Short Takes
Tuesday, March 07, 2017
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RANDOM THOUGHTS: REGULATORY OVERLOAD
IN FOCUS
BLOOM
MCP
BEL
PLC
LTG
Cement
Industry
HLCM
Mining Industry
JFC
1. DOH Sec. Ubial was quoted as saying that the Executive Order banning smoking
in all public places will be signed soon. Agri Sec. Piñol, on the other hand, said
that it will be signed as early as today. The original draft EO is said to have been
retained (no changes) which means it is silent on whether casinos will be exempt.
In the absence of an explicit exemption, local casinos are likely to suffer as much
as those in Macau when smoking was prohibited there starting in 2015. Gaming
issues that have gone up significantly in recent weeks like BLOOM, MCP, BEL
and PLC are likely to correct significantly. LTG, of course, is another stock that
will be negatively impacted.
2. The Philippine Competition Commission (PCC) has found reasonable grounds to
pursue a full administrative investigation of the cement industry. This is
allegedly for potential violations of sections 14 (deals with anti competitive
agreements among industry players) and 15 (refers to abuse of dominant
position) of the Philippine Competition Act. The complaint which prompted the
PCC to conduct an initial inquiry specifically named as respondents only
Lafarge-Holcim, Republic Cement, CeMAP and its president, Mr. Ordoñez.
However, if the regulator's initial impression is correct and the investigation
results in increased competition, then it will be detrimental to all players. Given
that such a probe would take at least several months, investors should probably
stay clear of cement stocks for the time being.
3. Sec. Gina Lopez's confirmation hearing has been moved back to May 3 or by
more than 2 months. The MICC's review of the mine suspensions and closures,
on the other hand, will conclude at the end of the same month. It will be an
agonizing wait for investors in the sector. Given that we see no other major
catalyst (at least for the short term), we would rather wait until late April to
decide whether certain issues are worth punting.
4. Investors should closely monitor the new regulations that DOLE Sec. Bello has
promised to sign today. He promised labor groups this past week that the
department order will end contractualization up to the extent possible. Up to this
point, what this means has been up to speculation. However, if Bello determines
that positions essential to the operations of a firm cannot be contracted, this will
be negative for companies like JFC. The company's labor costs might increase by
a factor of 10% or more and this will significantly impact margins.
Short Takes
Tuesday, March 07, 2017
P a g e |2
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KEY TO RECOMMENDATIONS
Abacus Research’s technical comments are short term in nature and are trading oriented. Our
fundamental views, on the other hand, are medium term calls, usually with a 12-month investment
horizon. Buy: More than 10% upside from the share price as of the report date. Hold: from 5%
downside to 10% upside from the share price as of the report date. Sell: Greater than 5% downside
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