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Country: Philippines
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Fundamental View
AS OF 11 Dec 2024Petron’s 9M24 results worsened modestly, but we expect Petron’s credit metrics to improve modestly for FY24 as higher capex is offset by low single digit % EBITDA growth amid lower crude oil input costs.
About two-third of its total revenues are derived from the Philippines and are indexed to Dubai crude prices, which allows for smooth cost pass-throughs and good insulation from crude price volatility.
Free cash flows are typically negative due to inventory fluctuations that outweigh low capex.
Business Description
AS OF 11 Dec 2024- Petron is the largest oil refining and retailing company in the Philippines, and the third largest player in Malaysia. It maintains a 24% market share in the Philippines (followed by Shell and Caltex) and a 20% market share in Malaysia (largest being Petronas), based on total fuel sales volumes.
- Petron has a total refining capacity of 268k barrels/day (bpd) and accounts for about 30% of the Philippines' fuel needs. Its petroleum refining facilities include the Limay Refinery in Bataan, Philippines (capacity of 180k bpd; 67% of total) and the Port Dickson Refinery in Negeri Sembilan, Malaysia (capacity of 88k bpd; remaining 33% of total).
- Petron's refineries process crude oil into a full range of petroleum products including gasoline, diesel, LPG, jet fuel, kerosene and petrochemicals.
- It further markets and retails these fuel products through its fuel service stations located across the Philippines (2,400 outlets) and Malaysia (700 outlets).
- Petron sources its crude oil supplies from third-party suppliers, namely Saudi Aramco, Kuwait Petroleum Corporation and Exxon Mobil, which are bought on the basis of term contracts and in the spot market.
- Petron mainly supplies its petroleum and fuel products to customers in Malaysia and the Philippines (~95% of annual revenue).
- Petron is 68% owned by San Miguel Corporation (SMC), one of the largest and most diversified conglomerates in the Philippines based on total revenues and assets. SMC's CEO, Mr. Ramon Ang, is also Petron's CEO.
Risk & Catalysts
AS OF 11 Dec 2024Petron cannot fully pass on higher crude oil input costs to customers in Malaysia.
Petron operates in low-margin business (EBITDA margins ~5%) and maintains elevated credit metrics.
Petron is highly dependent on its Limay petroleum refining complex that makes up two-thirds of its total refining capacity (67%). Any events that disrupt the refinery’s operations could adversely affect Petron’s total revenues.
Key Metric
AS OF 11 Dec 2024| PHP bn | FY21 | FY22 | FY23 | LTM 9M23 | LTM 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 72.3% | 74.0% | 75.1% | 74.3% | 70.8% |
| Net Debt to Book Cap | 63.3% | 65.5% | 68.2% | 67.0% | 59.7% |
| Debt/Total Equity | 261.6% | 284.2% | 301.4% | 288.7% | 242.0% |
| Debt/Total Assets | 71.2% | 70.2% | 67.6% | 64.4% | 63.6% |
| Gross Leverage | 11.2x | 10.9x | 7.1x | 7.2x | 8.0x |
| Net Leverage | 9.8x | 9.7x | 6.5x | 6.5x | 6.8x |
| Interest Coverage | 2.5x | 2.2x | 2.2x | 2.2x | 1.7x |
| EBITDA Margin | 5.9% | 3.4% | 5.3% | 5.0% | 4.3% |
CreditSight View Comment
AS OF 11 Dec 2024We maintain our Market perform recommendation on Petron. Petron’s c.Apr-2026 perp trades rightfully tighter than SMC c.Jul-2025 perp, which we see as fair given its Opco structure vs. SMC’s Holdco, its cost pass-through mechanisms, and low capex which more than offset SMC’s larger diversified businesses. Overall, we continue to take comfort in Petron’s resilient credit profile, supported by a good cost-passthrough contractual mix that provides good insulation from crude price volatility. While we expect Petron to incur higher capex YoY, we expect credit metrics to improve modestly in FY24 from slightly higher EBITDA, supported by robust domestic demand and lower oil prices, as well as a further ~PHP 15 bn of preference share issuances.
