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stock picks 2011 da market securities inc the dmsi market outlook end 1q 2011 unit 6 3f fort strip bldg btc fort bonifacio taguig city phone 6328876407 fax 6328875457 web broker204.tumblr.vom

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2 market outlook stock picks 2011 uncertainties rising from external developments in the middle east and japan have curbed risk appetite local concerns will center on inflation risk due to higher oil prices and possible hurdles to ppp initiative however fund flow remains to be biased to emerging markets over developed countries on higher growth expectations we foresee foreign buying and positive 1q earnings and outlook to support stock prices in our buying range of 3600 ­ 3800 a possible rate hike due to inflation pressures may adversely affect the bank and property sectors in the short-term bsp assures that adjustments will be gradual we remain optimistic on these sectors in the long term along with perceived high growth sectors of energy commodities and gaming please note that an exaggeration in oil prices would present the opportune weakness in markets ideal for positioning we are only on the second year of a significant bottom march 2009 and have corrected from the medium term peak of 4403 by 16 at 3705 at 12.80x p/e at 3,600 the correction would register an 18 correction 12.5x p/e still above 20 decline which by definition would enter bear market territory our stock selection includes ac ali sm bdo smdc smph bel lr dmc scc smc pcor ap edc pnb we will follow up this report with other selections mbt bpi and ict a global perspective the mid-east tensions in the mid-east may pose threats on oil supply thus higher prices possible $120-150/barrel ofw remittance inflow in the region excluding saudi arabia only accounts for 2 japan while the depth of the effects of the earthquake in japan has yet to be seen current estimates by world bank peg negative short-term effects within 2 months however with the foreseen massive reconstruction efforts in japan philippines is seen to benefit by the second half of 2011 the philippines has relationships with japan in terms of exports destination 15.4 of total in 2010 source of imports 12.1 foreign direct investments 29 foreign portfolio investments 2.04 foreign assistance 36 and remittances 5 the government is also eyeing $3b worth of ppp projects from interested japanese partners us while the us is constantly looked to for direction in world markets particularly in the philippines the psei has indeed decoupled we do however continue to follow developments in the world s biggest economy the us exited recession and is expecting gdp to expand from 3.5 to 4 this year companies have reported strong earnings increased cash flow and dividends share buybacks and mergers and acquisitions.

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3 stock selection below we discuss our stock selection and highlights holdings stock picks 2011 ac recently acquired a 50 stake in a company that operates 33mw wind farm in ilocos norte the company is bullish in the renewable energy space intending on adding hydro-electric power to their wind and solar initiatives the company plans to have a 1,000mw capacity in the next 5 years they are also interested in diversifying to tollroads and railways by bidding for the government s ppp initiatives ac is highly diversified with businesses in real estate development see ali banking telecommunications water infrastructure and electronics manufacturing sm is a fast growing highly diversified conglomerate and is currently the biggest superseding ac in terms of market capitalization standing at 315b vs the latter s 174b while ac listed in 1976 sm listed just in 2005 with a market cap of 152b the group consistently aggressively vies for top spots in the industries it participates in while the company has 5 core businesses its ownership in bel will soon prove itself to be come a major player in the gaming industry it is also currently in the entry stage of power through bel s stake in apc 1 shopping mall development and mgmt smph is the top shopping mall developer and operator reported a 12 growth yoy in net income to php7.9 billion from 7b notable is the 36 growth in gross revenues in its operations in china on the back of expansion and china s strong economy by the end of 2011 smph aims to have 47 malls in the philippines and in china with an estimated combined gross floor area gfa of 5.7 million sqm 2 financial services bdo is currently the largest bank in terms of assets 1t loans and deposits if china bank were to be considered assets would exceed 1t and branches would amount to 1009 superseding bpi s top spot of 809 branches to-date it reported a net income of 8.8b in 2010 up by 44 yoy 3 real estate development and tourism sm land inc sm development corporation costa del hamilo inc pico de loro beach and country club inc and highlands prime inc smdc was hailed as the largest residential developer in metro manila for the 1h of 2010 having registered the nights no of units sold and sales value as a new player in the industry it has been a game-changer in terms of providing high quality residences in strategic locations at affordable price points with ayala establishing its amaia brand to capture the same market smdc reported a consolidated net income of php3b in 2010 up by 62 from1.9b in 2009 it has a current portfolio of 14 residential projects with many projects nearly sold out smdc plans to unveil five new projects this year.

