Stocks in Focus: MON 11 FEB 2019

CHP: Earnings miss but outlook remains

positive
4Q18 earnings disappoint on higher-than-expected costs due to landslide. CHP’s net loss in (AS OF FEB 08, 2019)
4Q18 widened to Php325Mil, from Php29Mil in 4Q17 mainly due to higher cost of sales as a result INDICES
of the landslide incident in its supplier Apo Land & Quarry Corporation (ALQC). Excluding non- Close Points % YTD%
core items such as forex losses and other losses, 4Q18 core net loss reached Php414Mil, bringing PSEi 8,070.89 -29.41 -0.36 8.10
FY18 core net loss to Php556Mil. This is a reversal compared to the Php952Mil core net income All Shares 4,896.32 -10.25 -0.21 8.38
registered in FY17. Financials 1,847.39 -10.43 -0.56 3.79
Holding Firms 8,033.00 17.69 0.22 9.41
Meanwhile, CHP’s 4Q18 EBITDA dropped 40.7% y/y to Php372Mil, bringing FY18 EBITDA to Industrial 11,678.17 -116.15 -0.98 6.64
Php2.8Bil, down 14.5% y/y. Results were below both COL and consensus estimates accounting Mining & Oil 8,739.62 -0.15 0.00 6.57
for 86.2% and 84.0% of full year forecasts respectively. The miss in our estimates was mainly due Property 3,997.85 -10.57 -0.26 10.19
Services 1,619.34 -0.56 -0.03 12.24
to the higher-than-expected impact of the said landslide to CHP’s costs. Excluding the impact
of the landslide, CHP’s 4Q18 EBITDA would have grown 25.5% y/y to Php788Mil, bringing FY18
Dow Jones 25,106.33 -63.20 -0.25 7.63
EBITDA to Php3.2Bil, down by just 1.7% y/y.
S&P 500 2,707.88 1.83 0.07 8.02
Nasdaq 7,298.20 9.85 0.14 9.99
Top Story:
INDEX GAINERS
BLOOM, PCOR: BLOOM to replace PCOR in PSEi Ticker Company Price %
ICT Int'l Container Term 114.00 2.61
Other News: SMC San Miguel Corporation 165.40 1.41
LTG LT Group Inc 15.52 1.04
CEB: CEB eyes more flights and routes to Japan SM SM Investments Corp 1010.00 1.00
Economy: Senate to push for higher excise tax on tobacco when session resumes in May FGEN First Gen Corporation 20.75 0.73

Market Summary:
INDEX LOSERS
The Philippine stock market declined on Friday along with other regional markets following Ticker Company Price %
renewed concerns over the trade dispute between the US and China. Last week, the media PCOR Petron Corporation 7.20 -6.01

reported that Donald Trump and Xi Jinping were unlikely to meet before the end of the 90-day RLC Robinsons Land Corp 21.60 -3.57
TEL PLDT Inc 1240.00 -3.35
truce in March.
JFC Jollibee Foods Corp 316.20 -2.11
DMC DMCI Hldgs Inc 12.42 -1.43
The PSEi slid 29.41 points or 0.36% to close at 8,070.89. The main drags were TEL (-3.35%), JFC
(-2.11%), BPI (-1.40%), BDO (-0.71%), and ALI (-0.55%). TEL continues to decline after it reported
higher 2019 capex of Php70Bil last week. On the other hand, top index movers were SM TOP 5 MOST ACTIVE STOCKS
(+1.00%), ICT (+2.61%), JGS (+0.62%), SMC (+1.41%), and LTG (+1.04%). Ticker Company Turnover
ICT Int'l Container Term 592,288,100
Meanwhile, the PSE also announced last Friday that BLOOM (+4.33%) will be replacing PCOR ALI Ayala Land Inc 463,288,400
(-6.01%) in the PSEi. On the other hand, IMI (-3.74%) and CHP (-4.26%) both fell after reporting BDO BDO Unibank Inc 365,416,700
weaker-than-expected 2018 results. SMPH SM Prime Hldgs Inc 278,713,100
AC Ayala Corporation 273,801,200
Value turnover increased to Php7.8Bil from Php7.4Bil from the previous session. Meanwhile,
foreigners continued to buy more shares for the 16th straight day, accumulating Php273Mil
worth of shares. This brought the year-to-date net foreign buying to Php22.5Bil.

