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For internal discussions only




                                Research and Data Banking Unit
                         ...
Multinational Investment Bancorporation


Agenda

■ Financial markets after the crisis
■ Global economy: Status and outloo...
Multinational Investment Bancorporation




          Financial markets after the crisis




Research and Data Banking Uni...
Multinational Investment Bancorporation

  Credit crisis evolution
  Lehman collapse sparked sell-off
1. Market      2. Sp...
Multinational Investment Bancorporation


Credit markets are improving

Corporate Bond Market                             ...
Multinational Investment Bancorporation


Risk appetite returning slowly

Financial markets: more optimistic
  4.5        ...
Multinational Investment Bancorporation

Worldwide write offs in financial institutions
have reached USD 1,622 bn
Writedow...
Multinational Investment Bancorporation


Regulatory changes: What to expect?
 Capital requirements
       Higher capital...
Multinational Investment Bancorporation




                                    Global Economy
                           ...
Multinational Investment Bancorporation



In March global economy started to recover from crisis
Purchasing Manager Index...
Multinational Investment Bancorporation


Asia: V-Shaped recovery driven by China
Helped by large external reserves
GDP gr...
Multinational Investment Bancorporation


USA: Private consumption benefiting from fiscal stimulus
Car Sales              ...
Multinational Investment Bancorporation


USA: Housing market bottoming out
Not expected to go back to previous level for ...
Multinational Investment Bancorporation


Outlook: Recovery will be slow
• Financial system impaired...
• Government suppo...
Multinational Investment Bancorporation




                                 Philippine Economy
                          ...
Multinational Investment Bancorporation


Sharp slowdown in domestic activity
Real GDP Growth, y-o-y
   10
               ...
Multinational Investment Bancorporation


Worst contraction followed by a sharp rebound
Seasonally Adjusted GDP Growth Rat...
Multinational Investment Bancorporation



Government spending filled output gap
Fiscal Deficit                           ...
Multinational Investment Bancorporation


Private consumption spending coming back
Consumption Expenditure Growth and Cons...
Multinational Investment Bancorporation


Strong growth in remittances supported consumption
OfW Remittances              ...
Multinational Investment Bancorporation


Unemployment steady but remains a concern
Employment Conditions
  20.0          ...
Multinational Investment Bancorporation



Capital investment dragged growth
Expenditure Side Growth, y/y
                ...
Multinational Investment Bancorporation



Imports slowdown negated contraction in exports
Trade Balance
    7,000
    6,0...
Multinational Investment Bancorporation



Services have taken up the slack from Industry
Production Side Growth, y/y
    ...
Multinational Investment Bancorporation



Industry struggled as manufacturing slumped
Industry Sector Growth, y/y
       ...
Multinational Investment Bancorporation


Philippines recovery is underway
Composite Leading Economic Indicator




Source...
Multinational Investment Bancorporation


Monetary policy expansion set up stage
Policy Rate and Inflation (%)
   14

    ...
Multinational Investment Bancorporation


GIR is at its healthiest
Gross International Reserves
   45,000                 ...
Multinational Investment Bancorporation


Banks continue to lend and are healthy
Credit and Money Supply Growth – U/KBs
  ...
Multinational Investment Bancorporation


2010 national elections to boost the economy
 •    National Elections in 2010 pr...
Multinational Investment Bancorporation


Typhoons expected to have short-term net negative impact




Source: ATR KimEng
...
Multinational Investment Bancorporation



Economic Forecasts
Government Estimates
                                       ...
Multinational Investment Bancorporation


Concerns on growth
 Electronics exports expected to remain weak due to falling
...
Multinational Investment Bancorporation




                                    Capital Markets
                          ...
Multinational Investment Bancorporation



Index returned as much as 68% from 1Q09 Lows
PSE Composite Index
 4000


 3500
...
Multinational Investment Bancorporation



Equities market to follow the way of the economy
GDP Growth vs PSEi Returns
 10...
Multinational Investment Bancorporation


Market valuations have normalized
                                              ...
Multinational Investment Bancorporation


Market valuations above LT average P/E 15x
Still attractive given previous ralli...
Multinational Investment Bancorporation


Philippine market attractive
Relatively cheaper than neighbours
PSEi: Historical...
Multinational Investment Bancorporation


Abundant liquidity and cheap money to drive equities
market
                    ...
Multinational Investment Bancorporation


Market was expecting a correction...
Instead the index rallied after consolidati...
Multinational Investment Bancorporation




                                    Capital Markets
                          ...
Multinational Investment Bancorporation


Short-end at lowest while belly-end bonds have climbed
Benchmark Yield Curve – G...
Multinational Investment Bancorporation


Growth in money supply not yet seen in inflation
Money Supply and Inflation Rate...
Multinational Investment Bancorporation


Crucial to keeping local rates down in 2010
Fiscal reform outlook
      Consoli...
Multinational Investment Bancorporation


