Market Notes April 4 Monday

ACCORD CAPITAL EQUITIES CORPORATION
GF EC-058B East Tower, PSE Center, Exchange Road, Ortigas Center, Pasig City, PHILIPPINES 1605 (632)687-5071 (trunk)
MARKET NOTES_Week 14_TD66_April 4, 2011_Monday
source: www.pse.com.ph
TELCO INDUSTRY SHAKE-UP. Last week's biggest market news was the binding agreement entered into by
industry giant Philippine Long Distance Telephone Co. [pse: TEL/ nyse: PHI] and Gokongwei-holding firm,
JG Summit Holdings, Inc. [pse: JGS] for the former's acquisition of the latter's entire stake in Digital
Telecommunications Philippines, Inc. [pse: DGTL.]
This provided market participants with enough excitement and, consequently motivation to dabble into
stocks of these companies notwithstanding the continuing crisis in the MENA region, Europe's tempered and
still hotly-debated Emergency Mechanism Facility set to take effect in 2013, the twin-disasters that hit
Japan, the persistent inflation problem in China and economic data from the US casting doubts on the
world's largest economy's rebound off the recession. Not even the BSP's sooner-than-expected 25 basis
points adjustment in policy rates in the face of rising inflation dampened sentiments.
Shares of the three firms sprung to life with TEL and GLO registering gains of 16.4% and 22.3%,
respectively, overshadowing the PSEI's 6.5% advance. Both also outperformed the Service sector composite's
12.4% jump.
TEL's rebound erased more than half of the

php530.00 (-20.75%) 12-week slide off its recent
peak at php2,554.00. The slide was precipitated as
the Company reported flat bottomline growth for
2010 and, in the same breath, indicated it may
continue to see slower growth in the next two years.
GLO on the other hand, has been on the rise since it

bottomed at php660.00 five weeks ago. Previous to
that, GLO share price slumped for almost six (6)
week after peaking at php828.00. GLO's 2010
performance was even worse with net income
narrowing by more than 20 percent. As may be
seen from the chart to the left, GLO share price was
already buidling on a slight uptrend on slow
accumulation weeks prior to the PLDT-JGS share
exchange was made public.
DGTL however, slipped -0.6% to php1.54, after the

deal pegged the tender offer price to minority
shareholders at only” php1.60. Prior to the
announcement, DGTL traded at an intraday high of
php2.00, ending the session at php1.83. DGTL
reported a 65% rise in its net income for 2010,
sustaining the turnaround from previous years'
losses.
14.00
JGS shares rose for a third straight week to

12.00
10.00
php24.50. 8.00
6.00
The increased volatility in the shares of the top 4.00
three telco players is vividly seen in the steep rise in 2.00
their respective standard deviations and variances, -
smoothed over a 5-day simple moving average.

TEL GLO DGTL
DISCLAIMER: THE MATERIAL CONTAINED IN THIS PUBLICATION IS FOR INFORMATION PURPOSES ONLY. IT IS NOT TO BE REPRODUCED OR COPIED OR MADE
AVAILABLE TO OTHERS. UNDER NO CIRCUMSTANCES IS IT TO BE CONSIDERED AS AN OFFER TO SELL OR A SOLICITATION TO BUY ANY SECURITY. WHILE THE
INFORMATION HEREIN IS FROM SOURCES WE BELIEVE RELIABLE, WE DO NOT REPRESENT THAT IT IS ACCURATE OR CO MPLETE AND IT SHOULD NOT BE RELIED UPON
AS SUCH. IN ADDITION, WE SHALL NOT BE RESPONSIBLE FOR AMENDING, CORRECTING OR UPDATING ANY INFORMATION OR OPINIONS CONTAINED HEREIN. SOME OF
THE VIEWS EXPRESSED IN THIS REPORT ARE NOT NECESSARILY OPINIONS OF ACCORD CAPITAL EQUITIES CORPORATION ON THE CREDIT-WORTHINESS OR
INVESTMENT PROFILE OF THE COMPANY OR THE INDUSTRIES MENTIONED.
DAILY Report Page 1 of 4
Sector Profile:
As at the end of 2010, the Telecommunications

