FEBRUARY 28, 2000

Market Review

There was generally a lack of investor interest in today's trading session, but those who chose to participate cut their holdings in most issues. As such, the index fell 74.16 points as 84 issues registered declines, against just 20 that showed gains. Value turnover was a shade under P1.4bn. Basically the market's drop was a due to the Dow's freefall drop of 230 points last Friday. This left US investors edgy as the Dow closed below 10,000 to 9862 on better than expected fourth quarter 1999 GDP. The Dow has dropped 15.87% from its Jan 14 high of 11722. Fed Chair Alan Greenspan had earlier stated his preference that US stocks move sideways. The PLDT ADR closed down half a dollar and was thus valued at about P850. With that as a premise, local TEL shares quickly lost 55 points or over 6% to close at P860. As that transpired, local investors took the cue and sold off other index stocks: MBT (-P7) to P230, MERB (-P2.5) to P81, SMPH (-P0.2) to P5.5, ION (-P1.25) to P13.25, ALI (-P0.3) to P7 and AC (-P0.8) to P9.7. With pessimism hounding the market, local speculators again pounced on various shell companies like ISM (+2.5%), Polar Mines (+45.83%), IMP (+18.52%), and Pacifica (+25.81%) which all registered gains. The four issues combined for P314mn in value turnover, which would partly imply a shift of funds from index issues to speculative ones. Erstwhile speculative favorite PhilWeb earlier announced that it had concluded a partnership agreement with Internet-based voice and fax services provider ITXC. The company likewise announced that it had approved a placement of 1bn shares, valued at about P200mn to Startech Holdings Ltd. WEB will use the proceeds to accelerate the rollout of its cybercafe network in the country. Due to the announcement, trading of WEB shares were suspended today. Meanwhile, MPC announced that its unaudited net income for 1999 reached P2.4bn, against P329mn in 1998. Net income was boosted by the P2.7mn gain it registered for its partial divestment of Smart, and P933mn from the sale of Metro Bottled Water and P680mn from the sale of Metrolab Industry. Subsidiary Steniel Manufacturing registered a net income of P28mn against P146mn in 1998, Negros Navigation continued to lose, with P777.8mn for 1999 vs P847.5mn in 1998. Likewise PDCP had a net loss of P401mn, mainly brought about by bad loan provisioning. Furtheron, MPC is considering selling STN and NN, if the price is right, but denied that it was likewise planning to dispose of PDCP. MPC shed P4.82% to P0.79, while NN, STN and PDCP were all untraded. Earlier today, JFC stockholders' formally approved the merger of JFC and Antares Holdings with the former as the surviving entity. Antares had 30mn shares outstanding which will be swapped for 52mn shares of JFC, or a 1.739 swap ratio given a P600mn acquisition price and an P11.50 JFC basis price as of Feb 24, 2000. There will be a potential dilution of 5% if Chowking merely breaks even for 2000. On the other hand, the merger will be beneficial for JFC shareholders should Chowking earn more than P64mn for the year. We continue to recommend 'accumulate' for JFC. JFC was unchanged at P11.50 Reynolds declared a net income of P79.5mn for 1999 vs a loss of P592 in 1998. RPC lost 1.75% to P1.12. Ayala Land declared a 20% stock dividend to all stockholders on record as of May 16, 2000.

Market Outlook

The next technical support of the index is at 1680. However, we would be wary of the movement of the Dow later tonight. US analysts are rather bearish about the US market as the Fed mulls a series of rate hikes to counter inflationary pressures. Any major swing by the PLDT ADRs will be a good gauge for the performance of our market the following day.

FEBRUARY 26

Gloomy Monday

Looks like we're going to have a bad Monday next week. The PLDT ADR is down to 21 5/16 or about P856 based on the P/$ average for last Friday. [The Dow was down 230 points and closed at 9862, therby breaching the 10000 level]. PLDT closed at P915 on Friday. That means it can go down by about 60 points this Monday. And when PLDT is down that much, it usually drags the whole index down with it. If I'm not mistaken though, P850 is near the target for PLDT for it to be able to cover its gap up last December. That just means that PLDT is near its bottom price for the meanwhile.

