Holdingfirms,powerandminingdeemedgoodbuys

Philippine Daily Inquirer

11:10 pm | Tuesday, October 18th, 2011
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MANILA, PhilippinesThe stock market volatility seen in the third quarter may have
unnerved many investors but the pullback from record highs has also opened up
opportunities for those wishing to make some of their money work harder for them in this
low-interest rate environment. But its never easy to just pick up cheap stocks in a frenzy
in an environment where the market is at the brink of a bear territory and still searching
for the bottom. Inquirers Doris Dumlao thus asked a mix of stock market professionals
two floor dealers, one fund manager and one research analystwhat they thought
would be good buys at the local stock market in the fourth quarter. They each gave
their top three stock picks, taking into account valuations at the end of the third quarter.
This survey shows holding firms, power and mining as the most favored sectors for the
remainder of the year mainly because of their attractive valuations relative to potential
earnings.
Luz Lorenzo
Economist/head of research
ATR Kim Eng Securities
Our top picks are Ayala Land Inc., Aboitiz Power and Banco de Oro. Reasons common
to the three are: good earnings growth in 2011 and 2012.
blue chip status and regular dividends mitigate risk in volatile environment attractive
valuations.
We like ALI because of its robust profit growth and broad revenue base given presence
in many areas of property development protects against downturn in any particular
segment. We see a potential 15 percent upside on target price of P19 per share.
Aboitiz Power has a dominant industry position in power generation and distribution. It
has a potential upside of 19 percent on target price of P37 per share. It has an attractive
yield of over 4 percent.
For BDO, we upgraded our 2011 earnings and price target to P71 per share implying a
25 percent potential upside from current price. It has an impressive loan growth in the
first half of semester and posted better-than-expected trading and foreign exchange
income. It continues to beef up capital base.
Alejandro Yu
President
R.S. Lim & Co.
1. Alliance Global (AGI)
I like it because of its diversity. The businesses it is in form a broad spectrumliquor,
fast-food, real estate and, the center piece these days, gaming. At the recent trip of
President Aquino to China, an interesting sidelight was an informal meeting between
Belle Groups Willy Ocier and Megaworld/Alliance Globals Andrew Tan, from which
speculation abound about a possible merging of forces, a synergy which could benefit all
parties. Whatever happens, the gaming industry stands to gain. The ultimate goal is to

attract gamblers who frequent Macau and Singapore to give our country a try. We do
have more to offer for the tourist dollar.
Another discussion point is what AGI will do in reaction to the recent disclosure that its
main competitor, Jollibee Food Corp., has just acquired 54 percent of the local franchise
of fast food chain Burger King.
On the distilled spirits side, traditionally liquor sales also get a big boost in the fourth
quarter as we approach the holiday season, this should bode well for AGIs income
stream.
AGI is trading at 8.1x PE
2. Aboitiz Power
Its price-to-earning ratio is low at 9.3x. Its revenue stream is steady. It recently
inaugurated a new power plant and has been continuously seeking new partners and
possible tie ups. It is quiet but is operating very efficiently. Aboitiz Power is a solid stock
and if you are looking at the power sector, it is a good default buy. It has hurdled
pressures post IPO and hasnt looked back since then.
3. SM Development Corp. (SMDC)
Colliers International recently said it is the No.1 condominium developer and I
personally think it will continue so especially in the fourth quarter, when many overseas
Filipinos come home for the Christmas season and among their priorities is to invest in
affordable, accessible living quarters for their families. With the recent spate of typhoons
and tropical depressions, when widespread flooding occurred, moving into medium and
high rise structures makes a lot of sense. Add to this the model that SMDC has refined,
wherein their condo structures incorporate mini-malls, supermarkets, theaters as among
its basic and standard amenities. The company has also managed to locate their
developments near schools and universities.
Gus Cosio
President
First Metro Asset Management Inc. (FAMI)
1. DMCI Holdings
The markets consensus earnings per share (EPS) for 2012 is upward of P5 and it looks
like DMCI is on track. At todays price, DMCI Holdings is trading at less than 6.5 times
the 2012 expected earnings per share. Thats just too cheap for a company which has
interest in a water utility. If Maynilad Water were valued today for an initial public offering,
it will approximate the market cap of DMCI. Im also looking at the underlying businesses
like Calaca and Semirara. I also think that if PPP (public private partnership) kicks off
next year, DMCI will be one of the beneficiaries of PPP, being one of the more important
builders in the infrastructure space.
2. Semirara Mining
It (Semirara) is also trading at about 6.5 times EPSnot a premium for the holding
company. Our estimate for 2011 EPS is about P16.85 implying a price to earnings
multiple of 10.5x. For next year, our EPS estimate is around P27, which means it is
trading at 6.5x. We estimate a 32-percent growth in net profit next year to P7.9 billion.
This will come from expanded energy sales of 2.4B kilowatt per hour compared to 2B
kwh this year. Shipment of coal is slightly lower but prices are holding up. It is in talks
with Meralco and is prepared to contract 75 percent of its running capacity to Meralco. It

looks like capacity is holding pretty well. Fuel is expected to remain steady and since
Semirara has the coal, it can control the cost. We estimate that coal sales volume is
about 6.5 million metric tons3.9 million for domestic demand and 2.6 million for
export.
3. Oriental Peninsula Resources Inc. (ORE)
Its price has gone down so much but I still like the mining story because when you talk
about mines, you talk about finite resources and whoever has the finite resource and can
deliver it profitably to the market has a built-in advantage. And from what I gather, ORE
has that. It has actually been producing and had delivered 23 shipments. It is confident
about doubling its target next year to 54 shipments from its two mines, Pulot and
Toronto. It is in line with its full-year EPS of about P0.61 and is trading at a PE of about
5x. For 2012, our EPS estimate is P1.45 per share so at its current price, it is trading at
only 2.1 times its projected earnings. For a stock thats already been delivering to
buyers, its worth the investment. It also has a good cash position. We expect its third
quarter earnings to duplicate the second quarter level despite soft LME (London Metal
Exchange) prices.
Manuel Lisbona
Deputy chief
PNB Securities
1. Alliance Global Inc. (AGI)
Buying AGI is not unlike buying a casino/hotel/resort operator (Resorts World), real
estate developer (Megaworld), liquor distiller (Emperador) and major US fast food chain
(McDonalds) in one shot. What makes AGI even more interesting is that its investee
companies are major players in their respective industries. As of end Sept 2011, AGI
was trading at 7.7x earnings (2012 forecast) and 1.2x book value.
2. Energy Development Corp. (EDC)
Though the company reported a loss of P2.3 billion in first half 2011, the cause of the
loss was a noncash impairment charge resulting from the scaling down of the capacity of
its Northern Negros plant. EDCs right-sizing initiatives will reverse the cash hemorrhage
from this plant. As of end Sept 2011, EDC was trading at 8.5x earnings (2012 forecast)
and 4x book value.
3. Abra Mining (AR)
This recommendation is for the more adventurous (risk tolerant) players. AR slept
through last years bull run but has caught the attention of players on the back of a jointventure with Canada-based Olympus Pacific Minerals and the surge in gold prices in
the world market. Although gold is currently trading off its high of US$1,900/oz, it seems
that the current price (US$1,600/oz) is a level at which many mining projects are viable.