PTT, 0.04% DGTL, 1.54%
subsector had a combined market capitalization of PCEV, 10.64%
php685.297 billion, or roughly 10% of the entire GLO, 17.87%
market.
LIB, 0.86%
The bulk of the subsector pie is accounted for by
TEL (69.6%) and GLO (15.45%). DGTL's share is
1.37%, behind PCEV's almost 13 percent. The
latter, however, has been thinly traded since its free
float was squeezed to half-a-percent following
Smart Communications, Inc take-over of PLTL and
has since been reorganized as the holding firm for
the Pangilinan-group's interests in distribution
ulitility, Manila Electric Company (pse: MER.) The
pie illustration shows the updated percentage share
of telco stocks as of Friday, April 1, 2011. TEL, 69.06%
50.00 Valuations-wise, DGTL, even at last Friday's close at

40.00
php1.54, or -15.85% off its pre-announcement level
of php1.83, remains relatively overvalued, vis-a-vis
30.00
its peers, TEL and GLO as well as relative to the
20.00 industry and the entire market's earnings multiples.
10.00
The chart to the left shows the historical PE levels of
the market, the sector, subsector and the shares
0.00 involved. Noticeably, since 2009, despite erratic
2006 2007 2008 2009 2010 Jan-11 Feb-11 Mar-11 Apr-11
-10.00 swings in its bottomline, DGTL has traded way
above the market and sector norms. On the other
-20.00
hand, those for the industry giants have stayed close
SVC Total Market TELCO DGTL GLO TEL
to the average and consistently below the market.
The Deal.
Last March 29, the Board of Directors of both TEL and JGS entered into a binding agreement wherein the
former acquires the latter's 51.55% stake in telco unit DGTL, bonds convertible into 18.1 billion common
DGTL shares and php34.1 billion worth of advances made to DGTL and its subsidiaries. For and in
consideration of these “assets,” both parties agreed to a total valuation of php69.2 billion which will be paid
in the form of one (1) TEL common share for every php2,500 of earlier mentioned consideration value. The
transaction results in JGS owning approximately 12.8% of TEL's expanded share capital which allows the
Gokongwei group to have one (1) board seat. TEL, on the other hand, under the rules, will make a tender
offer for the minority shareholders at php1.60 per share, either in the form of TEL shares (php2,500 per
share) or cash. For the above purpose, assuming there if full tender, TEL will be issuing a total of 29.65
million new shares. Factoring in the full acceptance by minority shareholders of the tender, total value of
the transaction, seen for completion this quarter, pulls up to php74.1 billion. An additional feature of the
agreement provides for a put and call agreement with an associate of First Pacific, where such company may
acquire 5.81 million TEL shares from JGS at php2,500.00 each. The exercise of such option will bring JGS'
stake in TEL to 10.1 percent.
Prior to the announcement of the deal, TEL and GLO registered year-to-date losses of -21.77% and -6.75%,
respectively. GLO, however was already on the rebound after falling by as much as -17.5% to php660.00 in
the preceding two weeks. Gokongwei stocks DGTL and JGS gained 25.0% and 23.65% for the year through
March 29th. Post-disclosure, TEL erased 64% of the losses, trimming year-to-date losses to -7.75 percent;
GLO reversed the 2011 losses, posting gains of +7.5 percent; JGS has been unchanged while DGTL took
back over 80% of the gains, staying php0.06 above its 2010 closing price.
Much has been said and heard about the possible impact of the transaction. Obviously, the industry has
once more narrowed to just two players, or what Fitch Ratings referred to in its outlook for PLDT as duopoly.
This will make competition more intense between TEL and GLO, which both saw margins squeezed last year.
It has been said that JGS is the biggest beneficiary of the transaction. The Gokongwei holding company has
“disposed” of a “headache” (DGTL has been unable to consistently return a positive bottomline, even as it has
dented the market share of the big telcos through its pricing schemes) while maintaining an equity share in
its operating and financial performance moving forward through its 10% stake in TEL, not to mention a
board seat in what is now incontestibly the largest telco in the country. TEL, on the other hand, has
“removed” the competition, while managing to expand its subscriber base and grabs a market “niche” that
the price-wars had created. GLO over the near term, appears to be holding the shorter end of the stick.
Nevertheless, it has seen investors plucking up its shares after the deal was made.
The main question being addressed at present is whether GLO will be “squeezed out” with TEL taking
significant position in the lower-end of the market while keeping competition stiff at the other extreme.
There has likewise been concerns on what TEL will do next, particularly in terms of DGTL (Sun Cellular)
pricing packages. Others are inclined to posit that these schemes will be gradually wiped out with new plans
introduced to widen margins. On the other hand, one can argue that such pricing schemes, which allowed
SUN to capture a decent market share, will be continued with margin improvement contributed by the
rationalization of the combined operations, initially via the removal of redundancies that will allow the
economies-of-scale to do its work, from the operating and overhead costs standpoint. While we are inclined
towards the latter scenario, any further judgments on the prospects of the industry as a whole will depend
on an official declaration from PLDT on its plans post-acquisition.
GLO:
On hindsight, aided by the chart, accumulation of