FEBRUARY 22

Market Review

The foreign selldown continued today as the market dropped by as much as 54 points, before it recovered partly to close down by just 34 points. Market perception is still predominantly negative as all sub-indices were down, and 86 issues declined; only 24 issues posted gains. Selling was heavy for blue chips, specifically MERB (-P1), TEL (P5), SMCB (-P5), ALI (-P0.2), SMPH (-P0.1) and BPI (-P2). However, today not even erstwhile market favorite WEB was insulated from the selldown as it shed 12.12% to P0.29. Inasmuch as loss of foreign confidence is the primary reason for the continued fall, we likewise note that regional sentiment also weighed our market down. Hong Kong and Taiwan indices were down as China issued an ultimatum to Taiwan to start talking about reunification or face military invasion. Taiwan's presidential elections are just weeks away. Sri Lanka stocks which have been underperforming relative to the rests of Asia were pulled down by an exodus of foreign funds Thai stocks likewise fell this morning, led by banking and telecom stocks. On a bit of positive news, the shareholders of the Philippine Banking Corp. have approved its merger with Global Business Bank (GBB). GBB is a joint venture between MBT and Tokai Bank. MBT plans to list GBB using the license of Philippine Banking. MBT earlier announced that it expected to post a net income of about P5bn for 2000, with an ROE of 10%-11% FDC announced that its subsidiaries had bought back $95.29mn worth of convertible bonds, bringing down its consolidated currency debt to about $154mn as of Feb 15. The rest will mature in February 2002 and May 2006. FDC dropped 7.02% to P2.12 while subsidiary FLI was unchanged at P2.7. Guoco Holdings (GUO) repoorted that its net loss for the six months ending December 31, 1999 widened to P771.68 from last year's P493.02. Revenues contracted by 88% to P425.28mn from P3,668.75mn last year. GUO shares fell 2.86% to P0.68.

Market Outlook

After breaking through the 1800 psychological support level of the composite index, the market might test the 1750 support. At support, trading opportunities will appear. However, the bias of the market is still downward given the dearth of positive news. Thus short term trading may be a bit risky. For long term investors, we believe prices have gone down enough to accumulate

FEBRUARY 21

Market Review

A wave of foreign selling on the country's biggest bluechips was enough to cause the index to breach another support level. The index closed down by 50.44 points as 79 issues retreated while only 33 advanced. The drop was basically attributed to two things: Alan Greenspan's warning that interest rates will probably go up despite signs of benign inflation, and the mixed signals brought about by the PSE's report on the BW Resources fiasco. The former reason was likewise the cause of a 295.05 point drop in the Dow last Friday, led by interest rate sensitive issues. That carried over to most asian markets as the Nikkei average fell by 245.28 points, the Hang Seng Index dropped 258.32 points, the Korean Index slipped 21.42, and the Taiwan index fell 183.36 points. Like our Composite Index, other regional indices breached important support levels. Value turnover was heavier than usual, reaching over P2.75bn. Most of the transactions were concentrated on big blue chips like MERB (-P12), SMCB (-P0.50), TEL (-P5), MBT (-P234), ALI (-P0.50), EBC (unchanged) and BPI (-P3.50). Net foreign selling reached P678mn. With foreign money bailing out, local investors lilkewise liquidated their blue chip positions and instead placed their money on the currently hot 'Internet' issues. As such, prices of SPI (+4.44%), WEB (+10%) and IS (+21.87%) braved the mass decline and combined for over P1bn in value turnover. In the meanwhile, PhilWeb announced that it is currently discussing possibilities with Internet giant, Yahoo! Inc., but no agreements have been reached as of yet.

Market Outlook

The market may continue to ease to lower levels. Sentiment for today was overwhelmingly negative. If by tomorrow the market would show signs of strength, we may be poised for a technical recovery within the week. The next support levels are at 1800 and 1759. Depending on whether these levels hold would determine the direction for the rest of the week. The market will be volatile. As perception is generally negative, a bulk of investments are in unproven hot stocks. That being the case, investors will most probably liquidate at the first sign of weakness. We see a trading buy for JFC and ICT (LT Hold) and a hold for the general market.

FEBRUARY 17

Market Review

The index continued its steady drop, declining for the sixth straight session to close at 1869.71. The 25.24 point drop followed yesterday's breach of the 1900 psychological support level. The drops were fueled partly by the persistent news surrounding the controversial BW. In today's news, President Estrada reiterated that he will not protect his friends and relatives, in obvious reference to ally Dante Tan who is in the midst of the controversy. Various newspapers likewise released names of the predominantly Chinese brokers and investors who were implicated in the PSE investigation. For her part, PSE chair Trinidad Kalaw said that BW might be delisted, as was recommended by the PSE investigators. As a direct reflection of the total breakdown in confidence in BW, the stock dropped to P3. The stock had been steady at the +P30 level near the end of 1999, but has since dropped to new lows with each session. AHI, which behaves very much like BW closed at P1.840 as it inched closer to its pre-price manipulation levels. Apart from issues directly affecting the stock market, various political and economic issues ranging from Estrada's drop in ratings, spike in oil prices, a much-delayed and seemingly ill-tampered 2000 budget, the delay in the passage of key bills among others have combined for a lackluster first quarter for the stock market. Thus, as it has been since the second half of 1999 foreigner investors have been pulling out of the market. The exodus of foreign funds has been detrimental to the prices of the major blue chips, which have been hitting 12-16 month lows. PNB dropped to its 10-month low at P75.50, LTDI to its 13-month low at P26.50, and ALI to its 16-month low at P8. SMCB remained steady at its 12-month low at P51, while MERB touched its 16-month low yesterday. Secondliner ELI dropped to its 16-month low at P0.38.

