Short Takes

Friday, July 10, 2020 P a g e | 1

TODAY'S FOCUS: LOPEZ GROUP

IN FOCUS
We have collated some recent news and observations, all related to the Lopez group, and
tried to thread them into a coherent plan on how to trade them.
LPZ
(P2.71, -0.7%)
1. Late last night, it was confirmed that the Committee on Legislative Franchises will
vote on whether or not to renew ABS-CBN’s franchise today. We have no idea how
FPH it will turn out and it is too speculative to make a recommendation. If approved, the
(P64.20, +0.3%)
stock could rocket higher because it is close to a 10-year low. Keep in mind,
ABS however, that even if the House and Senate ratify a bill, it can still be vetoed.
(P15.18, +1.5%) Moreover, the downside is also large because there may be no recourse if voting
turns out to be negative.
GMA7
(P5.71, +4.0%) For those who want to play GMA7 instead, we reiterate that the benefit of a negative
vote is not as large as it may seem. Advertising minutes are largely finite and
FGEN consumers are switching to digital platforms in greater numbers. Also, the stock is
(P24.00, -1.2%)
already trading at a four year high so the upside may be limited.

2. Yesterday, FPH disclosed that its board has reset the end date of its share buyback
program to July 2022. With Php4.93B remaining, the buyback could reduce the
current float by more than 30%. The company hasn’t been very aggressive in buying
back shares over the past year but we believe that the purchase last Tuesday, even
after a good rally, is a good sign. This should also dispel rumors that the Lopez
group is in danger of default because of alleged debt guarantees related to ABS.

3. A few days ago, we mentioned Bloomberg’s piece on FGEN in which KKR’s

managing director spoke about financing constraints for new coal projects. We
believe this is related to ESG concerns which then reminded us that the entire Lopez
group could actually be candidates for ESG focused investors.

4. Lastly, we noticed that since mid-2016, LPZ’s share price has fallen nearly as much
as ABS. It is as if the former derives most of its value from the latter which isn’t
true. FPH is actually the biggest value driver for Lopez. In fact, even if ABS were to
drop to zero, LPZ would still be worth about Php3.65 per share. Moreover, FPH
itself is severely undervalued given that the market value of FGEN alone contributes
Php113.8 per share to its net asset value which is 77% above its current price.

Bottom line: Investors have an option apart from GMA7 if the House returns a negative
bite later today. Buying LPZ if it gets sold down may prove lucrative for those with long
horizons.
 Short Takes
Friday, July 10, 2020 P a g e | 2

IN FOCUS

Interest Rates

SIGNIFICANT DIGITS

The last BSP rate cut, combined with massive excess liquidity, continues to push interest
rates down. The chart below compares the current yield curve (dark green) against the
historical low for each tenor from the 91-day T-bill all the way to 25 years. As shown,
tenors along belly of the curve are within a fraction of their respective all-time lows. For
now, there appears to be momentum for rates to go even lower especially after Gov.
Diokno said further reserve ratio cuts remain on the table. Nevertheless, we maintain that
any upside for bonds is limited and that investors should be more concerned about
interest rate risk moving forward, especially 6-12 months from now.
 Short Takes
Friday, July 10, 2020 P a g e | 3

RANDOM THOUGHTS
IN FOCUS
1. CEB disclosed that it will have to let go of 800 employees (20% of total) by next
month in order to cope with the effects of the pandemic. Despite this, the stock
CEB actually gained 1.9% yesterday. For us this is a sign that investors have indeed
(P42.20, +1.9%)
priced in all the negatives or at least they have become indifferent to bad news.
MWIDE Meanwhile, Airasia’s auditor was reported to have issued a qualified opinion, citing
(P7.30, +4.3%) issues about the airline’s ability to continue as a going concern. The company was
quick to allay concerns, noting that it was in talks for additional financing totaling
one billion ringgit. Nevertheless, Airasia may be forced cut back on expansion plans
in the Philippines or even reduce capacity to minimize losses. CEB should be the
main beneficiary if this indeed happens. Long term investors should buy on dips
with an eye toward at least Php60.00 by end-2021.

2. As we noted yesterday, eyes may turn to MWIDE after the original proponent status
(OPS) for the rehabilitation of NAIA was withdrawn from the mega consortium.
However, when we reached out to management, they said that they don’t actually
know who the government was referring to when it was revealed that two groups
were vying for the project. MWIDE explained that the PPP process provides that the
next proposal should be given OPS which means that technically, they are next in
line. However, they also acknowledged that it is up to the government if this will be
followed. Given this, we now believe MWIDE is NOT one of two groups
mentioned as interested in NAIA. Investors should not trade based on this news.
 Short Takes
Friday, July 10, 2020 P a g e | 4

SHAREHOLDING DECLARATION

The analyst(s) who worked on this report may or may not own shares in the above-mentioned
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KEY TO RECOMMENDATIONS

Abacus Research’s technical comments are short term in nature and are trading oriented. Our
fundamental views, on the other hand, are medium term calls, usually with a 12-month investment
horizon. Buy: More than 10% upside from the share price as of the report date. Hold: from 5%
downside to 10% upside from the share price as of the report date. Sell: Greater than 5% downside
from the share price as of the report date.