Col Financial Group, Inc. · PSE:COL
Col Financial — Investor Presentation (August 2013)
52 slides from Col Financial's investor presentation, Aug 5, 2013
Slide 1: The Tides of Opportunity: 2013 COL Mid-Year Market Briefing
THE TIDES OF OPPORTUNITY =~ 2013 COL-MID YEAR MARKET BRIEFING oe APRIL LYNN TAN, CFA VP & HEAD OF RESEARCH PHILIPPINES ae —— jot FINANCIAL fw
Slide 2: Fund Flows Cause Significant Market Volatility
Fund Flows Cause Significant Market Volatility PSEi 8000 May 15: 7500 7,392.2 (+27%) 7000 PSEi is up by 14% for the 6500 year to date period, after 6000 rising by as much 27% and Jun 25: falling by almost 1%, as 5,789.06 5500 (-1%) foreign funds flowed in and 5000 out of the market Dec-12 Jan-13 Feb
Slide 3: High Tide Lifts all Boats
“High Tide Lifts all Boats” Performance of Global Markets (June 2012 to April 2013) 140 Nikkei 225 33.5% 130 Euro Stoxx 50, PSEi, 29.0% 23.5% 120 110 S&P500, 16.0% 100 90 80 May Jun Jul Aug Sep Oct Nov Dec Jan Source: Bloomberg Liquidity drove equity markets higher from mid 2012 to April 2013
Slide 4: High Tide Lifts all Boats: Liquidity Enhancing Measures
“High Tide Lifts all Boats” Examples of Liquidity Enhancing Measures Europe: Outright Monetary Transaction or OMT (Aug 2012) USA: QE 3 (Sept 2012), Add’l bond buying program from US$40 Bil to US$85 Bil (Dec 2012) Japan: Abenomics (Dec 2012) Philippines: SDA rate cuts – 100 bps (2012), 150 bps (2013)
Slide 5: Prospects of Reduced Liquidity Trigger Global Sell-off in May and June
Prospects of Reduced Liquidity Trigger Global Sell-off in May and June Timeline of News on Tapering of US Fed Bond Buying Program May 22: Fed minutes noted that a number of participants expressed willingness to reduce QE as early as June June 19: Bernanke said the Fed may begin reducing the pace of
Slide 6: Global Indices Correction from Peak to Trough
Prospects of Reduced Liquidity Trigger Global Sell-off in May and June Global Indices Correction from Peak to Trough Index Country/Index % Change Peak Trough Philippines (PSEi) 7,403 5,679 -23 Thailand (SET) 1,650 1,339 -19 Indonesia (JCI) 5,295 4,289 -18 Japan (Nikkei 225) 15,943 10,375 -35 USA (S&
Slide 7: Bernanke Clarifies his Statement on Tapering
Prospects of Reduced Liquidity Trigger Global Sell-off in May and June July 17: Bernanke Clarifies his Statement on Tapering of Bond Buy Back Program "Our asset purchases depend on economic and financial developments, but they are by no means on a preset course" Source: Kingdom Economics
Slide 8: Improving Relative Growth Outlook of DM Leading to Shift in Fund Flows
Improving Relative Growth Outlook of DM Leading to Shift in Fund Flows Relative Performance of Global Markets (July M/M) Country/Index % Change Philippines (PSEi) 2.7 Thailand (SET) -3.1 Indonesia (JCI) -5.0 Japan (Nikkei 225) -0.1 USA (S&P 500) 5.0 Europe (Euro Stoxx 50) 6.0 Source: Bloomberg
Slide 9: Short-term Risks in EM Asia vs Opportunities in DM
Improving Relative Growth Outlook of DM Leading to Shift in Fund Flows ST Risks in EM Asia ST Opportunities in DM • GDP growth slows as exports are • US GDP growth outlook improving hurt by China’s slow down due to recovery of housing market and favorable liquidity • Currencies weaken due to conditi
Slide 10: Strong Philippine Fundamentals to Justify Continuous Increase of PSEi
Strong Philippine Fundamentals to Justify Continuous Increase of PSEi • Favorable Economic Growth Outlook • Less Vulnerable to Risks Facing EM Asian Economies • BSP to Limit Access to SDA
Slide 11: Favorable GDP Growth Outlook
Favorable GDP Growth Outlook Strong and Resilient GDP Growth Philippines World 2008 4.2 1.5 2009 1.1 -2.4 2010 7.6 4.0 2011 3.9 2.9 2012 6.6 2.3 1Q13 7.8 2.7 Source: Bloomberg, IMF
Slide 12: 1Q13 GDP Growth
Favorable GDP Growth Outlook 1Q13 GDP Growth Expenditure Growth Consumer 5.1 • Better than expected Government 13.2 Capital Formation 47.7 • Fastest in Asia Fixed capital 16.8 • Robust growth of Construction 33.7 capital formation to Durable Equipment 9.4 pave the way for a Others 83.3 more sustaina
Slide 13: Strong Performance to be Sustained
Favorable GDP Growth Outlook Strong Performance to be Sustained Consumer Investment Spending (+) Spending (+) Government Exports ( - ) Spending (+)