Market Outlook

Basically, investors are pulling out with every bit of negative news, and largely ignoring the isolated positive signals. Thus bank shares did not move when the latest figures from the BSP showed that loans by the sector grew 5%, the fastest in over a year. Consumer companies like SMC and LTDI were not bought up despite healthy income growth for 1999, and exciting prospects for 2000. While it remains unclear whether the market is nearing bottom, what is clear though is that the prices of selected blue chips and second liners are reaching compelling levels. We thus recommend selective accumulation of these issues.

FEBRUARY 16

Market Review

The market concluded its fifth day of decline with a 43.11 drop, amidst findings by the PSE of price manipulation and insider trading in BW. Unfortunately, the drop coincided with a breach in the 1900 psychological support, thereby contributing to the sell-mood. Volumes were divided among the biggest blue chips and the current speculative favorites. MERB, which emerged as today's most actively traded issue dropped its lowest close since October 1998. MERB lost P6.50 to end at P92.50. Market talk regarding MER range from a pending case with the ERB, to delays in the Omnibus Power Bill, to lower power demand brought about by higher world oil prices.

MBT continued its bearish trend, to close at P240; its lowest since December 1998. SCMB's intraday low of P49.50 rivaled December 1998 prices before closing at P51 (-P0.50). ALI dropped to its 16-month low at P8.20 (-P0.30). SSO, now known as PhilWeb was one of the few heavily traded gainers, rising 4.55% to P0.23 as it was buoyed by its new Internet focused-operations. Other potential Internet plays like MUSX, which was heavily bought up during last week's Internet mania had a steep 11.76% decline to P6. Imperial Resources which likewise soared on talks that the company will be used as a backdoor listing vehicle for an Internet company, was on its way to its fifth consecutive rally before it succumbed to heavy selling pressure, free-falling 23.64% to close at P0.42.

Sugarland announced that SMC will buy the company through LTDI. LTDI earlier announced that it will discontinue its own powdered juice line due to disappointing results. Sugarland is the market leader in the powdered juice segment. LDTI closed unchanged at P27.50, while SMC dropped to P51. ICT gained P0.04 to P1.72 even as the company said that its 71% owned ICTSI International Holdings Corp will post a net loss of $30.47mn as a result of writing off its investments in PROSA. With the potential investor backlash, we recommend a wait to buy for ICT. ION closed down P0.50 to P13. ION yesterday announced that it will list its subsidiary Ionics EMS Inc, at the main Singapore bourse to raise P1.8bn to P2.2bn in fresh capital which will be used to further the company’s expansion. The fresh capital is timely with ION’s current illiquid position.

Market Outlook

Having just broken through the 1900 psychological support, the market may continue its drop before a technical reversal emerges. With the broad-based sell down led by foreign funds, a lot of issues now are flirting with 12-month lows, including SMC, JFC, ALI, MERB, ICT, and MBT. Secondliners such as DGTL and MEG are likewise touching attractive lows. The index might not be at floor levels, but individual issues are staring to show values.

FEBRUARY 14

Believe in what you eat

Jollibee registered a 12.1% growth in sales, while Greenwich registered an 8.4% growth in sales for 1999 even as the JFC unit's net income fell 7.6% for the year, due to a P127mn write-off of the company's Mary's Chicken business, as well as expired pre-paid leases as JFC's expansion slowed down. Before the non-recurring write-off, JFC net income grew by 8% to P932mn in 1999 from P863mn from 1998. The write-off of Mary's was said to be a management decision to focus more on the company's core brands. After more than 3 years in operation, Mary's had less than 10 branches and generally generated lackluster results. JFC likewise announced that the company will hold a special stockholders' meeting on February 28, 2000 to determine the exchange ratio of JFC's acquisition of Chowking. The acquisition has been valued at P600mn. Furthermore, the company announced that it will re-purchase up to P800mn of its own shares within next month in order to improve long-term shareholder value.

A decrease in bottom line will generally reflect negatively in investors' minds. In our view, this represents a trading opportunity of JFC. In no way has JFC's long-term viability threatened. Among the positive signs for JFC are: 1) Despite the general weakness in the consumer market, JFC registered an 11.2% topline growth from P10.7bn to P11.9bn; 2) JFC has an excellent cash position of 1.6bn, representing a 91.6% increase from end 1998 to end 1999; 3) The growth in JFC's cash balance is due to strong internal cash flows, with net cash from operations reaching P1.6bn for 1999; 4) JFC's acquisition of Chowking will give it an instant business with a magnitude equal to GW; 5) The company's market share did not dip despite the perceived aggressiveness of new players in the industry; 6) The company does not have any long term debt. My JFC forecast shows a 34% income rebound for 2000. At P12/share, that would be equivalent to a 9.8x PER for 2000, which is a significant discount to the market's 14x for 2000. Continue to accumulate.