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4 stock picks 2011 while the remaining subsidiaries remain unlisted they continue to attract foreign investments through the parent firm 4 retail merchandising sm department stores sm supermarket sm hypermarket and savemore stores 5 hotels sm hotels smx conventions specialists hotel specialists tagaytay cebu and manila sm also owns majority of upscale leisure developer and upcoming casino operator bel see bel under gaming through bel the company owns loto the licensee for the lotto vis-min operations loto wholly-owns lucky circle which operates the lotto outlets for all sm malls bel is also biggest shareholder of apc group the sy s venture into geothermal power smc has transformed into a powerhouse conglomerate with interests in essential industries as power oil telecommunications infrastructure banking and mining with 80 of cash flow coming from non-food assets 2011 will mark first full year marking the consolidation of the 4 power plants and pcor its power business has the largest power capacity portfolio of 28.1 of the luzon grid and 21.4 of the national grid producing 11.1mn mwh in 2010 pcor the largest refiner in the country posted an 86 increase in net income to php7.89bn on higher petrochemical sales and forex gain additional value is expected upon completion benzene plant and higher oil prices banking on increased coal demand it acquired daguma agro minerals inc bonanza energy resources inc and sultan energy mining and development corp ventures underway are bot infrastructure projects include the upgrade of caticlan airport the construction of the north luzon east expressway and the metro rail transport-line 7 smc expects ebitda of $2b p86b at p43 to a $1 for 2011 the company plans to invest more than $4 billion p172b in five years targeting $23b close to p1t in sales by 2016 dmc reported a net income of p8.85b in 2010 up 89 yoy from p4.68b on one-off gains and strong growth of its construction mining and power units the sale of human resources firm atlantic gulf pacific co of manila was valued at 1.75b real estate contributed 1.27b up by 25 maynilad water services 1.89b up by 12.7 has 42 stake construction 1.67b up by over 100 mining 2.19b up 87.7 on higher sales volume and coal prices has 58 stake in scc and power p886m up by 1,785 recently dmc disclosed having won 3 contracts worth p9.37b of which 8.6b will be to build ictsi s enrique razon s hotel and and entertainment complex to be located in pagcor s multi-billion dollar project the

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5 stock picks 2011 bagong nayong pilipino-entertainment city manila hailed as the country s biggest tourism development a contract worth 625m with smc is for the construction of a residential project in makati city to be completed within 26 months a 12-month contract worth 117m is for the construction of the headquarters of a davaobased bank one network bank scc s venture into power generation has significantly added value to its coal mining operations the company aims to produce a total of 1,550mw by 2013 from zero for most of 2009 see scc under mining gaming bel lr while lr is estimated to realize additional net income 15 or 50 of ebitda from a 10-year renewable operating contract of bel s gaming component in their $1b integrated resort complex slated to open 4q 2011 bel is expected to register 1.5b in net income after first full year of operations from an average p300-400m income a year energy in particular clean ap reported a 362 yoy increase from p4.0 to 18.7b in 2010 with pagbilao posing no threat ap has assured reduced volatility increased predictability to the spot market through more contracted capacity and aggressive action against pilferage to manage systems loss expansion of existing and new capacity within 2011 ­ 2014 keen on bidding for ippas while initial trajectory is recent high of 36 there is still promise of significant upside edc is the country s largest producer of geothermal energy with an installed capacity of 1,149.40 60 of the country s total geothermal capacity it reported a 31 increase in income to p4.4b the company plans to spend p12 billion this year on expansion projects embarking on a capex program that will achieve optimum availability and reliability of all operating steamfields and power generating assets it is planning to put up a wind farm to add 86mw capacity for the luzon grid it is allocating 2.65b 24 of capex for the power plant rehabilitation requirements of subsidiaries to run at full capacity green core geothermal inc operates the 112.5-mw tongonan 1 and 192.5-mw palinpinon geothermal power plants in leyte and negros oriental and bacman geothermal inc 150-megawatt bacon-manito `bacman geothermal power plants in albay and sorsogon

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6 mining scc stock picks 2011 price target of p270.00 on improved power capacity rehabilitation of plant to increase capacity to 400mw higher coal prices in large part due to flooding in australia world s largest coal producer and improved margins i.e higher spot prices during summer months est earnings for 2011 is 6.7b 14.34x p/e from 2010 s est of p3.6b continuous exploration efforts properties ali reported a 35 yoy increase in net income to 5.46b on higher revenues up 24 to 37.81b particularly from real estate and hotels the company s core businesses include shopping centers office space rental and tourism and hotel it has earmarked p33 billion for capital expenditures for the construction of more than 20,000 units across all residential brands this year double 2010 figures with an estimated sales value of 57b smdc see sm under holdings banks pnb the pnb and abc merger will create the 4th largest private bank in terms of assets net loans and receivables and deposits 3rd largest in terms of local branches it will have a combined branch network of 626 branches and 614 atms nationwide according to a study by fitch ratings the eventual integration could translate to addressing pnb s high non-interest expenses and the additional value of abc s good margins from niche chinese filipino smes a merged entity translates to a price target of p85 ­ 100 acquisition by any of the big three bdo mbt and bpi is open or even a possible acquirer desiring to gain a foothold on the fourth top spot can trigger a bidding war which could put a premium on the price p200 anyone bdo see sm under holdings

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