NG financing program

                     In billion                     2010
 ...
Multinational Investment Bancorporation



BSP continue to be wary of downside risk to growth

 Policy rate unchanged at ...
Multinational Investment Bancorporation


Size of LCY Bond Market (As of end-September)
Government and Corporate Bonds Out...
Multinational Investment Bancorporation


2009 bond issuances and 2010 maturities
                                        ...
Multinational Investment Bancorporation


   Upcoming issuances
                         FLI                      JGS     ...
Multinational Investment Bancorporation




                                              End of Presentation

DISCLAIMER:...
Multinational Investment Bancorporation




              Philippine Investment Banking
                                  ...
Multinational Investment Bancorporation


M&A activities increased 35%
Investment Bank Volume by Asset Class       Philipp...
Multinational Investment Bancorporation


Bond issuances up 63%, totalling Php625 bn
Top Philippine Deals                 ...
Multinational Investment Bancorporation


Philippines IB scorecard...
Philippines M&A Involvement Announced




Source: Th...
Multinational Investment Bancorporation


Philippines IB scorecard...
Philippine Equity & Equity Related




Source: Thoms...
Multinational Investment Bancorporation


Philippines IB scorecard...
Philippine Bonds




Source: Thomson Reuters




Res...
Multinational Investment Bancorporation


Philippines IB scorecard...
Philippine Bonds




Source: Thomson Reuters




Res...
Multinational Investment Bancorporation


Philippines IB scorecard...
Philippine Bonds




Source: Thomson Reuters




Res...
Multinational Investment Bancorporation


Deals Analyses
Industry Analysis




Source: Thomson Reuters




Research and Da...
Multinational Investment Bancorporation




                                          Annex
Multinational Investment Bancorporation




    FORECASTS
Multinational Investment Bancorporation




RP GDP Growth Rate

                                            2009         2...
Multinational Investment Bancorporation




US GDP Growth Rate

                                          2009            ...
Multinational Investment Bancorporation



  Budget Deficit (in Billion Pesos) - % of GDP

                               ...
Multinational Investment Bancorporation



 Remittance Growth Rate
                                             2009      ...
Multinational Investment Bancorporation


Inflation Rate
                                            2009                 ...
Multinational Investment Bancorporation


Interest Rate (BSP policy rate)

                                          Q4 20...
Multinational Investment Bancorporation


Merchandise Exports

                                           2009            ...
Multinational Investment Bancorporation




    INDUSTRY OUTLOOK
Multinational Investment Bancorporation

                                          FINANCIAL
•    The growth in the Financ...
Multinational Investment Bancorporation

                                          MANUFACTURING
•    Food and beverage co...
Multinational Investment Bancorporation

                                          EXPORTS
•    The export sector is looki...
Multinational Investment Bancorporation

                                          PROPERTY
•     Real estate sector is pr...
Multinational Investment Bancorporation

                                    INDUSTRIAL/UTILITIES
•    The industry sector...
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2010 Philippines Outlook

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Economic presentation prepared in January 2010