Slide 14: Drivers of Consumer Spending
Drivers of Consumer Spending • Strong consumer confidence • Resilient OFW Remittances and BPO sector • Weaker peso and benign inflation • Philippines to enter demographic window
Slide 15: Consumer Confidence Hits All-Time High
Drivers of Consumer Spending Consumer Confidence Hits All-Time High Consumer Outlook Index Reasons for Improvement in 40 30 Consumer Confidence 20 10 0 • Better job opportunities -10 -20 • Increased investment inflows -30 -40 -50 -60 • Salary increases 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 Current Quar
Slide 16: OFW Remittances and BPO Revenues Continue to Increase
Drivers of Consumer Spending OFW Remittances and BPO Revenues Continue to Increase 25.0 OFW Remittance 30.0% 18,000 BPO Revenues (US$Mil) 16,000 16,000 20.0 25.0% 14,000 13,000 20.0% 12,000 11,000 15.0 10,000 9,000 15.0% 8,000 7,200 10.0 6,061 10.0% 6,000 5.6% 4,875 5.0 4,000 3,257 5.0% 2,420 2,000
Slide 17: Weaker Peso and Benign Inflation to Boost Spending Power
Drivers of Consumer Spending Weaker Peso and Benign Inflation to Boost Spending Power Philippine Peso CRB Index 45.0 495 44.0 43.5 490 485 43.0 480 42.0 475 41.0 470 40.0 465 467.95 39.0 460 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-
Slide 18: Productive vs. Dependent Population
Drivers of Consumer Spending Productive vs. Dependent Population 80 70 69.7 60 63.1 % of Population 50 40 36.9 30 30.3 20 Productive Population 10 Dependent population 0 1990 1950 1960 1970 1980 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Source: UN Philippines about to enter “demographic
Slide 19: What is the Demographic Window?
Drivers of Consumer Spending What is “Demographic Window”? • Period of high economic growth brought about by a growing number of people entering the productive ages of 15 to 64 • Children below 15 <30%, Elderly above 64 <15% • Economies of countries that had entered the demographic window grew by an
Slide 20: Philippine Population Statistics
Drivers of Consumer Spending Philippine Population Statistics • Population below 15 to drop Population below 30% after 2015 1.8% Growth Median Age 23.3 • From 2015-55, productive population will grow by 48% Age % of Population Growth while dependent 2013 2015 2055 2015-2055 population will grow by o
Slide 21: Drivers of Investment Spending
Drivers of Investment Spending • Credit Ratings Upgrade • Strong Business Confidence • Strong and Liquid Banking System • Favorable Regional Developments • Growing Pipeline of PPP Projects
Slide 22: Fitch & S&P Upgrade Philippines Rating to Investment Grade
Drivers of Investment Spending Fitch & S&P Upgrade Philippines Rating to Investment Grade; Moody’s to Follow Suit Ratings Rating Upgrade Date Agency Fitch BB+ Jun-11 BBB- Mar-13 S&P BB Nov-10 BB+ Jul-12 Outlook from "stable" to Dec-12 "positive" BBB- Apr-13 Moody's Ba2 Jun-11 Ba1 Oct-12 Review for p
Slide 23: Implications of the Ratings Upgrade
Drivers of Investment Spending Implications of the Ratings Upgrade • Philippines now radar screen of more foreigner investors • To help ensure that funding cost stays low • To lead to more investments, higher GDP growth, higher stock market
Slide 24: Business Sentiment Hits an All-Time High
Drivers of Investment Spending Business Sentiment Hits an All-Time High Business Outlook Index Reasons for Improvement in Business 80 60 Sentiment (ex Seasonal Factors) 40 20 • Expansion of businesses 0 • Country’s strong macroeconomic -20 -40 fundamentals 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 Current
Slide 25: Strong and Liquid Financial System to Fund Investment Spending Growth
Drivers of Investment Spending Strong and Liquid Financial System to Fund Investment Spending Growth Banking Statistics (Universal & Commercial Banks) Loans/ NPL Ratio Provision/ NPL Loans/ Deposit Deposit + SDA 2010 2.9% 118.3% 62.6% 49.1% 2011 2.2% 126.4% 68.4% 50.9% 2012 1.9% 141.5% 71.6% 53.9% C
Slide 26: Favorable Regional Developments
Drivers of Investment Spending Favorable Regional Developments • Significant increase in minimum wages • China, Thailand and Indonesia • Floods in Thailand • Growing tension between China and Japan • FDI in Philippines +54% in 2012 to US$2.8 Bil; alreadyUS$1.3 Bil during first four months of 2013 •