Recommendation Reviewed: December 11, 2024
Recommendation Changed: January 26, 2022
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Search topics about wealth insights and investments.Globe Telecom
- Sector: TechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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Fundamental View
AS OF 14 Nov 2024Globe’s FY23 earnings and 9M24 earnings grew modestly, but leverage metrics have not yet improved due to a weak broadband business, sticky dividends, and still-historically high capex (even if lower YoY).
We believe credit metrics may improve only slightly in FY24 as modest EBITDA growth, lower YoY capex, and PHP 11 bn of residual tower sales closures through 2H24 are negated by potentially higher dividend payouts.
While we acknowledge the competitive pressures by new entrant DITO, we think the impact is mitigated by Globe’s still-dominant mobile market position and DITO’s slowing expansion (given its weak financials and the costly capex involved).
Weakness in the broadband business could decelerate and improve from 3Q24 onwards.
Business Description
AS OF 14 Nov 2024- Globe is a leading telecom operator in the Philippines, competing alongside its main rival PLDT in a duopoly setting.
- Globe provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- Globe operates through 2 main business segments – “Mobile Services” and “Fixed Line and Home Broadband Services”.
- Its “Mobile Services” segment offers mobile voice, mobile SMS and mobile data services to retail customers in the Philippines. These services are marketed under the “Globe Postpaid”, “Globe Prepaid” and “TM” brands.
- Its “Fixed Line and Home Broadband Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- Globe commercially launched 5G services on a small-scale basis in Jun-2019. It currently maintains 5G coverage of 96% of the National Capital Region, with over 2,000 5G sites nationwide.
- Globe maintains dominant market shares in the mobile data, voice and SMS space (FY22 revenue market share [RMS] of 52% vs PLDT 40%), but loses out to PLDT in the home broadband space (FY22 RMS of 28%-30% vs PLDT 48%-50%).
- Globe is largely owned by two established corporate groups – Ayala Corporation (~47 stake) and Singtel (~43% stake).
Risk & Catalysts
AS OF 14 Nov 2024Globe faces mounting competitive pressures from new mobile entrant DITO and incumbent broadband competitor PLDT.
Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at Globe’s market share and restrain recoveries in average revenues per user (ARPU).
Globe incurs significant capex that has pressurized its leverage metrics and free cash flows. That said, capex should meaningfully decline ahead in line with management guidance (FY24E capex ~22% YoY lower than FY23A capex).
Consistent dividend payouts could worsen Globe’s already negative free cash flows; Globe recently raised the upper end of its dividend policy from 75% to 90% of net income, suggesting an increased skew to shareholder-friendly actions.
Key Metric
AS OF 14 Nov 2024| PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 69.4% | 67.5% | 69.7% | 69.1% | 69.5% |
| Net Debt to Book Cap | 63.0% | 63.7% | 66.6% | 66.0% | 65.4% |
| Debt/Total Equity | 227.2% | 208.1% | 230.5% | 223.2% | 227.4% |
| Debt/Total Assets | 56.7% | 57.1% | 60.3% | 58.1% | 61.1% |
| Gross Leverage | 3.3x | 3.9x | 4.3x | 4.3x | 4.3x |
| Net Leverage | 3.0x | 3.7x | 4.1x | 4.1x | 4.1x |
| Interest Coverage | 7.6x | 5.9x | 4.6x | 4.6x | 4.3x |
| EBITDA Margin | 46.7% | 46.7% | 47.7% | 48.2% | 49.0% |
CreditSight View Comment
AS OF 14 Nov 2024We have a Market perform recommendation on Globe. Globe 2030 trades slightly tight to PLDT 2031 and ICTSI 2031, while Globe 2035 and c.2026 trade more fairly. We expect Globe to improve its net leverage by only slightly in FY24 as lower capex and residual ~PHP 11 bn of tower sales closures are offset by a continued weak broadband business and sticky dividends. Stiff competition in both the mobile and broadband spaces is a key concern too. Globe also recently revised its dividend policy to 60%-90% of PAT from 60%-75% previously, suggesting an increased skew towards shareholder-friendly actions.
Recommendation Reviewed: November 14, 2024
Recommendation Changed: June 18, 2024
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Search topics about wealth insights and investments.SMC Global Power
- Sector: Energy
- Sub Sector: Independent Power Producers
- Country: Philippines
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Fundamental View
AS OF 14 Nov 2024We see lower non-call risk for SMC GP’s c.2025 and c.2026 perps owing to strong near-term parental funding support, its recent c.2024 perp refinancing, and recent bond exchange/tender with a new $900 mn c.2029 perp issuance.
