Bloomberg News

Buy Philippine Builders on Higher Spending, CLSA’s Dy Says

January 29, 2012

(Closes stock index in fifth paragraph.)

Jan. 27 (Bloomberg) -- Investors should buy Philippine property and transport-related stocks on increased spending on infrastructure and tourism projects, said CLSA Asia-Pacific Markets, the country’s third-largest stock brokerage.

Ayala Corp., owner of the nation’s biggest builder and third-largest bank by assets, and Metro Pacific Investments Corp., which has investments in tollroads, are the brokerage’s top picks, Alfred Dy, Manila-based analyst at CLSA, said in a phone interview. The two stocks may gain at least 20 percent in the next 12 months as the companies bid for government-led projects, he said.

Dy, who was ranked first in Philippine research by Institutional Investor magazine’s 2010 poll, targets the Philippine Stock Exchange Index to reach 4,900 by the end of this year, a 6.3 percent gain from yesterday’s close. The government is raising spending to a record this year to spur the $200 billion economy’s growth rate to as fast as 8 percent from about 5 percent last year.

“It’s too early to sell Philippine stocks and major dips are buying opportunities,” Dy said. “The market remains undervalued and there’s plenty of upcoming positive news. There are still a lot stocks with low valuations.”

Shares on the Philippine Stock Exchange Index trade at about 14 times this year’s estimated earnings, below its 17-year average multiple of 15.5, Dy said. That’s even after the benchmark gauge rose to a record-high on Jan. 20. The gauge has since lost 1.4 percent and is set for its biggest weekly drop in almost three months. The index rose 1.5 percent to 4,679.89 at the 3:30 p.m. close in Manila.

Spending Projects

The government unveiled a 72 billion peso ($1.68 billion) stimulus package in October. An official said on Jan. 3 the government may offer eight to 16 infrastructure projects including airports and ports to investors worth up to $3.2 billion this year. Genting Hong Kong Ltd. and Universal Entertainment Corp. are also building casinos.

CLSA additionally recommends SM Investments Corp., owner of the nation’s biggest bank, and Robinsons Land Corp., which plans to open four budget hotels in the first half, according to Dy. The brokerage’s “conviction” list also includes Cebu Air Inc., the nation’s biggest budget carrier, and Philippine National Bank, according to Dy.

Low interest rates and infrastructure projects will boost demand for loans while increased tourism will benefit Cebu Air, Dy said. The central bank on Jan. 19 lowered its benchmark interest rate by 25 basis points to 4.25 percent.

Dy forecast on May 3 that the nation’s benchmark stock index would rise to 4,780 in 12 months. The measure closed at a record 4,747.90 on Jan. 20.

--Editors: Richard Frost, Ravil Shirodkar

To contact the reporters on this story: Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Richard Frost at rfrost4@bloomberg.net


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