WEDNESDAY, 19 JUNE 2013

GT Capital Holdings, Inc:

Riding the favorable macroeconomic tide

We are initiating coverage on GTCAP with a HOLD recommendation and an FV estimate of Php875.00/sh
based on the sum of the parts (SOTP) valuation method. We like GTCAP given its attractive portfolio consisting
of companies belonging to industries that benefit from rapid economic growth such as banking, real estate
development, power generation, automotive and insurance. Growth will also be enhanced by the consolidation
of interests in the said businesses. Nevertheless, we believe that current valuations offer a limited upside, with
GTCAP only trading at a 8.0% discount to our FV estimate of Php875.00/sh. At its current price of Php810.00/
sh, its 2013E P/E multiple of 15.4X is also largely in line with the industry median of 15.5X.

Favorable macroeconomic tailwinds to drive growth. Our favorable outlook on GTCAP largely
stems from the attractive growth prospects of the Philippine economy. We believe that with its interests
in banking, real estate, power generation, automotive, and insurance, GTCAP is in a prime position
to benefit from strong economic growth. For example, Metrobank should benefit from higher lending
growth as businesses and individuals lever up during periods of faster economic growth. Meanwhile,
higher levels of employment, resilient OFW remittances, the countrys favorable demographics and
the growing availability of affordable financing should drive demand for residential properties while the
sustained strength of BPO sector and the favorable outlook for investments should lead to stronger
demand for office space, benefiting Fed Land. Healthy economic growth would increase the demand
for power from GBP, particularly in the Visayas region. Higher purchasing power of consumers coupled
with the availability of more affordable payment terms should also lead to higher car sales for TMP.
Finally, increasing affluence and falling interest rates should lead to more demand for life insurance
products from AXA.
GTCAP earnings to expand led by strong growth from TMP; increased stake to magnify
growth. We are forecasting GTCAP net income to reach Php11.7Bil by 2015 from Php6.6 Bil in 2012,
translating to a 3-year CAGR of 21%. The growth comes from the intrinsic expansion of each sector,
magnified by the larger direct ownership on its subsidiaries. All of its member companies are expected
to expand during the period, with TMP contributing the biggest growth. Aside from the increase in
GTCAPs ownership from 21% to 51%, TMPs net income is forecasted to grow at an annual rate of
28% over the next three years. This is largely driven by a 14.5% CAGR in revenues brought about by
the expected motorization in the country and an improvement in margins stemming from the favorable
movements in FX rates (stronger Peso and a weaker Yen).
Valuations offer limited upside, initiating coverage with a HOLD and a target of Php875/sh. We
are initiating coverage on GTCAP with a HOLD rating and an FV estimate of Php875/share. While we
have a favorable view on GTCAPs growth outlook, we believe that current valuations are not very
attractive. Based from our FV estimate, the upside from the current market price is limited at 8.0%.
Nevertheless, pullbacks to below Php760/sh should be viewed as opportunities to BUY.

Forecast Summary (US$Mil)

Year to December 31 (Php Mil)

Revenue
% change y/y
Equity in Net Income of Associates
% change y/y
EBIT
% change y/y
Net Income
% change y/y
EPS (in Php)
% change y/y

2010
3,358
49.92
2,949
41.11
3,464
41.97
3,002
37.44
24.01
37.44

2011
4,398
30.96
3,568
20.99
4,592
32.57
3,324
10.75
26.60
10.75

2012
19,130
335.00
3,904
9.42
10,662
132.17
6,555
97.18
44.27
66.44

2013E
32,617
70.51
5,391
38.11
19,036
78.55
9,141
39.45
52.44
18.48

2014E
36,393
11.58
5,299
-1.72
20,562
8.01
9,809
7.31
56.28
7.31

RELATIVE VALUE
P/E(X)
P/BV(X)
ROAE(%)
Dividend Yield (%)

33.73
3.42
10.63
0.49

30.46
2.90
10.30
0.49

18.30
1.86
14.66
0.39

15.45
1.39
14.35
0.77

14.39
1.24
12.69
1.08

*Source: COL est imat es

SHARE DATA
Rating
Ticker
Fair Value (Php)
Current Price
Upside (%)

HOLD
GTCAP
875.00
810.00
8.02

SHARE PRICE MOVEMENT

130
120
110
100
90
19-Mar-13

19-Apr-13
GTCAP

19-May-13

19-Jun-13

PSEi

ABSOLUTE PERFORMANCE
GTCAP
PSEi

1M
-4.93
-10.24

3M
9.16
1.68

YTD
30.65
12.41

MARKET DATA
Market Cap
Outstanding Shares
52 Wk Range
3Mo Ave Daily T/O

141,183.00Mil
174.30Mil
481.40 - 883.50
223.15Mil

APRIL LYNN TAN, CFA

a p r i l . t a n @ c o l f in a n ci a l .co m
CHARLES WILLIAM ANG
c h a r l e s . a n g @ c ol fi n a n ci a l .co m