We see an improving credit outlook for SMC GP aided by lower thermal coal input costs, new contracts, and capacity additions, but are wary of net cash flow uncertainties from a planned $3.3 bn LNG project.
While SMC GP improved its cost passthrough contractual mix from end-FY23 onwards, the company still remains exposed to high thermal coal input costs (~45-50% of contracts).
SMC GP incurs sizable capex that has led to additional debt incurrence and elevated credit metrics.
Business Description
AS OF 14 Nov 2024- SMC GP is a leading power generation and distribution company in the Philippines. As at 31 December 2021, its total generation capacity stood at 4.7 GW, accounting for ~20% of the national grid.
- The bulk of its revenues is derived from power generation (~82%), with the remainder from electricity distribution and retailing (~18%).
- It operates 7 power generating plants across diversified energy sources, comprising coal (~62%), natural gas (~25%), hydro (~12%) and battery energy storage (~1%).
- Through long-term power supply agreements and retail supply contracts, SMC GP either sells electricity directly to customers (including large Philippines power distribution company Manila Electric Company, distribution utilities and other industrial customers), or through the Philippine Wholesale Electricity Spot Market.
- SMC GP acts as the Independent Power Producer Administrator (IPPA) for three power plants (~54% of total capacity), where it has the right to sell electricity generated by the IPPs without having to bear large upfront capital expenditures for plant construction and maintenance.
- SMC GP also distributes and retails electricity services through its wholly-owned subsidiary Albay Power and Energy, which distributes power in the province of Albay, Luzon.
- SMC GP is a wholly-owned unlisted subsidiary of San Miguel Corporation, one of the largest and most diversified conglomerates in the Philippines based on total revenues and assets.
Risk & Catalysts
AS OF 14 Nov 2024SMC GP still has $527 mn/$1.3 bn of c.2025 and c.2026 perps outstanding to be addressed, though we see low non-call risks.
A moderate portion of SMC GP’s off-take contracts (~45-50%) do not contain cost pass-through mechanisms. This exposes the company to a rise in thermal coal input costs that could squeeze its EBITDA margins.
SMC GP incurs sizable capex that has spurred additional debt incurrence. Consequently, its credit metrics remain elevated.
Over 88% of SMC GP’s installed capacity is thermal coal or gas-fired, which may be viewed unfavorably from an ESG perspective.
Key Metric
AS OF 14 Nov 2024| PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 66.7% | 69.2% | 62.8% | 62.5% | 62.4% |
| Net Debt to Book Cap | 57.7% | 66.4% | 59.4% | 59.4% | 58.8% |
| Debt/Total Equity | 199.9% | 224.6% | 168.7% | 166.6% | 165.6% |
| Debt/Total Assets | 79.2% | 79.0% | 73.8% | 75.8% | 71.3% |
| Gross Leverage | 10.5x | 19.4x | 13.0x | 15.2x | 10.5x |
| Net Leverage | 9.1x | 18.6x | 12.2x | 14.4x | 9.9x |
| Interest Coverage | 2.5x | 1.4x | 2.2x | 1.9x | 2.4x |
| EBITDA Margin | 35.9% | 13.2% | 26.4% | 28.8% | 25.7% |
CreditSight View Comment
AS OF 19 Nov 2024We have an Outperform recommendation on SMC GP. We think refinancing risk on the c.2025–2026 perps has meaningfully decreased with the completion of its bond exchange and tender offer. Coupled with an improving credit outlook, potential for near-term parental support, and management’s willingness and ability to repay the perps, we view the perps’ 7%-9% yields as attractive in the S&SEA corporate space. We continue to see low non-call risk for the c.2025 perps, and grow more comfortable with the c.2026 perps that could be refi-ed with new $ perps. Key risks we are still watchful of include constrained parental funding support (due to SMC’s own sizable infra capex) and an unclear net cash flow impact of its proposed $3.3 bn LNG project.