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2010 Philippines Outlook

  1. 1. For internal discussions only Research and Data Banking Unit Multinational Investment Bancorporation 2010 Philippine Outlook Avoiding a Recession to a Resilient Rebound? October 2009 Jitendra Rafael S. Mojica Kemuel M. Garcia Research Head Research Associate jsmojica@mib.com.ph kmgarcia@mib.com.ph
  2. 2. Multinational Investment Bancorporation Agenda ■ Financial markets after the crisis ■ Global economy: Status and outlook ■ Philippine economy: A resilient rebound? ■ Philippine equities: To bear or to bull? ■ Fixed income: Issues and prospects ■ Currencies Research and Data Banking Unit Page 2
  3. 3. Multinational Investment Bancorporation Financial markets after the crisis Research and Data Banking Unit Page 3
  4. 4. Multinational Investment Bancorporation Credit crisis evolution Lehman collapse sparked sell-off 1. Market 2. Spill 3. 4. More 5. 6. 7. Collapse of IndyMac, 8. Risk adversity declines as sees sub- over to Interim writedowns, Monoliners Tentati massive official intervention, money market stabilise, prime inter- recovery coordinated de- ve coordinated rate cuts economy is bottoming problem bank as Fed central bank leveraging stabilis as largely markets starts action over and ation contained easing year-end recession fears in the market Takeover of AIG & ML, 250 Lehman files for Ch 11. 2.0 Fed approves Fed announces takeover of Bear 1.8 TSLF (Term Sterns by JP Morgan 200 1.6 Securities Lending US gov’t Facility) 1.4 rescue plan 150 for big GSEs 1.2 1.0 100 0.8 0.6 50 0.4 0.2 0 0.0 Jun/07 Aug/07 Oct/07 Dec/07 Feb/08 Apr/08 Jun/08 Aug/08 Oct/08 Dec/08 Feb/09 Apr/09 Jun/09 Aug/09 Oct/09 Itraxx Europe Crossover S9, 5yr (LHS) 3M Euribor - 3M EONIA swap rate, bp (RHS) Research andResearch and Bloomberg Source: DB Data Banking Unit Page 4
  5. 5. Multinational Investment Bancorporation Credit markets are improving Corporate Bond Market 5-year Credit Default Swaps 1800 Advanced market corporate bonds (high grade) 1400 Malaysia Philippines 1600 Advanced market corporate bonds (low grade) 1200 Thailand Indonesia Emerging market corporate bonds 1400 1000 1200 1000 800 800 600 600 400 400 200 200 0 0 10/02 10/03 10/04 10/05 10/06 10/07 10/08 10/09 01/06 07/06 01/07 07/07 01/08 07/08 01/09 07/09 Source: Bloomberg Research and Data Banking Unit Page 5
  6. 6. Multinational Investment Bancorporation Risk appetite returning slowly Financial markets: more optimistic 4.5 14000 13000 4.0 12000 3.5 11000 3.0 10000 9000 2.5 8000 2.0 7000 1.5 6000 Mar/08 Sep/08 Mar/09 Sep/09 Jan/08 Jan/09 May/08 May/09 Jun/08 Aug/08 Jun/09 Aug/09 Apr/08 Apr/09 Dec/08 Oct/08 Nov/08 Oct/09 Feb/08 Feb/09 Jul/08 Jul/09 10y US Bond (LHS) DJIA (RHS) Source: Bloomberg Research and Data Banking Unit Page 6
  7. 7. Multinational Investment Bancorporation Worldwide write offs in financial institutions have reached USD 1,622 bn Writedowns & Credit Losses Writedowns of Banks USD bn USD bn Citigroup 112 Wachovia 102 World 1622 Bank of America 70 1136 Merrill Lynch UBS 56 53 HSBC 50 JP Morgan chase 49 Americas 1076 Washington Mutual 45 628 Wells Fargo 33 Royal Bank of Scotland 33 HBOS 29 National City Corp. 25 Europe 503 Barclays 23 467 Morgan Stanley 23 Bayern LB 20 Total Financial Institutions Credit Suisse 19 Asia 42 Banks Deutsche Bank ING 19 18 41 BNP Paribas 18 Lehman 16 0 500 1000 1500 2000 0 20 40 60 80 100 120 Source: Bloomberg Research and Data Banking Unit Page 7
  8. 8. Multinational Investment Bancorporation Regulatory changes: What to expect?  Capital requirements Higher capital requirements for securitisation and trading books particularly to system relevant firms  Leverage ratio Plan to introduce ratios which are internationally comparable – still a proposal stage  Derivatives Regulation of the OTC market: e.g. standardisation, central data recording (number, volume, position), central counterparty for clearing and settlement  Securitisation Retention, disclosure, higher capitalisation  Alternative investments (hedge funds, private equity funds) Registration, reporting, supervision of systemic risk Source: DB Research Research and Data Banking Unit Page 8
  9. 9. Multinational Investment Bancorporation Global Economy Status quo and outlook Research and Data Banking Unit Page 9
  10. 10. Multinational Investment Bancorporation In March global economy started to recover from crisis Purchasing Manager Index (PMI)  Industrial confidence and 60 destocking ensued beginning 4Q08 55  Stabilisation came in the US first followed by most 50 emerging markets in 1Q09  PMI at expansion level, which 45 reinforces belief the business environment improving 40  Industrial production in US, EMU, and Asia given improving 35 industrial orders have started USA China Europe to turn up 30 Apr/06 Oct/06 Apr/07 Oct/07 Apr/08 Oct/08 Apr/09  Destocking should reverse course as demand and Source: Bloomberg confidence picks up 10