PHILIPPINE EQUITY RESEARCH

Company background
GT Capital Holdings Inc. (GTCAP) was established in 2007 as the primary vehicle for the holding
and management of the business interests of tycoon George Ty. GTCAP currently holds interests in
banking, real estate development, power generation, and automotive sectors through its 25.1% stake
in Metrobank (MBT), 100% stake in Federal Land (Fed Land), 51.0% stake in Global Business Power
(GBP), and 51.0% stake in Toyota Motor Philippines (TMP). The company is also engaged in the life
insurance business through its investment in Philippine Axa Life Insurance (25.3% share). Currently,
the Ty family owns 59.59% of the GTCAP through Grand Titan Holdings.
Exhibit 1: GT Capital Portfolio

25.1%

51.0%

100%

51.0%

25.3%

Source: GTCAP

Based on our pro-forma estimates (using GTCAPs current stake in its subsidiaries), bulk of GTCAPs
2012 earnings at 43% is attributable to MBT. Fed Land, TMP, and GBP accounted for 23%, 18%, and
13% of earnings respectively.

Exhibit 2: 2012 Pro-forma Earnings Breakdown

AXA
GBP 3%
13%
MBT
43%

TMP
18%
Fed
Land
23%
Source: GTCAP, COL estimates

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PHILIPPINE EQUITY RESEARCH

Favorable macroeconomic tailwinds to drive growth

Our favorable outlook on GTCAP largely stems from the attractive growth prospects of the
Philippine economy. We believe that with its interests in banking, real estate, power generation,
automotive, and insurance, GTCAP is in a prime position to benefit from strong economic growth.
For example, Metrobank should benefit from higher lending growth as businesses and individuals
lever up during periods of faster economic growth. Meanwhile, higher levels of employment, resilient
OFW remittances, the countrys favorable demographics and the growing availability of affordable
financing should drive demand for residential properties while the sustained strength of BPO sector
and the favorable outlook for investments should lead to stronger demand for office space, benefiting
Fed Land. Healthy economic growth would increase the demand for power from GBP, particularly
in the Visayas region. Higher purchasing power of consumers coupled with the availability of more
affordable payment terms should also lead to higher car sales for TMP. Finally, increasing affluence
and falling interest rates should lead to more demand for life insurance products from AXA.
GTCAPs subsidiaries are well positioned to capitalize on the growth opportunities that are currently
available given that they are among the top players in their respective industries. Also, each of the
member companies is expected to benefit from synergies between the other members, providing
them with a competitive advantage over the other players.

GTCAP earnings to expand led by strong growth from TMP; increased

stake to magnify growth
We are forecasting GTCAP net income to reach Php11.7Bil by 2015 from Php6.6 Bil in 2012,
translating to a 3-year CAGR of 21%. The growth comes from the intrinsic expansion of each sector,
magnified by the larger direct ownership on its subsidiaries. Recall that GTCAP used bulk of the
proceeds from its Php14.2Bil (primary proceeds only) initial public offering in April 2012 and its
Php10.1Bil private placement in January 2013 to acquire more shares in Fed Land, GBP, and TMP.
Since its IPO, GTCAP has already increased its ownership in Fed Land from 80% to 100%; in GBP
from 34.4% to 51%; and in TMP from 21% to 51%.
All of its member companies are expected to grow during the period, with TMP contributing the
biggest growth. Aside from the increase in GTCAPs ownership, TMPs net income is forecasted to
grow at an annual rate of 28% over the next three years. This is largely driven by a 14.5% CAGR in
revenues brought about by the expected motorization in the country and an improvement in margins
stemming from the favorable movements in FX rates (stronger Peso and a weaker Yen).
For 2013, earnings growth would largely come from MBT and TMP, accounting for 52% and 23% of
GTCAPs total income. According to GTCAP, its goal is to have its three smaller subsidiaries (Fed
Land, GBP, and TMP) accounting for 15 to 20% of earnings and for MBT to account for 50%

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PHILIPPINE EQUITY RESEARCH

Exhibit 3: GTCAP Earnings Breakdown (PhpBil)

Metrobank
Federal Land
Global Business Power
Toyota Motor Philippines
AXA Life
Parent/Others
Net Income

2012
3.67

2013E
5.14

2014E
5.01

2015E
5.42

1.94
0.82
0.63
0.23
7.29
-0.74
6.55

1.12
1.03
2.29
0.25
9.83
-0.69
9.14

1.48
1.03
2.69
0.29
10.50
-0.69
9.81

2.02
1.28
3.21
0.31
12.24
-0.69
11.55

Drivers

Sustained loan grow th;

higher fee based income
Booking of real estate sales
Expansion of existing plants
Stronger car sales; improved margins
Higher insurance premiums