GLO shares actually began when price dropped to
the php750-775 range in early February as shown
in the period indicated between the dotten vertical
lines. Even as price continued to its first rebound
off the php660-line, the MFI (14) [bottom] moves in
the opposite direction, suggesting a stronger
positive flow. Even as it momentarily broke below
such uptrending line accompanying the second
touch of the php660 level, the longer term trend
(dotted arrow-line @ MFI chart) remained valid.
True enough, the stock moved higher since,
exploding at a steeper slope following the TEL-JGS
deal on DGTL.
While the MFI(14) and MACD(12,26,9) indicators

continue to suggest positive momentum, there are
two hints that a technical correction may be
imminent. First, a gap php746 and php770 was
opened between March 29 and 30, timed with the
afore-discussed deal. Furthermore, we have seen
that a push past the php900-line remains a
challenge. Second, the STO(14,3,3) indicator puts
the stock at and relatively high and overbought
levels. Initial support is at php820, with a possible closing of the gap at php740-750 not discounted.
Nevertheless, the stock should sustain its momentum over the near term making such rallies as a high
opportunity for profit taking.
Our stance on the counter is to TRADE accordingly. A rise to the php900-level posits a SELL while a drop
towards the gap, partcularly on thin volume turnover, should merit a medium- to long-term BUY proposition.
TEL:
TEL share price opened with a php200.00 gap post-

deal announcement, reversing a year-to-date long
slide. As in the case with GLO, STO(14,3,3) puts it
well inside the higher end of its trading band, and
consequently, price overbought condition.
MACD(12,26,9) and MFI(14) are still showing
sustained positive momentum heading into April.
Again, our concern is raised by the earlier
mentioned gap and its failure to hold levels at 2,380
in the last three sessions.
The long-term fundamental prospects of the

Company are definitely positive, meriting a similarly
horizoned buy and hold period. Nevertheless, the
near term may create some price negativity as it
squeezes out the exuberance carried by the deal
with JGS.
Initial support and resistance levels are at 2,250

and 2,420, respectively. An initial pull-back to the
2,230 may invite some trading activity on the buy-
side. HOLD, Buy on Weakness
DGTL:
DGTL share price expected fell below the

announced php1.60 tender offer price, a logical
reaction by investors and the market as a whole.
Obviously, the market does not foresee the price of
the counter going past that level at least before the
tender offer is made and completed.
The overriding concern therefore is what happens to

the issue after an assumed full tender? The first
obvious answer is that its public float will dry up –
no different from PCEV (formerly PLTL) whose free
float is only 0.5 percent. Liquidity past the tender
offer will then depend on what PLDT intends to do
with DGTL. If it commits to keep the stock listed,
then, it should make a public offering pretty soon.
Otherwise, if it doesn't do so, the rules of the
Exchange, if any, on companies falling under the
minimum public float requirement will take effect
and the prospects of delisting faces investors
squarely. Then again, the PCEV experience may be
used as a parallel. The stock remains tradable, to-
date.
With opportunities in other counters emerging in the market, we are veered towards a SELL on the counter,
until there is clarity on PLDT''s plans. Of course, the investor who currently sustains losses on the stock
(particularly those who bet above php1.60 prior to the deal) may opt to tender their shares when the offer
comes along.

Market Notes April 4 Monday

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ACCORD CAPITAL EQUITIES CORPORATION

TEL's rebound erased more than half of the

GLO on the other hand, has been on the rise since it

DGTL however, slipped -0.6% to php1.54, after the

JGS shares rose for a third straight week to

The increased volatility in the shares of the top 4.00

three telco players is vividly seen in the steep rise in 2.00

their respective standard deviations and variances, -

smoothed over a 5-day simple moving average.

As at the end of 2010, the Telecommunications

50.00 Valuations-wise, DGTL, even at last Friday's close at

On hindsight, aided by the chart, accumulation of

While the MFI(14) and MACD(12,26,9) indicators

TEL share price opened with a php200.00 gap post-

The long-term fundamental prospects of the

Initial support and resistance levels are at 2,250

DGTL share price expected fell below the

The overriding concern therefore is what happens to

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