Slide 27: Growing Pipeline of PPP Projects: Awarded
Drivers of Investment Spending Growing Pipeline of PPP Projects Value of PPP Projects Awarded So Far Value Date Awarded Projects (PhpBil) Awarded Daang Hari-SLEx Link Road 2.0 2011 PPP for School Infrastructure Project 16.4 2012 (Phase I) NAIA Expressway Project 15.5 2013 Source: PPP Center
Slide 28: Growing Pipeline of PPP Projects: To Be Awarded
Drivers of Investment Spending Growing Pipeline of PPP Projects Value of PPP Projects to be Awarded Soon Value Projects (PhpBil) Status Projects with Live Bidding Modernization of the Philippine Orthopedic Center 5.7 Currently undergoing Talisay City Plaza Complex Restoration and Redevelopment 0.2 b
Slide 29: Government Ready and Willing to Spend
Government Ready and Willing to Spend Debt to GDP 85 Improving 80 77.778.2 government 75 72.5 finances pave the 71.4 way for higher 70 spending 64.665.7 63.9 65 60 57 57.3 55.8 55.4 55 50.9 51.4 50 48.6 45 40 200020012002200320042005200620072008200920102011 2012F 2013F Source: DBM
Slide 30: 2Q13 Government Spending
Government Ready and Willing to Spend 2Q13 Government Spending Government In PhpBil 2Q12 2Q13 % Change spending remained Revenues 400.0 475.1 18.8% strong during the Expenditures 400.4 459.9 14.9% second quarter of the year. . . Source: BTr
Slide 31: 2014 Proposed Government Budget
Government Ready and Willing to Spend 2014 Proposed Government Budget (In Php Bil) Expenditure 2013 2014 % Change Social Services 699.4 842.8 20.5% Economic . . . And should remain Services 509.2 590.2 15.9% strong in 2014, with General Public spending on social Services 347.3 364.5 5.0% and economi
Slide 32: Less Vulnerable to Risks Facing EM Economies
Less Vulnerable to Risks Facing EM Economies GDP Growth Forecast of EM Asia OLD NEW Thailand 5.10% 4.20% Indonesia 6.20% 5.90% Philippines 6.00% 7.00% Source: Thailand – Bank of Thailand, Indonesia - World Bank, Philippines – IMF Thailand and Indonesia suffer from downgrades while Philippines enjoys
Slide 33: Philippines Less Dependent on Exports, Sale of Commodities
Less Vulnerable to Risks Facing EM Economies Philippines Less Dependent on Exports, Sale of Commodities Gross Exports as % of GDP Commodity Exports as % of 90% GDP 77% 75% 80% 72% 70% 21.0% 60% 50% 15.0% 40% 32% 31% 30% 30% 26% 24% 23% 20% 10% 3.8% 0% 2011 2012 1Q13 Philippines Indonesia Thailand Ph
Slide 34: Philippines Boasts a Very Strong Current Account Position
Less Vulnerable to Risks Facing EM Economies Philippines Boasts of a Very Strong Current Account Position Current Account as % of GDP 6.00% 5.30% 5.00% 4.00% 3.20% 2.90% 3.00% 1.71% 2.00% 1.22% 1.00% 0.20% 0.05% 0.00% -1.00% -2.00% -3.00% -2.37% -2.73% -4.00% 2011 2012 1Q13 Philippines Indonesia Tha
Slide 35: Potential Increase in Interest Rates is Expected to be Minimal
Less Vulnerable to Risks Facing EM Economies Potential Increase in Interest Rates is Expected to be Minimal • Benign inflation • Minimal threat of a significantly weaker peso • Release of funds from SDA to ensure ample liquidity
Slide 36: BSP to Limit Access to SDA
BSP to Limit Access to SDA • Trust entities offering SDA exposure via “Investment Management Accounts” to be phased out by November 2013 • More than 50% of Php1.9 Tril worth of SDA placements suspected to be of this form • 30% reduction mandated by end July • More funds to go into riskier assets loo
Slide 37: Challenges and Risks
Challenges and Risks • Expensive Relative Valuation of the PSEi • Earnings Growth to Slow in 2014 • Investor Sentiment Remains Poor • Contagion • Weaker currency • Rising interest rates • Volatile stock market
Slide 38: Relative Valuation of Composite and Sector Indices
Relative Valuation of Composite and Sector Indices Relative Valuation & Index Comparison Across TIP 2013 Relative Valuation Thailand Indonesia Philippines Composite (P/E) 11.9 12.8 17.7 Consumer (P/E) 13.0 24.0 32.4 Banks (P/BV) 1.5 1.9 2.0 Property (P/E) 12.1 10.7 22.2 Power (P/E) 8.8 14.8 14.2 Tel
Slide 39: Equities Still Cheap Relative to Other Domestic Asset Classes
Equities Still Cheap Relative to Other Domestic Asset Classes Comparative Yield of Different Asset Classes Stocks Time Deposit SDA 10-Yr-T-Bond 5.6% 1.7% to 2.0% 2.0% 3.4% * The PSEi’s earnings yield based on 6,500 Due to low interest rates, stocks remain the most attractive asset class even though