FEBRUARY 9

La Tondeña income Doubles in 1999

La Tondeña yesterday announced that their 1999 income doubled to P1.01bn from P515mn in 1998 on the back of record revenues which breached the P10bn mark for the first time. The jump in profits is also attributed to improved operating efficiencies, lower production costs and a significant reduction in interest expenses. The market share of LTDI in the north reached a dominating 70% via flagship Ginebra San Miguel. Meanwhile in the South, LTDI’s Bravo Rhum which was introduced in the second half of 1999 propelled the company’s rhum performance by 63% versus 1998 levels. Their Vino Kulafu however, continued to underperform significantly as the coconut sector remained with depressed outputs.

Competition in the water market heightened as the PET bottled water industry contracted by 8% and prices continue to drop. Despite this, LTDI reported a 26% increase in volumes. LTDI believes that in the long run, it will be brand equity and not pricing that will be the basis for consumption. With this view, the company moved to realign the brand positioning of its water products: Wilikns, VIVA! and FIRST. In LTDI’s juice business, the ready-to-drink segment posted a volume increase of 5% on account of strong FunChum sales. In contrast, the company phased out its Fresh’N’Ripe powdered juice starting January 1, 2000 after stealing just a 4% market share two years from its introduction.

Comment: For 2000, we forecast a less dramatic 34% increase in net income. However, there is much potential upside for that as we based that on a 5% revenue growth. As the company’s cost cutting measures are scheduled to continue, we expect a benign 2% uptick in operating expenses. Furthermore, as the company will most probably retire about P300mn more in debt, interest expenses will continue to drop.

As regards the 12% increase in specific taxes for liquor and beer, LTDI has adopted a stance to go after volumes in lieu of raising prices. According to the company, coverage of the increase in specific taxes is equivalent to about a 3% increase in price. The issue of raising prices they added will be considered after the first half.

A lucky break for the company’s water business is the expected el niño by PAGASA by the third quarter of this year. This should provide relief for water providers which had explosive business during the last el niño in 1997. The company’s most potentially exciting business would be juice. With the discontinuation of its powder entrant Fresh’N’Ripe speculation of the company’s acquisition of a dominant powdered juice brand will reach new highs.

LTDI’s whole business will be given a boost via it’s ‘piggy-back’ on SMC’s vast distribution network. Results will be particularly noticeable in the South where SMC has an 80% market penetration rate. At P28.50/share, that’s a cheap 8.204x PER. Given the company’s much improved balance sheet, the many factors that will contribute to the company’s bottom line for 2000 and its cheap valuation, we continue to recommend accumulation for the stock.

FEBRUARY 7

Langhap Sarap

Yes, the pepper burger is nothing more than a regular yum with gravy and lots of pepper, but there are lots of other reasons to patronize Jollibee. If you've been watching the prices, you would have seen that JFC fell to P13 in this morning's session. That's as low as JFC has been in quite a while. If I'm not mistaken, it's been about 8 months or so since JFC fell below P13. I believe this presents a trading opportunity for the active trader, and a good buying window for the long term ones. JFC is set to announce its fourth quarter results this Friday. Now, what I've heard is that Greenwich has fully recovered from its third quarter slump. Mind you that was the main reason for JFC's poor performance in the third. Furthermore, without any clue as to the numbers I've been told that the fourth quarter was better than the third quarter (3Q99) and also year-on-year against the fourth quarter (4Q98).

As for the rest of the market, well if I haven't been updating this site it's because there's not much to say. How many more ways can I say that investor confidence is down and that there's no silver lining in the near future? The 2.6% inflation for January certainly didn't do anything. It's a good number compared to the recent months, but it's also a distant figure as against the P15/liter gasoline price that we can readily relate with.

Oh yeah, I've been meaning to write something about the proposed National Oil Exchange which I agree with. It's not that I've studied the bill thoroughly, but the general idea of auctioning the country's fuel needs seems logical enough. I surfed through various sites, but couldn't really find an informative one. Off-hand I believe the major oil companies are against it not because it effectively "regulates" the industry again, but because they have supply contracts with their mother companies. It is thus disappointing although not really surprising that the oil companies' officers came at full force to lobby against the bill. Well if you think about it, it's a good traffic control measure. Anyway, if any of the readers are more informed than I am, feel free to write me and educate the rest of us.