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2H10FundamentalOutlook2H10FundamentalOutlook u yu y
Presentedby:Presentedby:Ms.Apri LynnTan,CFAMs.Apri LynnTan,CFA
HeadofResearchHeadofResearch
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PhilippineiswellpositionedforPhilippineiswellpositionedforgrowthgrowth
Wealthier consumers
opportunities
Strongfinancial
system
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OFWRemittances(US$Bil) BPORevenues(US$Mil)
70%14,000. -
50%
60%
10,000
12,000
37.3% 5-yr CAGR
20%
30%
4,000
6,000
,
0%
10%
0
2,000
Source:BSPBPORevenue Growth
Drivers of the 3.7% 11-year CAGR of real GNP per capita
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NumerousInvestmentNumerousInvestmentOpportunitiesOpportunities
LowlevelofinvestmenttoGDPLowlevelofinvestmenttoGDP
14%
Source:NSCB
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NPLRatioNPLRatio
Bankshealthy&liquidbalance
sheet
3.4%NPLratio93%NPLcover16%CAR
Source:BSP
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NewAdministrationtobeNewAdministrationtobecatalystforgrowthcatalystforgrowth
mprove Governance
InvestorCon ence
conom cReforms
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NewAdministrationtobeNewAdministrationtobecatalystforgrowthcatalystforgrowth
HighlightsofInauguralSpeech:Appointleaderswhoareethical,honestandtruepublicservants
Improvegovernment
finances
to
fund
objectivesforthepublicwelfare
Cuttingred
tape
dramatically
LevelingtheplayingfieldforinvestorsMakinggovernmentanenabler,notahindrancetobusiness
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PrioritizingFiscalDeficitPrioritizingFiscalDeficitProblemProblem
2010Deficittoreach3.9%ofGDP
Source:DOF
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PrioritizingFiscalDeficitPrioritizingFiscalDeficitProblemProblem
Deterioratingtaxcollectionefficiency
Source:DOF
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PrioritizingFiscalDeficitPrioritizingFiscalDeficitProblemProblem
Conse uencesofballoonin bud etdeficit:
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PrioritizingFiscalDeficitPrioritizingFiscalDeficitProblemProblem
Step1:Appo ntcompetentan et ca o c a s
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PrioritizingFiscalDeficitPrioritizingFiscalDeficitProblemProblem
Goal:Cutdeficit/GDPfrom4%to2%in3yearsbyimprovingtaxcollection
efficiency
ACTIONSTEPS
BIR BOC Runaftertax
evaders
(RATE)
Identify
smugglers Taxprofessionals Taxinformal
Identifycorruptofficialsthrough
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PrioritizingFiscalDeficitPrioritizingFiscalDeficitProblemProblem
Successessofar:
ev ewo pen ng axevas oncase
against
Richard
Gomez
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WeaknessinGlobalMarketsWeaknessinGlobalMarketsActasHeadwindActasHeadwind
Ma orconcerns:
anend
Sovereign
debt
crisis
in
Europe
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USeconomyhasroomtogrow Stimulusspending
Cautiousbusinesses row ngexports
n ma r s o e au n urope
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Only54%ofUS$787Biloffiscalstimuluspackagespentsofar
Source:Recovery.gov
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Capexspendingremainslimiteddespitereboundinprofits
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Temporaryhiringupstronglydespiteelevatedunemployment
Source:Bloomberg
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Exportstohelpfuelgrowth
USDollarExchangeRate
US$ down 28% vs. 2001
Driversofexports: WeakerUS$ Stronggrowthinemerginganddevelopingeconomies
+6.8%2010,+6.4%2011(IMF)
Fallingshare
of
exports
to
EuropeandJapan19.7%in2009vs.24.5%in1997
Source:Bloomberg
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US$700Bil
TARP
EUandIMF EUROPEEUROPEEUROPEEUROPE USAUSAUSAUSA
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Country 2010EPE EPSGrowth(%)
Australia 13.9 15.4
. .
HongKong 15.8 20.0
India 17.1 24.4
Indonesia 14.8 20.3
Korea 9.0 53.2
Malaysia 15.6 23.4
NewZealand 13.8 (12.9)
Philippines 13.1 28.0
. .
Taiwan 13.0 89.1
Thailand 11.7 18.9
s aex apan . .