  11. 11. Multinational Investment Bancorporation Asia: V-Shaped recovery driven by China Helped by large external reserves GDP growth, % q-o-q saar External surpluses, USD bn Source: IMF WEO (Oct 2009) Research and Data Banking Unit Page 11
  12. 12. Multinational Investment Bancorporation USA: Private consumption benefiting from fiscal stimulus Car Sales Retail Sales m, annual rate Jan 2005 = 100 Source: BEA and US Census Research and Data Banking Unit Page 12
  13. 13. Multinational Investment Bancorporation USA: Housing market bottoming out Not expected to go back to previous level for sometime Case/Shiller house price index Housing starts Jan 2000 = 100 (LHS), % yoy (RHS) 1,000 annual rate Source: S&P/Case-Shiller and US Census Research and Data Banking Unit Page 13
  14. 14. Multinational Investment Bancorporation Outlook: Recovery will be slow • Financial system impaired... • Government support will have to be withdrawn... • Labour market condition is poor... • Not an ordinary recession... Balance sheet recession! • Investments / capital spending will be lower... • Global trade will continue to drag... • Home prices will continue to fall... Research and Data Banking Unit Page 14
  15. 15. Multinational Investment Bancorporation Philippine Economy What is the State of the Nation? Research and Data Banking Unit Page 15
  16. 16. Multinational Investment Bancorporation Sharp slowdown in domestic activity Real GDP Growth, y-o-y 10 8.3 8 6 4 2.9 2 1.5 0.6 0 -0.7 -2 -1.4 -2.4 -4 Source: National Statistical Coordination Board Research and Data Banking Unit Page 16
  17. 17. Multinational Investment Bancorporation Worst contraction followed by a sharp rebound Seasonally Adjusted GDP Growth Rate, q-o-q 3 Jun-09, 2.4 2 1 0 Dec-98, -0.1 Dec-00, -0.1 Sep-97, -0.3 Mar-01, -0.6 -1 Mar-98, -1.1 Jun-98, -1.6 -2 Mar-09, -2.1 -3 Source: National Statistical Coordination Board Research and Data Banking Unit Page 17
  18. 18. Multinational Investment Bancorporation Government spending filled output gap Fiscal Deficit NG Debt 0.0% 0 4500 90% 0.2% 80% 1.0% 0.9% -50 4000 78% 78% 1.1% 71% 71% 70% -68 2.0% -100 3500 65% 66% 64% 60% 2.5% 56% 2.7% 3.0% 2.8% -150 3000 50% 3.0% 3.6% 3.8% 2500 40% 4.0% 4.1% -200 -208 30% 4.6% 5.0% -250 2000 -237 5.4% -250 20% 2010 Target Ratio to GDP: 2.5% 1500 6.0% -300 10% 1000 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Budget Deficit Ratio to GDP NG Debt NG Debt to GDP (%) Source: Bloomberg Research and Data Banking Unit Page 18
  19. 19. Multinational Investment Bancorporation Private consumption spending coming back Consumption Expenditure Growth and Consumer Outlook, in % 7 6.2 6 5.9 5.6 5.7 5 5.1 5.0 4.4 4 4.1 3 2.2 2 1.3 1 0 Source: Bangko Sentral ng Pilipinas and Bloomberg Research and Data Banking Unit Page 19
  20. 20. Multinational Investment Bancorporation Strong growth in remittances supported consumption OfW Remittances Savings Rate – GNP less GDP growth 1,600 35 Jan-Sept at US$11.3 Billion 5 1,500 30 4 3.8 25 3 1,400 2 2.9 20 1,300 1 15 0 1,200 10 -1 1,100 -2 5 -2.4 -3 1,000 0 Remittances, lvl Growth rate, % Deployment Data Exchange Rate 60 55 50 45 40 35 30 Source: Bloomberg Research and Data Banking Unit Page 20
  21. 21. Multinational Investment Bancorporation Unemployment steady but remains a concern Employment Conditions 20.0 9000 18.0 8000 7,034 16.0 7000 14.0 6000 6,028 12.0 5000 10.0 7.6 4000 8.0 3000 6.0 6.3 2000 4.0 2.0 1000 0.0 0 Unemployment Rate Underemployed Source: Bloomberg Research and Data Banking Unit Page 21
  22. 22. Multinational Investment Bancorporation Capital investment dragged growth Expenditure Side Growth, y/y % contribution to 1Q08 2Q08 1Q09 2Q09 GDP Growth GDP Growth (%) 3.8 4.2 0.6 1.5 Personal Consumption 5.1 4.1 1.3 2.2 1.7 Expenditure Government (0.3) 0.0 4.5 9.1 0.7 Consumption Capital (1.7) 13.6 (15.1) (9.8) (2.0) Formation Exports (7.7) 6.1 (11.5) (18.2) (8.4) Imports (2.6) 0.0 5.0 (19.2) 1.2 Source: Bloomberg Research and Data Banking Unit Page 22
  23. 23. Multinational Investment Bancorporation Imports slowdown negated contraction in exports Trade Balance 7,000 6,000 Imports 5,000 4,000 3,000 2,000 Exports 1,000 Trade Balance 0 -1,000 -2,000 Source: Bloomberg Research and Data Banking Unit Page 23
  24. 24. Multinational Investment Bancorporation Services have taken up the slack from Industry Production Side Growth, y/y % contribution to 1Q08 2Q08 1Q09 2Q09 GDP Growth Agri, Fishery, & (0.3) 2.9 (1.0) 0.3 0.1 Forestry Industry 0.8 3.0 (6.6) (0.3) (0.1) Services (0.2) 0.5 0.0 3.1 1.5 Source: Bloomberg Research and Data Banking Unit Page 24