Source: GTCAP, COL estimates

Valuations offer limited upside, initiating coverage with a HOLD and a

target of Php875/sh
We are initiating coverage on GTCAP with a HOLD rating and an FV estimate of Php875/share.
While we have a favorable view on GTCAPs growth outlook, we believe that current valuations are
not very attractive. Based on the sum-of-the-parts valuation model, our NAV estimate for GTCAP is
Php919/sh. Applying a 10% discount to MBT (which is listed separately in the PSE), we arrived at a
fair value estimate of GTCAP at Php875/sh. This translates to a 2013E P/E of 16.7X, slightly above
the median P/E of the other major conglomerates in the country.

Exhibit 4: NAV Computation (PhpBil)

Metrobank
Federal Land
Global Business Power
Toyota Motor Philippines
AXA Life
Value of Subsidiaries
Less parent net debt
Net asset value
Shares outstanding (Mil)
Net asset value per share
Less holding company discount
FV estimate

Value
314.60
22.24
50.91
84.01
11.71

Stake
25.1%
100.0%
51.0%
51.0%
25.3%

Value to
GTCAP
79.00
22.24
25.96
42.84
2.97
173.01
(12.79)
160.23
174.3
919.3
-45.3
875.0

Value/sh
453.2
127.6
149.0
245.8
17.0

%
45.7%
12.9%
15.0%
24.8%
1.7%

Notes
P/BV
NAV
DCF
DCF
P/BV

10% of MBT
rounded off

Source: GTCAP, COL estimates

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PHILIPPINE EQUITY RESEARCH

Exhibit 5: PE Ratio of Philippine Conglomerates

2013E P/E
16.7
13.6
25.0
15.5
11.5
8.3
18.0
22.5
15.5

GT Capital (at Php875/sh)

Aboitiz Equity Ventures
Ayala Corp
Alliance Global
DMCI Holdings
First Philippine Holdings
Metro Pacific Investments
SM Investment Corp
Median
Source: COL estimates, Bloomberg

Based from our FV estimate, the upside from the current market price is limited at 8.0%. Nevertheless,
pullbacks to below Php760/sh should be viewed as opportunities to BUY.
A more detailed discussion on GTCAPs subsidiaries and their earnings growth prospects are
provided below.

Metrobank A major player in the banking industry

Metropolitan Bank and Trust Company (MBT) is the countrys second largest bank in terms of assets,
capturing 13% of the banking industrys total resources as of end 2012. The bank provides a full
range of banking products and services including borrowing and lending, trade finance, remittances,
treasury, investment banking, and thrift banking. Since being established in 1962, MBT has focused
on providing banking services to the middle market Filipino-Chinese businesses. Nevertheless, it has
steadily diversified into the other sectors of the economy, with consumer loans now accounting for
a significant part of its portfolio. Currently, its loan portfolio is made up of 60% corporate loans, 13%
SME loans, and 27% consumer loans.

Exhibit 6: MBT Loan Portfolio Breakdown

Commercial
13%

Corporate
60%

Auto
40%

Consumer
27%

Mortgage
36%

Credit Card
19%
Others
5%

Source: GTCAP

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As of end 1Q13, the bank had Php1,020Bil in total resources, Php523Bil in loans, and Php690Bil in
deposits. It currently has the largest branch network with 831 branches nationwide.

Leading market position allows the bank to benefit from improving

economic outlook
We believe that the Philippine banking Industry is currently experiencing a cyclical uptrend. During
the past 7 years, bank lending growth has averaged 12.7%, supported by improving macroeconomic
fundamentals and rising investor confidence. This came after a period of corporate deleveraging from
1998 to 2005 (post Asian financial crisis), where loan growth averaged just 1.1%. Going forward, we
believe demand for loans will remain strong given the positive economic outlook, stable political
environment, improved investor confidence, and low interest rates. The countrys recently awarded
investment grade rating (from Fitch and S&P) and the growing momentum of the PPP projects should
also boost loan demand.
MBT is expected to be one of the major beneficiaries of growing demand for loans given its position
as the second largest bank in the country. Relative to the other smaller players in the industry, MBTs
size improves its ability to generate low cost deposits, to distribute products and services, and to
achieve higher cost efficiencies through economies of scale. Aside from the advantage brought about
by its size, Metrobank has a strong balance sheet, with an NPL ratio of only 1.8% and NPL cover of
124%. Its Tier 1 capital adequacy ratio is also high at 14.8% as of end 1Q13, much higher than the
BSPs minimum requirement of 10% under Basel III. Finally, it has a very liquid balance sheet with a
loans-to-deposit ratio of 76%.