Recommendation Reviewed: November 19, 2024
Recommendation Changed: September 09, 2024
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Search topics about wealth insights and investments.PLDT
- Sector: Media and TelecommunicationsTechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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Fundamental View
AS OF 13 Nov 2024PLDT’s FY23 and 1H24 results were stable as expected; we see a modestly improving FY24 credit outlook aided by resilient EBITDA growth and residual PHP 14 bn of tower sales, which could offset persisting high capex and dividends.
A potential stake sale of the data center business could drive further deleveraging.
While the spillover of a PHP 33 bn capex overrun to FY24-FY25 could weigh on free cash flows, we draw mild comfort that it was likely not due to fraud but rather a management misstep.
Business Description
AS OF 13 Nov 2024- PLDT is a leading telecom operator in the Philippines, competing alongside its main rival Globe Telecom in a predominant duopoly.
- PLDT provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- PLDT operates through 2 main business segments – “Wireless Services” and “Fixed Line Services”.
- Its “Wireless” segment offers mobile voice, mobile SMS, mobile data and mobile broadband services to retail customers in the Philippines. These services are marketed under the “Smart Postpaid”, “Smart Prepaid”, "Sun Postpaid" and “TNT Prepaid” brands.
- Its “Fixed Line Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- PLDT commercially launched 5G services on a small-scale basis in Jul-2020. It currently has over 3,000 5G sites nationwide.
- PLDT maintains dominant market shares in the mobile data, voice and SMS space (FY21 revenue market share [RMS] of 47% vs Globe 52%), the fixed line voice space (FY21 RMS of 90% vs Globe 10%), and the home broadband space (FY21 RMS of 45% vs Globe 31%).
- PLDT is backed by three established corporate groups, namely First Pacific (~15% stake), NTT Corporation (~12% stake) and JG Summit Holdings (~7% stake).
Risk & Catalysts
AS OF 13 Nov 2024Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at PLDT’s market share and restrain recoveries in average revenues per user (ARPU).
PLDT incurs significant capex that has restrained improvements in its leverage metrics and free cash flows. This is worsened by a recent capex overrun that has induced mild corporate governance uncertainties (though these have eased in recent months).
Consistently high dividend payouts could worsen PLDT’s already negative free cash flows.
PLDT is exposed to $/PHP depreciation risks ($300 mn 2050 bond is fully unhedged).
Key Metric
AS OF 13 Nov 2024| PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 68.3% | 71.9% | 73.3% | 72.9% | 74.1% |
| Net Debt to Book Cap | 62.3% | 65.7% | 69.3% | 68.0% | 71.3% |
| Debt/Total Equity | 215.2% | 256.2% | 273.9% | 269.6% | 286.2% |
| Debt/Total Assets | 43.8% | 46.8% | 49.6% | 50.0% | 52.1% |
| Gross Leverage | 2.8x | 2.9x | 2.9x | 3.0x | 3.0x |
| Net Leverage | 2.6x | 2.7x | 2.8x | 2.8x | 2.9x |
| Interest Coverage | 8.1x | 7.4x | 6.5x | 6.9x | 6.2x |
| EBITDA Margin | 50.7% | 48.7% | 49.1% | 52.2% | 51.8% |
CreditSight View Comment
AS OF 13 Nov 2024We have a Market perform recommendation on PLDT. PLDT 2031 trades fairly to Globe 2030, Axiata 2030, and Bharti 2031. We do not like the PLDT 2050 that provides a low spread pickup of just 13 bp wider versus the PLDT 2030. We are comfortable with PLDT’s sturdy credit profile aided by a resilient broadband business and tower sales (PHP 15.3 bn to close in FY24), cushioning high capex and dividends. A minority stake sale of its data center business is also credit positive. Corporate governance fears have also eased post its capex overrun in end-2022. We are watchful of strong competition in the mobile space due to DITO’s ramp up.
Recommendation Reviewed: November 13, 2024
Recommendation Changed: May 31, 2022
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Search topics about wealth insights and investments.Bank of Philippine Islands
- Sector: Financial Services
- Sub Sector: Banks
- Country: Philippines
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Fundamental View
AS OF 08 Nov 2024Bank of the Philippine Islands (BPI), the 3rd largest bank in the Philippines by assets, is rated Baa2(stable)/BBB+(stable)/ BBB-(stable).
We view the bank as too big to fail given its systemic importance in the country. There is also a strong probability of support from the government in addition to its main shareholder, the Ayala Corporation if needed.