  25. 25. Multinational Investment Bancorporation Industry struggled as manufacturing slumped Industry Sector Growth, y/y % contribution to 1Q08 2Q08 1Q09 2Q09 GDP Growth Industry Sector (%) 0.8 3.0 (6.6) (0.3) (0.3) Construction (4.4) 2.3 16.7 16.9 2.9 Elec, Gas, and 9.4 6.6 1.0 2.9 0.3 Water Manufacturing 1.5 6.1 (7.3) (7.2) (4.8) Mining & 12.3 (13.7) 16.1 21.4 1.3 Quarrying Source: Bloomberg Research and Data Banking Unit Page 25
  26. 26. Multinational Investment Bancorporation Philippines recovery is underway Composite Leading Economic Indicator Source: National Statistical Coordination Board Research and Data Banking Unit Page 26
  27. 27. Multinational Investment Bancorporation Monetary policy expansion set up stage Policy Rate and Inflation (%) 14 12.4 12 10 8 7.5 6 6.0 4 4.0 2 0.7 0 Inflation Policy Rate Source: Bloomberg Research and Data Banking Unit Page 27
  28. 28. Multinational Investment Bancorporation GIR is at its healthiest Gross International Reserves 45,000 8.0 40,000 7.0 GIR Import Cover 35,000 6.0 30,000 5.0 25,000 4.0 20,000 3.0 15,000 2.0 10,000 5,000 1.0 0 - 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 M9 Source: Bloomberg Research and Data Banking Unit Page 28
  29. 29. Multinational Investment Bancorporation Banks continue to lend and are healthy Credit and Money Supply Growth – U/KBs 30.0 Credit Growth 25.0 M3 Growth 20.0 20.3 15.0 12.6 10.0 5.0 5.9 0.0 -5.0 Source: Bloomberg and Bangko Sentral ng Pilipinas Research and Data Banking Unit Page 29
  30. 30. Multinational Investment Bancorporation 2010 national elections to boost the economy • National Elections in 2010 provides an interesting backdrop for the market. Election related spending can potentially prop up the economy • However, uncertainty about election result will temper optimism on the country Candidates Political Party Affiliation Sen. NoyNoy Aquino LP Opposition Sen. Manny Villar NP Opposition Former Pres. Estrada PMP/UNO Opposition Sen. Francis Escudero NPC Opposition Sec. Gilbert Theodoro Lakas Administration 30
  31. 31. Multinational Investment Bancorporation Typhoons expected to have short-term net negative impact Source: ATR KimEng Research and Data Banking Unit Page 31
  32. 32. Multinational Investment Bancorporation Economic Forecasts Government Estimates 2007 2008 YTD 2009F 2010F GDP growth, % change 7.1 3.8 1.5 Q2 0.8-1.8 2.6-3.6 NG budget balance, Phpbn -12.4 -68.1 -237 M9 -250 -208 as % of GDP -0.2 -0.9 -3.2 -2.5 Current account, US$bn 6.3 4.2 2.2 Q1 1.2 -- as % of GDP 4.4 2.5 0.6 Balance of Payments, US$bn 8.6 0.1 2.7 M7 1.1 -- International reserves, US$bn 33.8 37.6 41.3 M8 38.4 -- Inflation rate, YoY 2.8 9.3 0.1 M8 2.5-4.5 3.5-5.5 91-d T-bill rate, avg, % pa 3.4 5.4 4.5 Ytd 4.5-6.5 5.0-7.0 Exchange rate, avg, P/US$ 46.2 44.4 48.0 Ytd 46-49 46-49 Research and Data Banking Unit Page 32
  33. 33. Multinational Investment Bancorporation Concerns on growth  Electronics exports expected to remain weak due to falling consumer demand from U.S. and Europe  Government spending will be withdrawn; constrained by the country’s high public debt  BSP raises rates prematurely  Unemployment rate  Market expectations  Build up of inflation pressures  Private demand fails to pick up Research and Data Banking Unit Page 33
  34. 34. Multinational Investment Bancorporation Capital Markets Equities first... Research and Data Banking Unit Page 34
  35. 35. Multinational Investment Bancorporation Index returned as much as 68% from 1Q09 Lows PSE Composite Index 4000 3500 2,971 3000 (68%) 2500 2000 1,704 1500 01/06 11/06 09/07 07/08 05/09 Source: Bloomberg 35
  36. 36. Multinational Investment Bancorporation Equities market to follow the way of the economy GDP Growth vs PSEi Returns 10 80 8 60 6 40 4 20 2 0 0 -20 -2 -40 -4 -60 03/96 12/96 09/97 06/98 03/99 12/99 09/00 06/01 03/02 12/02 09/03 06/04 03/05 12/05 09/06 06/07 03/08 12/08 GDP growth %YoY (L) PSE % YoY (R) Source: Bloomberg 36
  37. 37. Multinational Investment Bancorporation Market valuations have normalized 12 m trailing P/E Current Valuation Metrics 30 25 PSEi Characteristics 20 15 • P/E (trailing 4Q EPS): 16.2x 10 5 • Price to Sales: 2.11x vs avg Price to 0 01/03 10/03 07/04 04/05 01/06 10/06 07/07 04/08 01/09 Sales of 1.59x since 2004 Price / Book Value • Price to Book: 2.06x vs avg Price to 3.0 Book of 1.91x since 2004 2.5 2.0 1.5 • Price to EBITDA: 6.95x vs avg Price 1.0 to EBITDA of 5.72x since 2004 0.5 0.0 01/03 10/03 07/04 04/05 01/06 10/06 07/07 04/08 01/09 • Market Value: Php1,019 billion Dividend Yield • Dividend Yield: 3.39% 8 6 4 2 0 37 01/03 10/03 07/04 04/05 01/06 10/06 07/07 04/08 01/09
  38. 38. Multinational Investment Bancorporation Market valuations above LT average P/E 15x Still attractive given previous rallies ended at 18-22x PSEi: Historical P/E Source: JP Morgan Research and Data Banking Unit Page 38