Exhibit 7: MBT Financial Position

Loans-to-deposits
NPL ratio
NPL coverage
Tier 1 CAR
Total CAR

2010
57.5%
2.9%
92.3%
12.0%
16.4%

2011
65.4%
2.2%
99.5%
13.7%
17.4%

2012
70.2%
1.8%
116.8%
13.7%
16.3%

1Q13
75.8%
1.8%
124.0%
14.8%
17.3%

Source: MBT

Earnings to grow despite pressures on margins, expected decline in

trading gains
Despite the expected growth in demand for loans, the banking industry faces some challenges such
as falling interest rates and a possible drop in trading gains. Nevertheless, we remain confident that
despite these challenges, MBT will still be able to grow its earnings. Firstly, we believe that margins
should no longer shrink despite the continuous drop in interest rates as banks steadily shift their
focus to higher yielding SME and consumer loans. Funding costs should also fall with the drop in
interest rates (SDA rates in particular) as this would allow banks to reduce their time deposit rates.

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PHILIPPINE EQUITY RESEARCH

Moreover, we expect the decline in trading gains to be subdued. Note that since reporting strong
trading gains in 2010, MBT, together with the other players in the industry, have continued to book
better-than-expected trading gains every year. In fact, in its latest quarterly report, MBT registered
Php11.3Bil in trading income in 1Q13, more than doubling its previous record high of Php5.2Bil in
1Q12. The steady increase in MBTs fee-based income should also help offset future declines in
trading revenues.
Over the next three years, we are forecasting MBTs earnings to grow by a CAGR of 12.7%.

Exhibit 8: MBT Earnings Forecasts (in PhpBil)

Net interest income

Non-interest income
Provisions
Net income
ROE (in %)

2011
29.4
19.6
3.8
11.0
11.2%

2012
30.8
25.1
4.5
15.4
13.4%

2013E
34.9
34.2
4.2
20.9
16.2%

2014E
39.5
28.0
3.7
20.4
13.9%

2015E
44.2
26.9
3.9
22.1
13.3%

Source: MBT, COL estimates

Valuations
Given the expected improvement in profitability and the banks attractive growth prospects, we believe
that MBT should be valued at 2.6X 2013E P/BV. This translates to an FV estimate of Php149.00/sh
or Php314.6Bil for the entire firm.
Given its 25.1% stake in MBT, the bank accounts for Php79.0Bil or Php453.20/sh of GTCAPs NAV.
This is equivalent to 45.7% of the Companys value.

Federal Land Proactive stance to unlock potential

Established in 2002, Federal Land is a real estate company which primarily develops middle to
high-end residential and commercial projects. Despite its relatively short history, the company
capitalizes on the Ty familys experience in the real estate industry, which spans over 40 years and
includes over 50 projects. Presently, Fed Land has 35 ongoing residential developments with a total
of 11,000 units. Most of Fed Lands projects are part of master-planned communities consisting of
residential condominium towers, supporting amenities, and complementing commercial and retail
establishments.
As of end 2012, Fed Land had Php34.2Bil in total assets and a land bank of 107.5 hectares. During
2012, around 56% of revenues came from real estate sales while around 17% came from sales of
goods and services which consist of oil, petroleum, and ancillary goods and services at the Blue
Wave Malls.

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Exhibit 9: Federal Land Bank

Location
Metro Manila
Macapagal
Fort Bonifacio
Marikina
Mandaluyong
Paco Manila
Ermita Manila
Binondo Manila
Makati City
Quezon City

Lot Area
(in hectares)
14.5
4.0
15.4
2.1
2.2
0.6
0.9
0.5
0.2
40.4
48.8
18.3
107.5

Laguna
Cavite
Total
Source: Fed Land

Favorable view on the long term prospects of the property sector

We have a favorable outlook on the property sector. Higher levels of employment resulting from
faster economic growth, resilient OFW remittances, the countrys favorable demographics and the
growing availability of affordable financing should drive demand for residential properties, while the
sustained strength of BPO sector and the favorable outlook for investment spending should lead to
stronger demand for office space.
Despite the recent increase in residential condominium developments, we believe that there is
currently no glut in the market. Indeed, notwithstanding the 149,000 condominium units estimated to
be in the pipeline from 2013 to 2018, this can be easily absorbed given the continuous growth in the
housing backlog. Specifically, the latest Philippine Development Plan estimates the housing backlog
to increase from 3.6Mil currently (0.54Mil in mid-end units) to 5.8Mil (0.87Mil in mid-end units) by
2016. The current low interest rate environment and the increasing transportation costs (both time
and monetary) further support the strong demand for residential condominiums.

Exhibit 10: Projected Housing Backlog (Mil)

14.0
12.0

12.5

10.0

10.0

8.0

5.8

6.0
4.0

3.6

2.0

3.1

0.0

0.5
2013

10.6
8.5

4.9
0.9

1.5

1.9

2016

2020

2030

Mid-end

Others

Source: Phil Development Plan, Subdivision & Housing Developers Assn.