BPI has a long history, and we view it as a fundamentally sound bank with prudent capitalization, strong and improved profitability, and comfortable liquidity. Asset quality remains relatively well managed but we are keeping an eye on strong growth in the non-wholesale book.
Business Description
AS OF 08 Nov 2024- The history of the Bank of the Philippine Islands traces back to 1851. It is the oldest bank in the Philippines and South East Asia. It was first listed on the Philippine Stock Exchange in 1971, and became a universal bank in 1982.
- Ayala Corporation, one of the biggest conglomerates in the country, became BPI's dominant shareholder in 1969. Ayala Corp still holds a 49% stake in the bank.
- BPI has been acquisitive across the years. It merged with Far East Bank and Trust Company and acquired Ayala Insurance Holdings Corp in 2000. It acquired DBS Bank Philippines in 2001 and Prudential Bank Philippines in 2005. DBS was a shareholder of BPI but exited its position in 2013. More recently in January 2024, it completed the acquisition of the Gokongwei conglomerate's Robinsons Bank.
- The bank is predominantly a corporate bank with 73% of its loan book outstanding to corporates, 2% to MSMEs and 25% to retail as of 3Q24. The longer term target is to grow the retail and SME segment to a 30% share of loans.
Risk & Catalysts
AS OF 08 Nov 2024Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would have a negative impact on BPI’s credit ratings.
Sustaining returns is a challenge without the rates tailwind, so BPI has focused on unsecured retail and MSME growth, which has put pressure on asset quality, and paring down provision reserves. We see risks to asset quality from the strategy, but BPI’s large corporates-focused book (73% of total loans) provide comfort and provisioning capacity has improved meaningfully. Provision reserves however have limited room to be further reduced, unlike BDO and MBT.
The acquisition of Robinsons Bank was completed on 1 January 2024, and it opens BPI up to new customer segments such as teachers and motorcycle loans. The current footprint is small but we are wary of the brisk intended growth.
Key Metric
AS OF 08 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.42% | 2.01% | 2.41% | 2.52% | 2.92% |
| Reported ROA (Cumulative) | 0.98% | 1.10% | 1.59% | 1.93% | 2.07% |
| Reported ROE (Cumulative) | 7.7% | 8.4% | 13.1% | 15.4% | 15.9% |
| Net Interest Margin | 3.49% | 3.30% | 3.59% | 4.09% | 4.29% |
| CET1 Ratio | 16.2% | 15.8% | 15.1% | 15.3% | 14.8% |
| Total Equity/Total Assets | 12.5% | 12.1% | 12.2% | 12.4% | 13.6% |
| NPL Ratio | 2.68% | 2.49% | 1.76% | 1.84% | 2.30% |
| Provisions/Loans | 1.94% | 0.91% | 0.58% | 0.22% | 0.32% |
| Liquidity Coverage Ratio | 232% | 221% | 195% | 207% | n/m |
| Net Stable Funding Ratio | 154% | 155% | 149% | 154% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024BPI is a fundamentally sound bank. Its traditionally conservative approach has led to a loss of loan market share in the past, as well as a lower NIM than BDO and MBT. It took a well-balanced approach towards growth during the pandemic, but is now growing briskly in higher yielding retail and MSME loans and paring down provision reserves to sustain returns in absence of rate tailwinds. Asset quality slipped in 9M24, and we see further risks from the strong focus on higher yielding segments. Still, we remain comfortable with BPI given the large corporate book (73% of loans) and underwriting record, and strongly improved profitability. The target CET1 ratio level has been lowered but to a still acceptable 14% level. Its ongoing digital investments have driven growth and efficiency.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: August 19, 2022
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Fundamental View
AS OF 06 Nov 2024BDO Unibank (BDO) is the largest bank in the Philippines in terms of assets & market share and is rated Baa2(stb)/NR/BBB-(stb).
Given its size and systemic importance, BDO is considered too big to fail and is strongly likely to be supported by its controlling shareholder SM Investments, as well as the Philippine government in times of stress.
BDO is widely viewed as the soundest bank in the country given its strong fundamentals, well-diversified businesses, and good management. Its CET1 ratio is maintained at a lower level than its first-tier peers, BPI and Metrobank.
