The Bellwether – 116

Releasing the 16th issue of The Bellwether, as published by FMIC's IAG-Research. This is a fortnightly publication on market action and outlook. The following are the highlights of the issue:

-Upgrading GT Capital’s target price to Php721/share

-DMCI Holdings Inc. (DMC) builds up mining to 28% of our NAV/share estimate of Php58.00

- Semirara Mining Corp.’s (SCC) 17% earnings growth in 2013 to Php7.2bn

Upgrading GT Capital’s target price to Php721/share

Equity value rises on consolidation and expansion

We’re upgrading our target price to Php721/share from our last DCF valuation of Php615/share in table 1 on page 3. This was based on the slightly lower than the average EV/EBITDA multiple of RP conglomerates, 9-10x in tables 2 and 5 on pages 3 and 5, respectively. Earnings driver is the consolidation of Toyota Motor Philippines Corp. (TMP) and Global Business Power Corp (GBPC). by next year. These two dominant industry players complement the organic growth of associates and subs in banking, insurance and property. We expect the full year impact of incremental attributable earnings from these two outfits in 2013. GT Capital Holdings Inc.’s (GT Cap) ownership of TMP will rise to 51% from current 36% and GBPC to 63% from current 51%, respectively. At our EPS estimate of Php45/share next year -- Php7.2bn earnings (to common) --which is aligned with the consensus of Php45/share, PE at the last price of Php600/share stands at 13x.

DMCI Holdings Inc. (DMC) builds up mining to 28% of our NAV/share estimate of Php58.00

Mining investments are too young to fully replace lucrative contract with Benguet Corp (BC).

DMC sees Php500m earnings contribution in 2013 from the Acoje Nickel Mine (ENK), where it has a 60% ownership. That amount hardly replaces total earnings from nickel mining with BC, which in 2010 reached a high of Php1bn. It is also not enough to tilt back earnings to pre-Maynilad divestment to Marubeni Corp., where DMC gets a yearly share of 42%. Maynilad’s 14% of DMC’s Php7.2bn 9mo2012 earnings or Php1.9bn and is the second biggest earnings contributor to flagship coal mining and electricity arm, Semirara Mining Corp. (SCC) with total earnings contribution of Php2.8bn. Nickel mining operations are separate from coal mining which is housed under SCC. DMC’s nickel mining income was hugely sourced from a nickel contract mining with BC, but that expires this year. ENK owns the Acoje mining tenement which has nickel ore reserves of about 70m tons, 20m of which are high grade. DMC, through ENK, is loading its first shipment of high grade nickel this month after DMC took over as owner and sees to make $358k in profits (Php15.3mn) on said shipment.

Semirara Mining Corp.’s (SCC) 17% earnings growth in 2013 to Php7.2bn

Flat earnings in 2012 at Php6bn