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Aggressive approach to unlock value of huge land bank

Federal Land is well positioned to capitalize on the strong demand for housing given its huge land
bank and its more aggressive stance recently. At present, Fed Land has 107.5 hectares of land bank
which are enough to support 10 years worth of sales. In addition, the Ty family owns another 146.8
hectares of properties either adjacent to Fed Lands existing land bank or near other well accepted
projects. According to the company, around 100 hectares of the Ty familys properties are located
beside the Laguna Technopark, while 36 hectares are located in Macapagal Ave. The Ty family
also owns 10.8 hectares of properties in Fort Bonifacio beside Fed Lands Veritown project. These
properties can be bought by Fed Land in the future to ensure the sustainability of its project launches.
In 2012, Federal Land took on a more aggressive stance and launched a total of 13 projects. This led
to the significant increase in the number of ongoing projects to 32 as of end 2012 from 19 in 2011,
while reservation sales grew by 90% to Php14.9Bil. In 1Q13, Fed Land added another 3 projects,
bringing the total of ongoing projects to 35. For the year, Federal Land plans to spend Php9.3Bil
in capital expenditures, more than double its Php4.3Bil capex in 2012. Around Php6.5Bil will be
allocated to the completion of its residential projects, allowing Fed Land to unlock the value of its
huge unbooked revenues of around Php15Bil, fueling earnings growth.

Plans to expand leasing business

Federal Land is also taking steps to boost its rental portfolio. It recently bought GT Towers from the Ty
family, while its Bluebay Walk project in Pasay City which has a total leasable area of 13,000 sqm is
scheduled for completion in June of 2013. Fed Land also plans to put up offices and a retail podium in
its Veritown project in the Fort. In the medium term, Fed Lands goal is for rental properties to account
for 15% to 20% of revenues, up from only 5.4% in 2012.

Earnings to grow on higher real estate sales

We are forecasting Fed Lands earnings to post a 3 year CAGR of 52% (net of the Php1.4Bil onetime gain in 2012). The strong growth is largely driven by a 61% increase in real estate sales as the
company unlocks the value of its huge unbooked revenues.

Exhibit 11: Fed Land Earnings Forecasts (in PhpBil)

Booked real estate sales
Sale of goods and services
Rental income
Other income
Net income

2011
3.32
0.76
0.24
0.49
0.93

2012
2.92
0.73
0.23
1.82
1.98

2013E
6.91
0.75
0.33
0.04
1.12

2014E
8.94
0.78
0.42
0.05
1.48

2015E
12.19
0.80
0.51
0.05
2.02

Source: Fed Land, COL estimates

Valuations
Based on our NAV calculations, Fed Lands value largely comes from its huge land bank (78%) and
its current portfolio of residential projects (34%). Since Fed Lands value largely comes from its land
bank which is non-income generating, we applied a 30% discount to our NAV estimate to arrive at
Fed Lands fair value.

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Exhibit 12: Fed Land NAV Estimate (PhpBil)

Residential projects
Recurring income
Landbank
Net cash (debt)
Net asset value

Value
10.68
2.58
24.77
(6.25)
31.78

Less discount to NAV

Fed Land value

30%
22.24

% NAV
34%
8%
78%
-20%

Source: Fed Land, COL estimates

Given GTCAPs 100% stake in Fed Land, the property firm accounts for Php22.2Bil or Php128/sh of
the holding companys NAV. This is equivalent to 12.9% of the Companys value.

Global Business Power Plant expansion to drive growth

Global Business Power (GBP) is the holding company of the Ty familys power generation businesses.
Currently, it is a leading power producer in the Visayas and Mindoro area, operating nine power
generation facilities with a gross dependable capacity of 627 MW (480 MW attributable to GBP, net
of minority interests). In 2011, GBP opened two of its largest plants a 246 MW CEDC plant in Cebu,
and a 164 MW PEDC plant in Panay. These new plants account for a combined 57% of GBPs total
effective capacity. The two plants have the distinction of being the first commercial clean coal power
plants in the country, utilizing circulating fluidized bed boiler technology that produces lower levels of
sulfur dioxide and nitrogen oxide and captures most solid emissions.
Exhibit 13: GBP Power Generation Facilities

Plant
CEDC (Cebu)
PEDC (Panay)
TPC - Sangi
TPC - Carmen
PPC - Iloilo 1
PPC - Iloilo 2
PPC - Nabas
PPC - New Washington
GPRI
Total

Type
coal
coal
coal
fuel oil
fuel oil
fuel oil
fuel oil
fuel oil
fuel oil

Effective Capacity (MW)

