the covered basket of conglomerates is hovering at 23%vs 11%3-yr averageOur analysis shows the highest correlation to historical conglomerate discount/premium to real-NAV is ROEAyala Corp comes out as the top ranked conglomerateWith majority of the conglos having limited upside to market,we remain MARKET WEIGHT on the conglomerates sector.22 March 2019Philippine Conglomerates Sector4Valuation comparison and financialsFigure 7:Philippine conglomerate sector summaryACAGIDMCGTCAPJGSLTGMPISMSMCSectorRatingONUONONNNShare price 928.50 15.56 12.14 1,006.00 60.90 16.50 4.89 944.50 174.00 Target price 1,100.00 15.64 11.04 1,137.00 65.20 22.00 5.40 854.00 180.00%up/downside18.50.5-9.113.07.133.310.4-9.63.4Market cap(P bn)586,139 155,571 161,188 200,534 436,217 178,553 154,108 1,137,729 413,863 3,423,902 Market cap(US$mn)11,091 2,944 3,050 3,794 8,254 3,378 2,916 21,528 7,831 64,785 Valuation ratios:P/E(x)2017A20.110.610.913.314.916.511.734.619.816.92018E17.79.610.711.919.311.09.430.516.915.22019E15.68.510.710.317.110.59.526.814.913.82020E12.78.39.88.814.58.78.823.813.712.1EPS(%YoY)2017A17.00.916.424.5169.034.314.85.596.742.72018E13.49.62.411.3-23.149.424.813.317.110.72019E13.412.7-0.515.613.15.3-1.413.713.211.82020E22.73.18.817.018.120.88.212.89.114.6EPS 3-year CAGR(%)17-20E16.48.43.514.60.923.910.013.313.111.6P/PPOP(x)2017A8.74.67.56.48.418.46.415.13.78.82018E6.94.07.46.710.010.25.313.43.27.52019E5.83.67.86.08.88.35.112.02.96.72020E4.93.47.25.27.76.44.610.92.75.9P/B(x)2017A2.41.02.11.31.61.41.03.61.41.72018E2.10.91.91.21.51.30.93.31.31.62019E1.90.81.71.11.41.10.83.01.21.52020E1.70.81.61.01.31.00.82.81.11.3Dividend yield(%)2017A1.00.04.00.50.50.92.10.80.81.22018E1.10.04.00.80.50.92.60.90.81.32019E1.20.04.01.00.40.92.61.10.81.32020E1.52.54.01.10.50.92.81.20.81.7ROA(%)2017A3.02.89.04.94.21.23.13.61.63.72018E3.12.88.55.23.01.73.13.81.73.62019E3.33.07.85.63.21.62.94.11.83.72020E3.72.98.06.23.61.72.94.51.83.9ROE(%)2017A12.39.620.510.711.58.98.510.87.211.12018E12.79.618.810.48.112.19.911.37.911.22019E12.99.917.010.98.511.59.111.88.311.12020E14.19.416.711.69.312.49.212.28.411.5Source:Company data,Credit Suisse estimates22 March 2019Philippine Conglomerates Sector5Upside through narrowing conglo discountsSince the Philippine conglomerates form the largest group of stocks in the PSEi in terms of earnings and market capitalisation,we think it merits interest and a comparative analysis.Now that we have coverage of nine conglomerates,we analyse and compare each conglomerate to one another and see who are the key players that could outperform in the long run.Average conglomerate discount today in the covered basket of conglomerates is hovering at 23%.This has more than doubled the value of its three-year average of only 11%discount.We think that several names could warrant a narrowing discount as an additional upside catalyst to their fundamentals.Among the conglomerates,we note AC and SM trading at premiums to their real-NAV versus the rest at discounts.Among the ones trading at a discount,we note GTCAP,LTG,MPI,and JGS trading at an average conglomerate discount of 33%today versus three-year average at only 9%.AGI and SMC remain trading at a wide range of 36-46%in the past years.Largest sector in the PSEiSince the Philippine conglomerates form the largest group of stocks in the PSEi in terms of earnings and market capitalisation,we think it merits interest and analysis.We have noted before that it provides liquidity and access to growth sectors that are mostly private or illiquid to access directly.Figure 8:Conglomerate sector basket in this analysisConglomeratePrincipal/stakeholderCurrent PositionMkt Cap(US$mn)SM Investments Corporation(SM.PS)21,393 Ayala Corporation(AC.PS)Jaime Augusto Zobel de AyalaChairman11,049 JG Summit Holdings,Inc.(JGS.PS)John L.Gokongwei,Jr.Chairman Emeritus8,315 San Miguel Corporation(SMC.PS)Eduardo M.Cojuangco,Jr.Chairman7,879 LT Group,Inc.(LTG.PS)Lucio C.TanChairman3,292 GT Capital Holdings,Inc.(GTCAP.PS)Arthur Vy TyChairman3,771 DMCI Holdings,Inc.(DMC.PS)Isidro A.ConsunjiChairman3,131 Metro Pacific Investments Corp.(MPI.PS)Manuel V.PangilinanChairman2,960 Alliance Global Group,Inc.(AGI.PS)Andrew L.TanChairman2,947 Source:Company data,Credit Suisse estimatesMarket proxiesThe Philippine conglomerates do provide a“jack of all trades”kind of portfolio that has now a good track record being listed and liquid for the past ten years.The conglomerates have become overall attractive,by becoming market proxies with various dominant industries to invest in.Figure 9:Sector exposure of the conglomeratesSource:Company data,Credit Suisse estimatesWe think that several names could warrant a narrowing discount as an additional upside catalyst to their fundamentals22 March 2019Philippine Conglomerates Sector6Note that most conglomerates today have only been actively traded and liquid in the past eight years.A few of them were only listed six years ago.Only SM and AC are large cap conglomerates active in the market for ten years.With that,we think analysis on this sector is only meaningful today given historical averages are representative.Conglo premiums/discounts to Real-NAV analysisAs these conglomerates have been actively traded and liquid,we believe the historical average of the conglomerate discount and/or premiums to their real-NAV are meaningful enough.We think it can well-represent what the company is valued for and to which variables in the market are the companies compared against.With this,we can see if the conglomerates warrant a narrowing discount or increasing premium.Among conglomerates,our estimates show SMC having the largest current and running historical discount of 44%with a three-year average of 38%.SM and AC have been the ones trading at a premium in the past three years with premiums of 8%and 10%,respectively.Note,however,it is only SM who has consistently traded at premium levels every year versus AC who only resumed back to premium levels to rNAV in the past 3-4 years.Figure 10:5-year average conglo prem/disc to RNAVFigure 11:AGI prem/disc to RNAV-60.0-50.0-40.0-30.0-20.0-10.00.010.020.030.040.050.020142015201620172018-60%-50%-40%-30%-20%-10%0%10%050,000100,000150,000200,000250,000300