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 11 FEB 2019

Stock in Focus:

FRANCES ROLFA NICOLAS CHP: Earnings miss but outlook remains positive
RESEARCH ANALYST
4Q18 earnings disappoint on higher-than-expected costs due to landslide
CEMEX HOLDINGS PHIL INC.
BUY
PHP3.20 CHP’s net loss in 4Q18 widened to Php325Mil, from Php29Mil in 4Q17 mainly due to higher
cost of sales as a result of the landslide incident in its supplier Apo Land & Quarry Corporation
(ALQC). Excluding non-core items such as forex losses and other losses, 4Q18 core net loss
reached Php414Mil, bringing FY18 core net loss to Php556Mil. This is a reversal compared to
the Php952Mil core net income registered in FY17.

Meanwhile, CHP’s 4Q18 EBITDA dropped 40.7% y/y to Php372Mil, bringing FY18 EBITDA to
Php2.8Bil, down 14.5% y/y. Results were below both COL and consensus estimates accounting
for 86.2% and 84.0% of full year forecasts respectively. The miss in our estimates was mainly due
to the higher-than-expected impact of the said landslide to CHP’s costs. Excluding the impact
of the landslide, CHP’s 4Q18 EBITDA would have grown 25.5% y/y to Php788Mil, bringing FY18
EBITDA to Php3.2Bil, down by just 1.7% y/y.

Exhibit 1: Results Summary

% of estimates
in PhpMil 4Q17 4Q18 % change FY17 FY18 % change COL consensus
Net Sales 5,223 5,513 5.5 21,784 23,418 7.5 99.5 97.9
Operating Income 315 43 (86.4) 1,987 1,366 (31.2) 73.0 63.8
Operating margin (%) 6.0 0.8 - 9.1 5.8 - - -
Operating EBITDA 628 372 (40.7) 3,256 2,783 (14.5) 86.2 84.0
EBITDA margin (%) 12.0 6.8 - 14.9 11.9 - - -
Operating EBITDA ex landslide 628 788 25.5 3,256 3,199 (1.7) - -
EBITDA margin (%) 12.0 13.0 - 14.9 13.3 - - -
Net Income (29) (325) - 659 (930) - - -
Core net income 138 (414) - 952 (556) - - -
Net Margin (%) 2.6 (7.5) - 4.4 - - - -
source: COL estimates, CHP, Bloomberg

4Q18 revenues grow driven by higher ASP

CHP’s 4Q18 revenues grew 5.5% y/y to Php5.5Bil on the back of a 6% increase in ASP. Recall that
the company increased its prices mid-November due to rising production costs. Meanwhile,
4Q18 volumes were flat y/y due to production constraints caused by the landslide. This brought
FY18 revenues to Php23.4Bil, up 7.5% y/y, in line with both COL and consensus forecasts.

Moving forward, we expect volumes to grow 8% in 2019, in line with the company’s volume
guidance of 8-10%. Meanwhile, we expect ASP to grow 4% this year as we expect better
pricing power resulting from the imposition of the safeguard duty on imports. Recall that the
Department of Trade and Industry imposed a temporary safeguard duty of Php8.4/bag for
200 days starting February 9. Another potential upside in ASP would be a higher tariff duty or
extension of the duration by the Tariff Commission. Note that the Tariff Commission is set to
come up with a final decision on the provisional tariff duty by May 28.

COL Financial Group, Inc. 2

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 11 FEB 2019

High raw materials cost erodes 4Q18 margins; better outlook ahead

4Q18 cost of sales grew 18.3% y/y to Php3.6Bil mainly due to higher raw materials cost as
mentioned above. Recall that the company had to source raw materials from other suppliers
following the landslide in ALQC. This in turn led to the contraction of 4Q18 gross margin to
34.4% (from 41.5% in 4Q17) and EBITDA margin to 6.8% (from 12.0% in 4Q17). Excluding the
impact of the landslide, 4Q18 gross margin would have declined by just 1pp to 41%, while
EBITDA margin would have improved by 1pp to 13.0%. Moreover, we estimate that cost per
unit in 4Q18 improved by ~4% q/q driven by lower fuel and power costs. Note that average
4Q18 oil prices declined by 14.5% q/q, while coal prices declined 9.7% q/q. Moving forward,
we expect margins to normalize as ALQC is now able to supply the company’s raw material
requirements, and further improve due to declining oil and coal prices and expected better
ASP as mentioned above.

Maintain BUY rating

We currently have a BUY rating and FV estimate of Php3.2/sh on CHP. We continue to like
CHP as we expect 2019 to be a better year for the company driven by lower input costs and
improving ASP. Moreover, valuations remain cheap. The stock is currently trading at 6.9X 2019E
EV/ EBITDA, a discount compared to the median 2019E EV/EBITDA of 9.0X of its regional peers.