Ownership Gross
Net
52.1%
128
113
89.3%
146
129
100.0%
60
50
100.0%
40
36
89.3%
64
62
89.3%
18
16
89.3%
11
10
89.3%
5
4
100.0%
8
7
480
427

Source: GBP

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Demand for power expected to grow

With the countrys favorable economic outlook, electricity consumption is expected to grow going
forward. According to the Department of Energys (DOE) power development plant 2012 to 2030,
peak demand for electricity for Luzon, Visayas, and Mindanao is expected to growth at a rate of 4.1%,
4.5%, and 4.8% annually through 2030. This translates to a total required capacity of 16,477 MW,
3,431 MW, and 3,250 MW in the three regions by 2030 (vs. current dependable capacity of 8,380
MW, 1,730 MW, and 1,650 MW for the three regions respectively). Based on the same estimates,
the demand for electricity is expected to surpass the existing capacity by 2016 in Luzon and Visayas.
Moreover, Mindanao is already experiencing rotating brownouts, particularly in the dry months given
its heavy reliance on hydroelectric power plants.

Exhibit 14: Electricity Peak Demand Projection (GWh)

18.0

16.48

15.0
12.0
9.0

9.93

9.22

8.38

6.0
3.0
0.0

2.061.89

1.881.73

1.731.65
Current Capacity

2016
Luzon

2018

Visayas

3.433.25

2030

Mindanao

Source: DOE Power Development Plant 2012-2030

Expansion of plants to meet growing power demand

To capitalize on the projected growth in demand for power in the Visayas region, GBP is looking to
expand its existing capacity. Currently, its wholly owned subsidiary TPC is constructing an 82MW
clean coal-fired power plant in Toledo City, Cebu. The expansion project will use the same clean
coal technology that is being used in CEDCs 246 MW plant and PEDCs 164 MW plant. TPC has
already secured a Php7Bil loan facility last March to fund the Php10.175Bil total project cost that is
not covered by its Php3.175Bil in equity. The new plant is scheduled for completion by end Dec 2014
and is expected to be fully operational by 1Q15.
Another project that GBP is eyeing is the expansion of its power facility in Iloilo by another 150
MW. Last October 2012, the company, through its subsidiary PEDC, signed a memorandum of
understanding with Formosa Heavy Industries to study and finalize the construction of a single 150
MW expansion plant in Iloilo (previous agreement called for the construction of two 82 MW units).
The project has an estimated cost of Php13Bil, which will be funded by 30% equity and 70% debt.
The expansion plant is expected to be fully operational by 1Q16.

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GBP has also entered into an agreement with Meralco PowerGen Corp, the power generation
subsidiary of Meralco, to jointly evaluate power generation projects in electricity-starved Mindanao.
The partnership is currently looking at 4 coal-fired power plants in the area. Recently, GBP reported
that the two groups are firming up plans for a 300 MW coal plant in Mindanao worth as much as
Php30Bil. GBP indicated that the final decision will be made in the second half of the year. Assuming
that these projects push through, it would provide a significant boost to GBPs operations within the
next 5 years. These are not yet factored in our forecasts for GBP.

Expansion plans to boost income

We are forecasting GBPs net income to reach Php3.7Bil by 2016 (CAGR of 14.1%) when the new
plants of both TPC and PEDC become operational.

Exhibit 15: GBP Earnings Forecasts (in PhpBil)

2011
2012
Installed capacity (MW)
627
627
Net fees
16.79
19.18
Costs and expenses
14.42
15.64
Net income
1.58
2.20

2013E
627
19.30
16.01
2.03

2014E
627
19.30
16.01
2.03

2015E
709
22.20
18.42
2.52

2016E
859
27.64
22.51
3.73

Source: GBP, COL estimates

Valuations
Based on a discounted cash flow valuation, we arrived at an FV estimate of Php50.9Bil for GBP. A
summary of our calculations is given below.

Exhibit 16: GBP Summary of Valuations (PhpBil)

Value
CEDC
31.04
PEDC
24.09
TPC
7.35
PPC
6.19
GPRI
0.34
GBP Value

Stake
52%
89%
100%
89%
100%

Value to GBP
Notes
16.17
21.51
includes 150 MW expansion
7.35
includes 82 MW expansion
5.53
0.34
50.91

Source: GBP, COL estimates

Given GTCAPs 51.0% stake in GBP, the power firm accounts for Php26.0Bil or Php149.0/sh of the
holding companys NAV. This is equivalent to 15.0% of the Companys value.