Source:Bloomberg,IBES
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Focuson
valuation
relative
Catalysts
10yearaverageP/E:15.0X Datapointingtothesustainabilityoftheglobal
PSEicurrently
trading
12%
below2007peak,2010earnings
forecast to exceed 2007
economicrecovery
Improvementininvestor
earningsby21.6%
Prevailin
lowinflation
and
sentiment
interestrateenvironmentmay
justifyhighervaluations
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STHEADWINDSSTHEADWINDS
TAILWINDSTAILWINDSSTHEADWINDSSTHEADWINDSSTHEADWINDSSTHEADWINDS
TAILWINDSTAILWINDS
TAILWINDSTAILWINDS
StrongfundamentalsConcernson
StrongfundamentalsStrongfundamentalsConcernsonConcernson
economyeconomicgrowth
economy
economyeconomicgrowtheconomicgrowth
Relativelyfair
valuation
NewA ministration
&
Historicallycheap
Relativelyfair
valuation
Relativelyfair
valuation
NewA ministration
&
Historicallycheap
NewA ministration
&
Historicallycheap
valuationvaluationvaluation
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Overheating
GrowthgainsmomentumInflationpicksupCentralbankraisesinterestrates
Investorconfidenceisstrong
RecoveryGrowthpicksup SlowdownGrowthslowsdownEmploymentimprovingLowInflation
Value Growth
Inflationdrops
CashContraction
ContractinggrowthHighunemploymentLowInflationWe are hereWeakRevenuesDefensive Contrarian
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Stock
Picks Closing
Price
1H10 12Jan 20Jul
MWC 15.00 16.75 11.7%
EDC 4.80 4.50 6.3%
FGEN 9.60 9.70 1.0%
. . .
SECB 53.00 67.00 26.4%
. . .
PortfolioReturn 16.1%.
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Banks:Playonhigherinvestmentandconsumerspending
MBT 77.50 Rereting story
Tradingat
1.3X
11E
P/BV, below
average
P/BV
multiple
of
1.8X
SECB 78.00 Bestassetquality(2.9%NPL,209%NPLcover)
Tradingatonly8.2X2010EP/E
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Properties:Playonhigherconsumerspending
MEG 1.80 Hugelandbankinhighlyfavorablelocations
Hasthelargestportfolioandland bankofofficeleasingproperties
locatedinFortBonifacio
Tradingatasteep41.6%discounttoNAV,andonly8.5X10EP/E
RLC 17.25 Hasenoughlandbank tosupply45yearsworthofsalesforhigh
rise buildings
MajorbeneficiaryofREITlaw(malls60%ofNAV)
Tradingat34.9%discounttoNAV,10.9X10EP/E
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Properties:Playonhigherconsumerspending
FLI 1.26 Hasenoughlandbanktosupply3yearsworthofsalesformid
risebuildingsinManila
Tradingatasteep54.5%discounttoNAV,10.7X10EP/E
. uge an an ,mos aggress ve nres en a pro ec aunc es
BeneficiaryofREITlaw(malls24%ofNAV)
Bu
belowPh 14.00
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Others:
EEI 4.50 Playonglobaleconomicrecovery
.
DMC 20.00 Playonhigherinvestmentspending
Businessmodelnowfocusedonhighervalueaddedservices
BuybelowPhp17.50
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Others:
ICT 30.00 Playonstronggrowthofdevelopingandemergingeconomies
.
MWC* 22.50 Exampleofhowthegovernmentandtheprivatesectorcanwork
oge er o mprove n ras ruc ure
Expectearningsgrowthtoacceleratein2011dueto
implementationofratehike
*
theshortterm
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ThePhilippineeconomyhasastrongpotentialforgrowth,andthenew
administrationcould
be
the
catalyst
that
will
fuel
growth
ConcernsofadoublediprecessionintheUSandthedeteriorationof ,
relativelyfair
valuation
in
Asia
ex
Japan,
will
make
it
difficult
for
the
local
markettogoupinastraightpath.
However,wethinkinvestorsshouldfocusonthelongertermsince
concernsare
overblown
and
the
Phili ines
remains
chea
relative
to
its
historicalaveragevaluation.Correctionsshouldbeviewedas
opportunitiestoaccumulatestocks.
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ThankYou!ThankYou!