Business Description
AS OF 06 Nov 2024- BDO Unibank was established as Acme Savings Bank in 1968, and was then acquired by SM Investments in 1976. It became a commercial bank in 1994 and a universal bank in 1996.
- BDO was listed in May 2002. SM Investments remains the bank's largest shareholder with a 41% stake.
- BDO has expanded through a series of M&As. Among its key transactions, it merged with Dao Heng Bank Philippines in 2001, Banco Santander Philippines in 2003, UOB Philippines in 2005, Equitable PCI Bank in 2007, GE Money Bank in 2009, Citibank Savings, DB Trust and Real Bank in 2014, One Network Bank in 2015 (the largest rural bank in the Philippines), and RB Pandi's banking business in 2019. It also acquired the insurance business of Generali in the Philippines in 2016.
- BDO has the largest distribution network in the country and is ranked the largest bank in terms of consolidated resources, total assets, loans, deposits and trust funds under management.
- Its loan book is split 51% large corporates, 25% middle market, and 24% consumer at 3Q24. 44% of the consumer book comprises mortgages, 25% are credit cards, 13% are auto loans and the remaining are personal loans (13%) and others (5%).
Risk & Catalysts
AS OF 06 Nov 2024Sustaining returns will be a challenge without the rates tailwind. Management is thus focused on volume growth in loans as well as CASA, pivoting the loan mix towards higher yielding segments, and releasing provisions, similar to its first tier peers (BPI and MBT).
We view this as acceptable for BDO given its relatively higher NPL cover (178% at 3Q24) than peers. We would prefer a higher CET1 ratio, but BDO’s large corporates-focused book (52% of total loans) and underwriting track record give comfort around potential asset quality deterioration as a result prolonged high interest rates and inflation.
NIM compression in 3Q24 has been guided by management to revert in Q4 on the back of the BSP’s 250 bp reduction in the reserve requirement ratio (RRR) effective 25 October. Still, NIM reduction is likely in FY25 should the market’s expectations of more BSP rate cuts come through.
Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would negatively impact BDO’s credit ratings.
Key Metric
AS OF 06 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| NIM | 4.36% | 4.05% | 4.14% | 4.37% | 4.32% |
| Reported ROA (Cumulative) | 0.9% | 1.2% | 1.5% | 1.7% | 1.8% |
| Reported ROE (Cumulative) | 7.6% | 10.4% | 13.0% | 15.2% | 15.0% |
| Equity/Assets | 11.6% | 11.7% | 11.3% | 11.5% | 11.8% |
| CET1 Ratio | 13.2% | 13.6% | 13.4% | 13.8% | 14.1% |
| NPL ratio | 2.7% | 2.8% | 2.0% | 1.9% | 1.8% |
| Provisions/Loans | 1.34% | 0.72% | 0.64% | 0.59% | 0.44% |
| PPP ROA | 2.3% | 2.1% | 2.3% | 2.7% | 2.5% |
| Liquidity Coverage Ratio | 127% | 145% | 141% | 123% | 136% |
| Net Stable Funding Ratio | 122% | 124% | 124% | 124% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024BDO is the largest bank in the Philippines. Management is well-regarded, the business is well-diversified and it is the market leader in many business lines. The NIM has peaked, but non-interest income is a third of operating income given good fee generation and overall core profitability is strong. Management aims to sustain returns, supported by growth in higher yielding loans and paring down provision reserves. Still, we remain comfortable with BDO given the large corporate book and high NPL cover, as well as underwriting track record, which provide comfort around weaker asset quality from prolonged high rates and inflation. Capital could be higher but remains acceptable with the CET1 ratio at 14.1%.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: November 28, 2023
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Search topics about wealth insights and investments.International Container Terminal Services Inc
- Sector: Transportation
- Sub Sector: Shipping and Infrastructure
- Country: Philippines
- Bond: ICTPM 3.5 31
- Indicative Yield-to-Maturity (YTM): 4.96%
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Fundamental View
AS OF 06 Nov 2024- We expect ICTSI to remain resilient amid global growth slowdown fears owing to inorganic contributions, yield improvements, and strong cost control.
- ICTSI has steadily deleveraged over the past 5 years which we see as prudent financial management. Yet management’s recent lean towards growth at the expense of deleveraging could restrain improvements in credit metrics.