  39. 39. Multinational Investment Bancorporation Philippine market attractive Relatively cheaper than neighbours PSEi: Historical P/E 40.0 32.7 34.7 35.0 30.8 29.1 29.3 30.0 25.0 22.7 23.6 20.0 16.2 15.0 11.6 10.0 5.0 2.1 2.0 1.6 1.6 3.0 2.8 1.3 0.0 Price to Earnings Price to Book Value Source: JP Morgan Research and Data Banking Unit Page 39
  40. 40. Multinational Investment Bancorporation Abundant liquidity and cheap money to drive equities market Special Deposit Accounts • Build up of excess liquidity in domestic banks • Government borrowings are down 26% as of August • Level of Special Deposit Accounts with the BSP has been growing • Deposit rates have fallen to a Deposit Rates historical low of 2.4% • Carry trade: interest rate differential versus US Research and Data Banking Unit Page 40
  41. 41. Multinational Investment Bancorporation Market was expecting a correction... Instead the index rallied after consolidating for more than a month PSEi: Historical P/E 4500 1997 2000 2007-2009 Asian Financial Crisis Dot-com bubble Financial and economic crisis 4000 3,100? 3500 2,971 3000 (68%) 2,800- 2,311 3,000? 2500 (+52%) 2000 2,700? 1,469 1500 (+50%) 1,704 1,518 1000 1,082 998 979 500 (-53%) (-32%) 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: JP Morgan Research and Data Banking Unit Page 41
  42. 42. Multinational Investment Bancorporation Capital Markets Fixed Income next...
  43. 43. Multinational Investment Bancorporation Short-end at lowest while belly-end bonds have climbed Benchmark Yield Curve – Gov’t Bonds Philippines 10-Year T-Bond Avg. Yield 12.000 25 11.000 10.000 20 9.000 8.000 15 7.000 6.000 5.000 10 8.0 4.000 3.000 5.8 5 2.000 Inflation and 1 mo 3 6 1 yr 2 yrs 3 yrs 4 yrs 5 yrs 7 yrs 10 20 25 Fiscal Risk mos mos yrs yrs yrs 0 30-Jun-08 24-Dec-08 30-Jun-09 1-Oct-09 Source: Asian Bond Monitor and Bloomberg Research and Data Banking Unit Page 43
  44. 44. Multinational Investment Bancorporation Growth in money supply not yet seen in inflation Money Supply and Inflation Rate 3,800,000 30 M3 Inflation M3 growth 3,600,000 25 3,400,000 20 3,200,000 15 3,000,000 10 2,800,000 5 2,600,000 0 Jan/07 Mar/07 May/07 Jul/07 Sep/07 Nov/07 Jan/08 Mar/08 May/08 Jul/08 Sep/08 Nov/08 Jan/09 Mar/09 May/09 Jul/09 Source: Asian Bond Monitor and Bloomberg Research and Data Banking Unit Page 44
  45. 45. Multinational Investment Bancorporation Crucial to keeping local rates down in 2010 Fiscal reform outlook  Consolidation of fiscal incentives  Reform excise taxes on cigarettes and liquor (or sin taxes), already in the pipeline in Congress  Higher taxes on fuel products Proposal from UP School of Economic Professors:  Hiking EVAT to 15% from current 12%  Cut corporate and individual taxes Research and Data Banking Unit Page 45
  46. 46. Multinational Investment Bancorporation NG financing program In billion 2010 External (gross) 185.0 Domestic (gross) 475.0 Gross Financing 660.0 Foreign 28% Domestic 72% Research and Data Banking Unit Page 46
  47. 47. Multinational Investment Bancorporation BSP continue to be wary of downside risk to growth  Policy rate unchanged at 4%  Benign demand conditions not an inflation threat  Subdued global recovery likely to temper oil and commodity price shocks  Domestic demand recovery may not be as strong *BSP adjusted inflation forecast to 3% this year and 3.4% in 2010 Research and Data Banking Unit Page 47
  48. 48. Multinational Investment Bancorporation Size of LCY Bond Market (As of end-September) Government and Corporate Bonds Outstanding, in bn pesos 2900 2700 179 164 191 188 210 313 2500 134 230 290 2300 103 129 2100 2,649 2,563 2,475 2,463 2,473 2,355 2,428 2,397 2,401 1900 2,210 2,174 1700 1500 Govt Corp Source: Asian Bond Monitor Research and Data Banking Unit Page 48
  49. 49. Multinational Investment Bancorporation 2009 bond issuances and 2010 maturities Name Outstanding Amount Issued BANCO DE ORO UNV 5,000,000,000 5,000,000,000 BANGKO SENTRAL 120,000,000 120,000,000 CE CASECNAN 24,010,000 171,500,000 CITIBANK NA PHIL 1,500,000,000 1,500,000,000 FIRST GEN CORP 5,000,000,000 5,000,000,000 HOME DEV MUTAL 7,000,000,000 7,000,000,000 MANILA ELECT 2,285,000,000 2,285,000,000 MRT III FUNDING 33,885,000 33,885,000 NATL POWER CORP 3,261,000,000 3,261,000,000 QUEDAN & RURAL 1,500,000,000 1,500,000,000 RIZAL COMM BANK 150,000,000 150,000,000 SM PRIME HLDNGS 3,500,000,000 3,500,000,000 STRADCOM SPT 500,000,000 500,000,000 Grand Total 29,873,895,000 30,021,385,000 Name Outstanding Amount Issued PHIL RETAIL BOND 38,760,250,000 42,665,870,000 PHILIP SPEC BILL 59,568,300,000 59,568,300,000 PHILIPPINE GOV'T 169,158,730,000 207,425,285,000 PHILIPPINE TBILL 72,860,000,000 72,860,000,000 PHILIPPINE TREAS 3,000,000,000 3,000,000,000 PHILIPPINES(REP) 1,861,462,000 1,900,000,000 Grand Total 345,208,742,000 387,419,455,000 Research and Data Banking Unit Page 49