Top Story:

JUSTIN RICHMOND CHENG BLOOM, PCOR: BLOOM to replace PCOR in PSEi

RESEARCH ANALYST

According to the PSE, BLOOM will be replacing PCOR in the Philippine Stock Exchange Index
(PSEi) starting February 18. This is after the PSE’s regular review of the indices to reflect
dynamic changes in company performance versus the standards set by the Exchange. The PSE
also announced changes in the composition of several sectoral indices except for Mining and
Oil. AUB will be removed from the Financials index, while PERC, PNX, and SSP will be dropped
from the Industrials index. FOOD, on the other hand, will be added to the Industrials counter.
For Holding Firms, SGI will be taken out, while IRC will be added to the Property Index. Finally,
CLC and TBGI will be joining the Services Index and MRP will be taken out. (source: BusinessWorld)

COL Financial Group, Inc. 3

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 11 FEB 2019

Other News:

RESEARCH ANALYSTS CEB: CEB eyes more flights and routes to Japan
ANDY DELA CRUZ
JOHN MARTIN LUCIANO CEB is looking to opening new routes to Japan this year, as the number of Filipino tourists to
FRANCES ROLFA NICOLAS
the said country continues to grow. CEB Country Manager for Japan Tomohiko Matsumoto
JUSTIN RICHMOND CHENG
said that the company is eyeing increasing frequencies of flights, and opening new routes to
ADRIAN ALEXANDER YU
other destinations such as Haneda, which services the greater Tokyo area, and Sapporo. In the
case of Haneda, Mr. Matsumoto noted that the Philippine government has to negotiate with
the Japanese government to expand the frequencies as competing airlines currently take up
all available slots. (source: Businessworld)

Economy: Senate to push for higher excise tax on tobacco when session
resumes in May

The Senate Ways and Means committee will submit a measure to raise the excise tax on tobacco
products when Congress resumes in May. According to committee chair Senator Juan Edgardo
M. Angara, although there is still no consensus on the final tax rate, there is an agreement to
increase the excise tax on tobacco products to raise funds for the universal healthcare bill. The
17th congress, which is now on a Feb 9-May 19 break, will only have between May 20 and June
7 to approve any bill. Note that Malacañang has said that President Duterte would certify the
tobacco tax hike bill as an urgent measure, which would allow it to be passed on second and
third reading on the same day.

Compared to the prevailing Php35 excise tax rate per pack, Senate Bill No. 1599 proposes
Php60, SB 2177 proposes Php70 while SB 1605 sets it at Php90. Meanwhile, House Bill No. 8677,
which was approved on final reading on December 3 provide a slight increase to Php37.50 per
pack. (Source: BusinessWorld)

Changes in Shareholdings:
Acquired or Price per
Stock Volume Person (Designation)
Disposed share
38,500 8.19
Necisto U. Sytengco
SBS 8,000 A 8.29
(Chairman of the Board of Directors)
12,000 8.30
Source: PSE

COL Financial Group, Inc. 4

 CALENDAR OF EVENTS DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 11 FEB 2019 FEBRUARY

SUN MON TUE WED THU FRI SAT

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K E Y E V ENTS HOL IDAY

FE B 5 FE B 1 2 FEB 26
HOLI DAY: CH INESE N E W YEA R T F C : A N N UA L SH A R E H O L D E R S M E E T I N G R C B : A N N UA L S H A R E H O LD ER S MEE TING

FE B 6 FE B 1 3 FEB 28
UB P: EX-DATE PH P1.90 C A S H D IV IDEND JO H: A N N UA L S H A R E H O L D E R S M E E T I N G I S : A N N UA L SH A R E H O L D ER S MEE TING
V MC: ANNUAL SH ARE H OLDER S M EE T ING
FE B 2 5
FE B 8 HO LIDAY: E D S A P E O PL E P O W E R R E V O LU T I O N
MED: ANNUAL SH ARE HO LD ER S M EE T ING A NNIV ER SA RY

COL Financial Group, Inc. 5

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 11 FEB 2019

IMPORTANT RATING DEFINITIONS

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the next six to
12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

ANDY DELA CRUZ JOHN MARTIN LUCIANO FRANCES ROLFA NICOLAS

SENIOR RESEARCH ANALYST SENIOR RESEARCH ANALYST RESEARCH ANALYST
andy.delacruz@colfinancial.com john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com

JUSTIN RICHMOND CHENG ADRIAN ALEXANDER YU

RESEARCH ANALYST RESEARCH ANALYST
justin.cheng@colfinancial.com adrian.yu@colfinancial.com

COL FINANCIAL GROUP, INC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 6