- While ICTSI is exposed to material EM-related geopolitical risks, we think its geographically diversified revenue base across 20 countries limits country-specific risks.
- While sizable capex and high dividend payouts could strain ICTSI’s credit profile, we take comfort in ICTSI’s robust OCF generation that should keep FCFs positive.
Business Description
AS OF 06 Nov 2024- ICTSI develops and operates common user container terminals, with a focus on those within Origin and Destination (O&D) ports based in emerging markets.
- ICTSI provides integrated ports services that facilitate the receiving, handling and storage of cargo. These are broadly split into four streams: vessel charges (i.e. services relating to moving cargo on and off ships), yard charges (i.e. services relating to moving cargo in the container and storage yards), storage fees (i.e. services relating to cargo and container storage), and other ancillary fees.
- ICTSI currently operates across 32 port concessions in 19 countries. As of end-FY23, ICTSI's revenues are well diversified across the Philippines (27% of total), Other Asia (14%), EMEA (20%) and the Americas (39%).
- ICTSI operates its container terminals under long-dated concession agreements (typically ~25 years) with the relevant local port authorities or governments. For some concessions, fees charged to customers are regulated by the authorities that prescribe maximum price limits and, in some cases, allow for CPI-linked tariff hikes. For other concessions, fees charged are unregulated and allow for greater price-setting flexibility and volatility too.
- ICTSI is required to make periodic fee payments to the respective authorities for the right to operate the concessions. These payments are typically a combination of fixed charges and variable charges based on cargo traffic volume or gross revenues.
Risk & Catalysts
AS OF 06 Nov 2024- ICTSI is exposed to material EM-related geopolitical, regulatory and operating risks. That said, we think the impact is mitigated by its geographically diversified revenue base across 20 countries that limits country-specific risks.
- Being an EM-focused port container terminal operator, ICTSI’s bonds tend to experience greater volatility from exogenous events.
- Growing capex tendencies and high dividend payouts could strain ICTSI’s free cash flows and credit metrics, though we think the impact is mitigated by ICTSI’s robust operating cash flow generation.
- While ICTSI is exposed to FX depreciation risks as most of its revenues and cash expenses are in EM currencies, natural hedging has been fairly effective thus far.
Key Metric
AS OF 06 Nov 2024| $ mn | FY21 | FY22 | FY23 | LTM 9M23 | LTM 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 73.7% | 71.9% | 73.0% | 73.3% | 72.3% |
| Net Debt to Book Cap | 62.2% | 58.2% | 61.0% | 63.0% | 55.7% |
| Debt/Total Equity | 279.7% | 255.3% | 269.9% | 273.8% | 261.6% |
| Debt/Total Assets | 67.5% | 62.5% | 60.3% | 60.6% | 59.8% |
| Gross Leverage | 3.7x | 3.1x | 2.9x | 2.9x | 2.6x |
| Net Leverage | 3.1x | 2.5x | 2.4x | 2.5x | 2.0x |
| Interest Coverage | 3.9x | 4.6x | 4.4x | 4.4x | 4.8x |
| EBITDA Margin | 61.1% | 62.8% | 63.0% | 62.5% | 64.9% |
CreditSight View Comment
AS OF 06 Nov 2024We have a Market perform recommendation on ICTSI. We see room for ICTSI 2030 and 2031 to tighten ~10 bp versus PLDT and Globe Telecom. We expect ICTSI’s credit metrics could remain stable at ~2.0x by end-FY24 as steady yield improvements and sturdy domestic trade activity could outweigh high capex and M&A appetite. While ICTSI is exposed to EM-related geopolitical and operating risks (notably in the Mid East and Russia-Ukraine), we believe these are mitigated by its highly geographically diversified revenues. We also expect ICTSI’s robust cash-generative business to drive positive free cash flows, even amid higher organic capex, higher M&A appetite, and persistent dividends.
Recommendation Reviewed: November 06, 2024
Recommendation Changed: August 16, 2023
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Search topics about wealth insights and investments.San Miguel Corporation
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: Philippines
- Region: Philippines
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Fundamental View
AS OF 20 Aug 2024- SMC’s FY23 and 1H24 credit metrics and EBITDA improved as we had expected from resilient broad demand recovery, lower power and O&G input costs, and good cost control measures.