  50. 50. Multinational Investment Bancorporation Upcoming issuances FLI JGS EDC MEG Facility: Peso-Denominated Peso-Denominated Peso-Denominated Peso-Denominated Fixed Rate Bonds Fixed Rate Bonds Fixed Rate Bonds Fixed Rate Bonds Tenor: Series 1 Bonds: 3 years 5 years and 1 day Series A: 5 years and 5 years and up to 6 Series 2 Bonds: 5 years up to 6 months months and 1 day Series B: 7 years Issue Issue Php5 Billion with an Php6 Billion with an Php3 Billion with an Size: Series 1: Php 0.5B Overallotment Option Overallotment Option Overallotment Series 2:Php 2.5B of up to Php5 Billion, of up to Php4 Billion, Option of up to divided into: divided into: Php2 Billion Oversubscription Series A: [●] Php 2.0B Series B: [●] Research and Data Banking Unit Page 50
  51. 51. Multinational Investment Bancorporation End of Presentation DISCLAIMER: The contents in this report are not appropriate for the purposes of making a decision to carry out a transaction or trade nor does it provide any form of advice (investment, tax, legal) amounting to investment or business advice, or make any recommendations regarding particular financial instruments, investments or products. Any information, opinion or views of the authors or sources referred to in this report do not represent the position of MIB. While reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, MIB makes no representation that it is accurate or complete. The information contained herein is subject to change without notice. MIB, or any of its officers or employees, does not accept any liability for any and all direct or consequential losses or damages arising from any use of this publication or its contents. This report is primarily produced for internal reference of MIB and circulated exclusively to its Clients and may not be reproduced or further distributed in whole or in part without MIB’s written authorization.
  52. 52. Multinational Investment Bancorporation Philippine Investment Banking Scorecard Research and Data Banking Unit Page 52
  53. 53. Multinational Investment Bancorporation M&A activities increased 35% Investment Bank Volume by Asset Class Philippine Loan Use of Proceeds Source: Thomson Reuters Research and Data Banking Unit Page 53
  54. 54. Multinational Investment Bancorporation Bond issuances up 63%, totalling Php625 bn Top Philippine Deals Investment Banking Imputed Fees Source: Thomson Reuters Research and Data Banking Unit Page 54
  55. 55. Multinational Investment Bancorporation Philippines IB scorecard... Philippines M&A Involvement Announced Source: Thomson Reuters Research and Data Banking Unit Page 55
  56. 56. Multinational Investment Bancorporation Philippines IB scorecard... Philippine Equity & Equity Related Source: Thomson Reuters Research and Data Banking Unit Page 56
  57. 57. Multinational Investment Bancorporation Philippines IB scorecard... Philippine Bonds Source: Thomson Reuters Research and Data Banking Unit Page 57
  58. 58. Multinational Investment Bancorporation Philippines IB scorecard... Philippine Bonds Source: Thomson Reuters Research and Data Banking Unit Page 58
  59. 59. Multinational Investment Bancorporation Philippines IB scorecard... Philippine Bonds Source: Thomson Reuters Research and Data Banking Unit Page 59
  60. 60. Multinational Investment Bancorporation Deals Analyses Industry Analysis Source: Thomson Reuters Research and Data Banking Unit Page 60
  61. 61. Multinational Investment Bancorporation Annex
  62. 62. Multinational Investment Bancorporation FORECASTS
  63. 63. Multinational Investment Bancorporation RP GDP Growth Rate 2009 2010 Government 0.8 to 1.8 2.6 to 3.6 UAAP 2.1 4.4 Standard Chartered 1.5 2.7 IMF 1.0 3.2 UBS 1.3 4.6 ADB 1.6 3.3
  64. 64. Multinational Investment Bancorporation US GDP Growth Rate 2009 2010 IMF -2.6 0.8 The world’s largest economy, at best, will pull out from the recession in 2010. Problems that continue to haunt the US are: (1)Mortgaged-backed assets and the health of its financial sector; (2)Escalating commodity prices; (3)Trillion-dollar debt. A “W-shaped” recovery, hence a second dip, can’t be overlooked.
  65. 65. Multinational Investment Bancorporation Budget Deficit (in Billion Pesos) - % of GDP 2009 2010 Government 250 – 3.2% 233.4 – 2.8% Standard Chartered 320 – 4.0% 270 – 3.2% ATR Kim-Eng 280 – 3.5% Citigroup 350 – 4.5% DBS 310 – 4.1% IDEAglobal 285 – 3.7% ING 275 – 3.5% UBS 300 – 3.9% Sale of government assets is the crucial point here. By the looks of things, the sale at best would be semi-successful, i.e. assets would be sold at a considerable discount. The government will likely revise their deficit ceiling by November.