Slide 40: Earnings Growth to Slow in 2014
Earnings Growth to Slow in 2014 2014 EPS Growth Sector EPS Growth PSEi Composite 5.9% Consumer 15.6% Banks 0.1% Property 13.7% Power 3.5% Telco 2.6% Conglomerate 7.9% Source: Bloomberg, COL Estimates Focus on sectors and stocks that will continue to deliver growth
Slide 41: Contagion – Winners and Losers
Contagion – Winners and Losers • Philippine corporates not too vulnerable • Not highly leveraged • No large refinancing requirements in the near term • Minimal exposure to dollar loans • Banks and airlines are most vulnerable • Rising interest rates and volatile markets to hurt trading portfolio of
Slide 42: PSEi Scenario Analysis
PSEi Scenario Analysis PSEi Targets Under Different Scenarios PSEi Target Base Case* Bear Case** End 2013 7,500 7,250 % Upside from 6,500 15.4% 11.5% End June 2014 7,700 7,450 % Upside from 6,500 18.5% 14.6% *Base Case, 10-yr T-bond rate at 4.0% **Bear Case, 10-yr T-bond rate at 4.5%
Slide 43: Strategy
Strategy • The Philippine stock market’s long term uptrend remains intact given the country’s solid ST and LT fundamentals, resilience to risks facing EM Asia, and the increase in liquidity that will result from the BSP’s move to limit access to SDAs. • Nevertheless, the performance of the stock mar
Slide 44: Strategy
Strategy • Focus on buying companies whose earnings growth are expected to remain strong next year and who are less vulnerable to the prevailing risk of contagion. • A staggered approach in buying stocks over the next few months should be adopted to increase the likelihood of getting a better averag
Slide 45: Stock Picks – Removing the Banks, Adding RLC and AC
Stock Picks – Removing the Banks, Adding RLC and AC “COLing the Shots” Model Portfolio Current FV Buy Date Buy Below Price Price EEI 12.50 16.50 30-Mar-12 14.35 PGOLD 40.50 48.00 11-Jun-12 41.75 AGI 26.45 28.11 11-Jan-13 24.40 MEG 3.18 4.78 11-Jan-13 4.16 TEL 3,074.00 3,500.00 11-Jan-13 3,043.00 DNL
Slide 46: Stock Picks – Removing Banks
Stock Picks – Removing Banks • We are removing BDO and Metrobank from our “COLing the Shots” model portfolio. • Over the long term, we still like the banks since we expect them to be major beneficiaries of the economy’s favorable growth outlook. We also don’t expect interest rates to go up substanti
Slide 47: Stock Picks – Removing Banks
Stock Picks – Removing Banks • However, banks could underperform in the near term due to the following reasons: • Highly vulnerable to contagion risk as potential increase in interest rates would hurt trading gains and value of stock holders’ equity. • Earnings growth in 2014 expected to be flat due
Slide 48: New Stock Picks - RLC
New Stock Picks - RLC (Php22.70, FV:Php28.17) • RLC is one of the three largest mall operators in the country. It is also involved in office leasing, hotels and residential development. • Bulk of revenues (64%) and profits (76%) come from leasing operations which have high visibility. Mall leasing r
Slide 49: New Stock Picks - RLC
New Stock Picks - RLC (Php22.70, FV:Php28.17) • EPS growth of 12.3% in FY13 and 11.1% in FY14. • Valuations have become very attractive, after the stock was sold off due to its removal from the MSCI small cap index and the breakdown of its talks with the Okada group. Potential upside to our FV is 24
Slide 50: New Stock Picks - AC
New Stock Picks - AC (Php600.00, FV:Php753.00) • AC is one of the oldest and largest conglomerates in the country, owning shares in market leaders such as Ayala Land, BPI, Globe Telecom, and Manila Water. • Aside from the said businesses, the company is taking steps to expand into the power sector.
Slide 51: New Stock Picks - AC
New Stock Picks - AC (Php600.00, FV:Php753.00) • AC is also one of the major players in the bidding for PPP projects. In 2011, it won the bid for the Daang-Hari PPP project. It also expressed interest to bid for CALAx, LRT 1 extension, and the Mactan-Cebu International Airport projects. • Potential
Slide 52: COL Financial
COL FINANCIAL HELPING YOU LIVE RICHER LIVES. For more information visit www.colfinancial.com
COL Financial Group — Investor Presentation (August 2013) on 6ix