- We are comfortable with SMC’s large diversified operations and dominant market share in key sectors, which could outweigh its high airport and infrastructure capex.
- We remain concerned about non-call risk for SMC GP’s c.2026 perps amid SMC GP’s firmly negative free cash flows and expectations that parental support could be unsustainable in the medium-to-long term. We see low non-call risk for the SMC c.2025 perp.
Business Description
AS OF 20 Aug 2024- SMC is a massive conglomerate in the Philippines with business interests across six business segments: Food & Beverage (F&B), fuel refining and retailing, power, packaging, infrastructure, and others.
- Its F&B business is operated through San Miguel Food & Beverage, the largest F&B company in the Philippines with three main divisions: Beer and Non-alcoholic Beverage (including beers and juices), Spirits (gin and Chinese wine), and Food (including packaged foods, animal feeds, poultry and fresh meats).
- SMC’s fuel refining and retailing business is operated through Petron Corporation (~68% stake), the largest oil refining and retailing company in the Philippines, and one of the largest in Malaysia. Petron has a total refining capacity of ~268k barrels/day.
- SMC’s power business is operated through SMC Global Power Holdings (SMC GP, 100% stake), one of the largest power generating companies in the Philippines. It maintains a diversified portfolio across coal (62%), natural gas (26%), and renewable energy (12%) sources.
- Through its packaging business, it manufactures glass containers, plastic crates, pellets, bottles and caps, aluminium cans, and other types of packaging products.
- It operates its Infrastructure business through San Miguel Holdings Corp (SMHC), in which it holds a 100% stake. It currently operates ~190 km of toll roads in the country, connecting high-traffic, arterial routes in Luzon.
Risk & Catalysts
AS OF 20 Aug 2024- SMC’s revenues are concentrated in the Philippines (~80%), which poses geographical concentration risk.
- SMC incurs significant capex, particularly in its power/energy and infrastructure businesses. In October 2020, SMC began construction of the mega New Manila International Airport (requires ~PHP 750 bn of capex spread over 5-7 years). This could keep SMC’s credit metrics elevated and free cash flows in negative territory.
- As a holding company, SMC is reliant on dividend upstreaming from its operating subsidiaries to service its debt, which can be difficult should the operating subsidiaries face cash flow difficulties. We are particularly concerned about SMC GP’s weak financial profile and extension/refinancing uncertainties of its $3.3 bn perpetuals that are first callable from 2024-2026.
- SMC operates in the businesses of thermal power generation and fuel refining, which may be looked at unfavourably by some ESG-focused investors.
Key Metric
AS OF 20 Aug 2024| PHP bn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 66.4% | 72.3% | 71.6% | 72.1% | 72.7% |
| Net Debt to Book Cap | 51.7% | 58.5% | 60.4% | 60.6% | 62.1% |
| Debt/Total Equity | 197.9% | 261.3% | 251.9% | 258.6% | 266.5% |
| Debt/Total Assets | 65.7% | 69.8% | 68.1% | 69.2% | 68.3% |
| Gross Leverage | 8.1x | 9.1x | 8.4x | 8.7x | 8.0x |
| Net Leverage | 6.3x | 7.4x | 7.1x | 7.3x | 6.9x |
| Interest Coverage | 3.1x | 2.8x | 2.1x | 2.2x | 2.2x |
| EBITDA Margin | 17.6% | 12.2% | 13.8% | 12.4% | 12.9% |
CreditSight View Comment
AS OF 20 Aug 2024We have a Market perform recommendation on SMC and its sole c.Jul-25 $ perp; we see limited extension risk for SMC’s perp, yet we don’t see much price upside from current levels. SMC’s c.Jul-2025 trades 131 bp wider than Ayala Corp’s c.Sep-2026, which we think is fair given SMC’s worse liquidity position and persisting extension/refinancing risk of subsidiary SMC GP’s perps (notably the c.2026s) that negate SMC’s larger scale of EBITDA and stronger net leverage. We like SMC’s dominant market position in multiple sectors, long operating track record and diversified operations. Yet it incurs sizable airport and infrastructure capex that would likely keep its credit metrics elevated and free cash flows negative. Meanwhile, we remain watchful of SMC’s ability to support SMC GP past 2025.
Recommendation Reviewed: August 20, 2024
Recommendation Changed: April 05, 2023
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