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Toyota Motor Philippines Beneficiary of rising income levels

Toyota Motor Philippines (TMP) is engaged in the manufacture, importation, and wholesale distribution
of Toyota brand vehicles in the country as well as the sale of motor vehicle parts and accessories,
both locally and through export. TMP is a joint venture between GT Capital, Toyota Motor Corp,
Mitsui, and Maximus Management Holdings which own 51%, 34%, 6%, and 9% of the company
respectively. TMP has entered into distributor agreements with Toyota Motor Corp and Toyota Motor
Asia Pacific for the right to sell Toyota and Lexus brand products in the Philippines.
Since 1989, TMP was number one in terms of total sales in the country for 22 out of the 24 years. In
2012, it cornered 35.8% of total vehicle sales in the country.

Exhibit 17: TMP Vehicle Market Share

Others
14%
Ford/Mazda
6%

Toyota
36%

Isuzu
6%
Honda
7%
Hyundai
12%

Mitsubishi
19%

Source: TMP

Motorization expected to boost car sales

The Philippine automotive industry is believed to be in the early stages of motorization. Compared
to our neighboring countries, the countrys vehicle sales is quite low. For 2012, total annual sales
reached just over 182,000 units, falling well below the 800,000, 745,000, and 606,000 units sold
in Thailand, Indonesia, and Malaysia respectively. Passenger car densities are also way lower,
averaging just 12.1 cars per 1,000 people. In addition, total car sales for 2012 were just slightly higher
than the 162,000 units sold in 1996. This translates to a weak 12% growth over a period of 16 years;
or a CAGR of 0.7%. This is largely due to the drop in car sales following the Asian crisis. Indeed, from
1996 to 2006, car sales fell by 38% or a 5% decline per year.

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Exhibit 18: Annual Vehicle Sales (Thsd)

200
162
150
118

182

170

165

2010

2011

132

124

100

100

50

1996

2006

2007

2008

2009

2012

Source: CAMPI and AVID

Nevertheless, growth of the automotive industry is already picking up. From 2006 to 2012, car sales
have increased by a CAGR of 10% (2012 growth at 10.6%). Furthermore, the recent growth is
expected to accelerate further as the countrys GDP per capita nears US$3,000, a critical point
believed to spark motorization. This expected motorization is based on the experiences of other
emerging markets, where demand for vehicles rose sharply as GDP per capita went over US$3,000.
As of 2012, GDP per capita for the Philippines reached Php110,351, or roughly US$2,691 (at
Php41.00/US$). Assuming that the Philippines sustains a real GDP growth of 5-6% (plus an inflation
rate of 3% and a population growth rate of 2%), GDP per capital should already breach the US$3,000
mark by 2014.
Indeed, based on the estimates of Business Monitor International, passenger car density in the
country would rise 24% from 12.1 per 1,000 population in 2012 to 15.0 by 2016. Note that car sales
were very strong during 1Q13, growing by 29% year-on-year.

Exhibit 19: Passenger Car Density (per 1000 population)

16.0

15.0

14.0
12.0
10.2

10.7 10.7 10.8

11.1

11.6

12.1

12.8

13.5

14.2

10.0
8.0
6.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Business Monitor International

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TMP expected to be the biggest beneficiary given its market leadership

position
With the strong growth prospects of the auto industry, we believe that TMP is in excellent position to
capitalize on the macro trend. TMP leverages on its well-recognized brand image as one that offers
high quality products at competitive prices. Other competitive advantages include efficient operations
(high volume of sales for Vios and Innova allows for local production of these units), extensive dealer
network for retail sales and service, and synergies with the other members of GT Capital (most
notably Metrobank). Note that despite being the market leader in the country, TMPs sales continue
to outpace industry growth, implying that it continues to grab market share from other players.

Benefiting from a stronger Peso and a weaker Yen

Another boost to TMPs earnings is the favorable movement of foreign exchange rates. In particular,
since a significant part of TMPs imported components and raw materials are priced in either US
dollar or Japanese Yen, the strengthening of the Philippine Peso and the weakening of the Japanese
Yen allows TMP to reduce the costs of its products. This ultimately leads to higher margins for
the company. Indeed, according to GTCAP, TMPs operating income would rise by an estimated
Php121Mil for every 1 unit increase (depreciation) of the Yen against the US dollar and would also
grow by Php723Mil for every 1 Peso decline (appreciation) of the Peso against the US dollar. Note
that analysts continue to expect the Philippine Peso to appreciate going forward given the surplus in
the countrys balance of payments. Meanwhile, the Japanese Yen is expected to depreciate amidst
the aggressive expansionary policies under Abenomics.

Earnings buoyed by strong car sales and higher margins

Based on our forecasts, we expect TMPs net income to grow at an annual rate of 28.1% over the
next 3 years. This will be largely driven by a 14.5% CAGR in revenues and an improvement net
margin from 4.2% as of 2012 to 5.9% by 2015.

