ACCORD CAPITAL EQUITIES CORPORATION

GF EC-058B East Tower, PSE Center, Exchange Road, Ortigas Center, Pasig City, PHILIPPINES 1605 (632)687-5071 (trunk)

MARKET NOTES_for TD 117 June 17, 2011_Friday

source: www.pse.com.ph DAILY BACKDROP:
Ref e-mail: jcwaterrat@gmail.com

HE anticipated hike in interest rates did not materialize with the BSP opting to raise banks' reserve requirements instead to mop off inflationinducing excesses in money supply. Reserve requirements on deposits and deposit substitutes of all banks and non-banks with quasi-banking functions will increase by 100 basis points to 20 percent beginning Friday, June 24, 2011. Policy rates remain at 4.5% overnight borrowing, maintaining a 200-basis point spread from overnight lending. While the BSP cites a leveling off of inflationary pressures, this corner believes that the Central Bank decided in favor of economic growth, which in the first quarter significantly slowed to 4.9%. This is particularly important in the present milieu where prices are driven up mainly from the supply-side, e.i. Substantial increases in the price of fuel and oil, a principal input to manufacturing and production. On hindsight, this is what may have driven a mid-session rebound in equities yesterday. Nevertheless, the rally opened up opportunities for investors to book profits ahead of an extended weekend. This sent the measure lower, closing marginally above the 4,170 support line. US equities rose through mid-day for the second time in the last three sessions. A welcome surprise was provided by the jobs market with initial unemployment insurance claims slowed and housing starts grew. The twin reports sent concerns over Europe's debt to the sidelines, at least for the moment. There appears no doubt that the EU finance ministers and the IMF will eventually come to terms over a second rescue package for Greece, for the simple reason that the alternative could be disastrous. Political protests in Greece over the social impact of a proposed austerity plan have led to PM Papendrou to seek a vote of confidence, along with a reshuffle of the Cabinet. An uncertainty has bred further uncertainties. Furthermore, even before Greece's predicament is satisfactorily addressed, Ireland has started to resurface as another potential flashpoint for financial markets. Ireland is the second economy in the Continent to have required external aid to salvage a deteriorating fiscal condition. If the Dow is able to sustain the advance in the second half of trades through the closing bell, markets in Asia, including the Philippines, may find enough motivation to gradually build up their equity portfolio, albeit still cognizant of the elevated levels of risk. This may send indexes in the expanded region (to include New Zealand and Australia) to a positive bias and close the week on a strong note. Bargain-hunters may have a field day with nearly half of the local index' components trading at earnings multiples less than the Main Index' 14.65x. (Our computed market capitalization weighted PE for all index components is at a much higher 21.03x, although this uses prior year's earnings compared to the earlier number's trailing 12 months base.) On a TTM basis, the bargain stocks which are worthy of a second look, including guidance from the technical charts for entry and exit points, are shown in the accompanying table. Andrew Tan property firm, Megaworld Corporation [pse: MEG] is probably the best bet as it satisfies all three bargain parameters considered. It trades at a PE of less than 10x trailing earnings (TTM), and more importantly, less than the market's, below its equity book value of php2.0412 per share. The Company declared cash dividends amounting to php0.02375 per share with ex-date on July 1 and payable on July 29.
STOCK PSEI SECB RLC AGI FLI AP MEG ABS AEV TEL MWC JGS GLO URC DMC PE (TTM) 14.65 5.36 8.84 9.10 9.53 9.69 9.85 10.02 10.18 10.77 11.33 11.81 11.94 12.64 13.28 P/BK 1.47 1.20 1.14 0.73 4.82 0.94 1.83 3.36 4.47 2.00 2.45 2.06 STO(14,3,3) 22.92 14.73 7.06 34.72 26.67 64.63 3.58 70.00 38.71 12.50 53.03 27.05 68.42 18.25 26.22

The only other firm that displays the same characteristic, excepting STO levels, is another property firm, Filinvest Land, Inc. [pse: FLI]. Both merit a BUY ON DIPS tag. The other potential candidates for inclusion in our equity portfolio for the short- to medium-term are SECB, RLC, TEL and URC.

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