  66. 66. Multinational Investment Bancorporation Remittance Growth Rate 2009 2010 Government 4.0 IMF 4.0 ING 3.0 – 4.0 Remittances would likely be at-par with expectation as OFW workers would definitely be “extra-generous” in the wake of the onslaught of the recent storms.
  67. 67. Multinational Investment Bancorporation Inflation Rate 2009 2010 Government 2.5 – 4.5 3.5 – 4.5 UAAP 3.2 3.9 Standard Chartered 3.0 3.3 IMF 2.8 4.0 ADB 3.2 4.5 Sudden spike in prices of commodities triggered by ‘Ondoy’ and ‘Pepeng’ will likely be temporary only as the government is doing all it can – forced freezing of prices and subsidizing some supplies – to temper inflation. Full-year inflation should not exceed 4.5%, the upper-end of BSP’s range forecast.
  68. 68. Multinational Investment Bancorporation Interest Rate (BSP policy rate) Q4 2009 H1 2010 H2 2010 BSP 4.0 4.0 4.5 HBC 4.0 4.0 4.5 Standard Chartered 4.0 4.0 4.0 The interplay between inflation and GDP growth would ultimately determine BSP’s policy stance moving forward. Should inflation continue to be benign and GDP growth on target, the central bank will likely keep its record low policy rate until H2 2010. Should inflation exceed target though, rate-hike may occur earlier.
  69. 69. Multinational Investment Bancorporation Merchandise Exports 2009 2010 Government -20% 5% to 7% IMF -19% Standard Chartered -22% 10.4% The rebound in export is heavily dependent on the US economy. Based on the recent survey done by credit-card company American Express, the so-called newfound frugality in the U.S. may already be over. Americans, at the first sign of an economic rebound, are reportedly ready to SPEND again. On that note, it is likely that we have already seen the bottom in merchandise export and from here there is of course no way but up.
  70. 70. Multinational Investment Bancorporation INDUSTRY OUTLOOK
  71. 71. Multinational Investment Bancorporation FINANCIAL • The growth in the Financial industry is heavily dependent on the fate of the different sectors it caters too. The export industry is Financial industry’s main client and at the backdrop of global recovery, the outlook for both sectors look rosy. • Another top client would be the construction/property sector. Should new condominiums and buildings continue to rise, banks would have more profitable loan outlets and hence would have higher profits.
  72. 72. Multinational Investment Bancorporation MANUFACTURING • Food and beverage companies were likely buoyed up by the recent storms as million peso worth of financial aids were used up for relief goods – can-goods, drinking water, etc. The effect would likely be seen in 4th quarter earnings reports. • The fate of the sector next year would largely depend on consumers’ sentiment. Should consumer confidence/optimism continue to trend up – anchored on positive developments overseas and locally – spending will eventually pick up and manufacturing companies should be in a very good position to regain their financial swagger. However, analysts predict a slow and bumpy road to recovery, hence the manufacturing sector would likely drag down the growth of the economy at least until the first half of 2010.
  73. 73. Multinational Investment Bancorporation EXPORTS • The export sector is looking at a dramatic growth in 2010 on account of strong demand for electronic gadgets like smart cell phones and medical instruments like defibrillators from other emerging markets led by China. • Export volumes will continue to climb next year as customers restock inventories. • More than any other sector, the Export industry is the most dependent on the developments overseas and with the impeding global recovery at the background, the next months call for better exports figures. • A weaker-than-expected global recovery, however, is the major risk faced by the industry.
  74. 74. Multinational Investment Bancorporation PROPERTY • Real estate sector is problematic at this time. Rentals have gone down in key commercial centers as competition from new commercial areas intensified. • On the bright side robust OFW remittances will continue to support residential condominium developments/sales. Those who are planning to buy condo units, will likely do so soon–might be in 2010 especially once recession worries like job losses wean out – to take advantage of lower prevailing costs. • The finalization of the Rules for Real Estate Investment Trusts or REITS is said to be another development seen contributing to the property sector’s growth moving forward.
  75. 75. Multinational Investment Bancorporation INDUSTRIAL/UTILITIES • The industry sector is expected to benefit the most from election-related spending. It should be felt already this 4th quarter and is expected to last until the second half of 2010.

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