Exhibit 20: TMP Earnings Forecasts (in PhpBil)

Revenue
Gross Profit
Net income
Gross margin
Net margin

2011
54.10
6.03
2.20
11.2%
4.1%

2012
71.43
8.37
2.99
11.7%
4.2%

2013E
87.12
11.52
4.48
13.2%
5.1%

2014E
95.83
13.15
5.28
13.7%
5.5%

2015E
107.33
15.27
6.30
14.2%
5.9%

Source: TMP, COL estimates

Valuations
Based on a discounted cash flow analysis, we arrived at our FV estimate for TMP of Php84.0Bil. This
translates to a 2013E P/E of 18.7X.
Given GTCAPs 51.0% stake in TMP, the auto firm accounts for Php42.8Bil or Php245.8/sh of the
holding companys NAV. This is equivalent to 24.8% of the Companys value.

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AXA Life Low market penetration offers huge upside

Meanwhile, Philippine AXA Life Insurance is a joint venture between AXA Group one of the
worlds largest insurance firms and the Metrobank Group. It is the countrys third largest insurance
company in terms of total net premium income as of 2011. AXA offers life and investment-linked
insurance products in the country through a multi-channel distribution network comprised of agents,
bancassurance, corporate solutions, and direct marketing/telemarketing.

Exhibit 21: Premium Income (2011)

16.0
12.0
8.0
4.0
0.0

Source: Insurance Commission

Low penetration provides large room for growth

The Philippine life insurance market is characterized by a relatively low penetration rate. According
to the Swiss Reinsurance Company Sigma Report, total life insurance as a percentage of GDP
was only at 0.7% in 2010, significantly lower than the 4.5%, 3.4%, and 4.5% average of Asia, North
America, and Europe respectively. In addition, life insurance premium per capita was also much
lower at US$14.30. We believe that the gap should steadily close as the standard of living improves
with the stronger economy.

Exhibit 22: Life Insurance Penetration

Philippines
Asia
North America
Europe

Life insurance/GDP Premium/capita (US$)

0.7%
14.3
4.5%
208.1
3.4%
1,620.9
4.5%
1,110.6

Source: Swiss Reinsurance Company Sigma Report

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Bancassurance to leverage off Metrobanks extensive network

AXA plans to leverage off its strong relationship with Metrobank to drive its growth. Firstly, the
extensive branch network of MBT enables AXA to tap the formers large client base nationwide.
AXA gets through these customers by placing its financial executives in Metrobanks key branches,
allowing them to cross-sell products to a broader group. Currently, AXA is able to sell its products
through 600 of the MBTs 831 branches across the country. This greatly reinforces AXAs 28
independent branches.
On top of MBTs extensive network, AXA should also benefit from the strong brand image of MBT,
which makes its products more marketable. As of 2011, 57% of AXAs insurance products come
from its bancassurance business with MBT. We believe that this partnership with MBT gives AXA a
competitive advantage over the other independent players.

Earnings forecasts
We forecast AXAs earnings to grow by 10.3% annually to Php1.24Bil by 2015, with net insurance
premiums expanding by 18% per year over the same period.

Exhibit 23: AXA Earnings Forecasts (in PhpBil)

Net insurance premiums

Subscriptions allocated to Unit-Linked Funds

Net insurance benefits and claims

Net income
ROE

2011
9.98
7.18
1.34
0.97
26.7%

2012
12.27
9.08
1.33
0.92
24.8%

2013E
14.73
10.82
1.52
1.00
26.2%

2014E
17.38
12.68
1.74
1.13
28.8%

2015E
20.16
14.67
1.99
1.24
30.3%

Source: AXA, COL estimates

Valuations
Our FV estimate for AXA is based on 3.0X 2013E P/BV. We believe such a multiple is warranted
given our sustainable ROE assumption of 25%.
Given GTCAPs 25.3% stake in AXA, the insurance firm accounts for Php3.0Bil or Php17.0/sh of the
holding companys NAV. This is equivalent to 1.7% of the Companys value.

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PHILIPPINE EQUITY RESEARCH

Investment Rating Definitions

BUY

HOLD

SELL

Stocks that have a BUY rating have attractive

fundamentals and valuations, based on
our analysis. We expect the share price
to outperform the market in the next six to
twelve months.

Stocks that have a HOLD rating have either

1.) attractive fundamentals but expensive
valuations; 2.) attractive valuations but
near term earnings outlook might be poor
or vulnerable to numerous risks. Given the
said factors, the share price of the stock may
perform merely inline or underperform the
market in the next six to twelve months.

We dislike both the valuations and

fundamentals of stocks with a SELL rating.
We expect the share price to underperform in
the next six to twelve months.

Important Disclaimers
Securities recommended, offered or sold by COL Financial Group, Inc.are subject to investment risks, including the possible loss of the principal amount
invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and it may
be incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the report and are
subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a
security. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of
securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.

2401-B East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City, 1605 Philippines
Tel: +632 636-5411

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Website: http://www.colfinancial.com

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