Equity Research
February 13th, 2019 Monthly Andean Strategy Update Valuations remain attractive; hoping for stability in foreign markets
In January, the Andean region posted a strong outperformance (+11.1% in USD CREDICORP CAPITAL RESEARCH terms) but underperformed the LatAm market (+14.9% in USD terms). Chile and Colombia posted strong performances (+12.2% and +14.3% in USD terms, respectively), though in local currency the results were lower (+5.9% and +9.1%, respectively). Daniel Velandia, CFA +(571) 3394400 ext. 1505 We are changing our stance in Chile from Neutral to Underweight: [email protected] • We remain cautious on the economic growth ahead as we continue to anticipate a 3.3% GDP growth rate for 2019. Carolina Ratto • January’s performance was boosted by net buying activity from local and +(562) 2446 1768 foreign investors; we remain cautious on that trend going forward. [email protected] • Although valuations remain attractive (15.0x P/E 12-months Fwd), earnings growth remains unappealing and catalysts are unclear. Tomás Sanhueza • We are maintaining our strategy that is focused on sound fundamentals and +(562) 2446 1751 earnings growth. Our Top Picks are SQM, ItauCorp, ILC and Enel Chile. [email protected] A strong start for Latam equities in 2019; we are maintaining our Overweight position in Colombia as we foresee better conditions for this Sebastián Gallego, CFA year. +(571) 3394400 ext. 1594 [email protected] • Our thesis for Colombia remains unchanged from the previous month; in addition, recent macro indicators support our constructive view. Daniel Córdova • We continue to see a gradual recovery of the economy in the upcoming +(511) 416 3333 Ext. 33052 quarters, primarily driven by higher investment. For 2019, we forecast GDP [email protected] growth of 3.3%, the first figure above 3.0% since 2014. • The biggest threat to our overweight position in Colombia continues to be the potential volatility in foreign markets. In any case, we reiterate that the local market currently trades at a +15% discount in terms of both EBITDA and earnings relative to historical averages (since 2015). • Our equity strategy continues to be mainly focused on banks and Nutresa; Davivienda and Bancolombia are our Top Picks among local banks. We are changing our position in Peru from Underweight to Neutral; domestic demand continues to accelerate, but public investment should decrease under new sub-national authorities; uncertainty remains on metal prices. • Economic activity expanded 5.3% y/y in Nov-18, its strongest pace in six months and above market expectations (Bloomberg survey: +4.7% y/y). We estimate that economic activity in 4Q18 grew 5.0% y/y. With the economy still below its potential, the Central Bank (BCRP) has maintained its expansionary policy; we expect the BCRP to hike its policy rate 75 bps in 2019, reaching 3.50% by year-end. • In the political arena, Fuerza Popular lost its majority in Congress, and confrontation has decreased. However, in mid-February, prosecutors of the Odebrecht bribery scandal will sign the Agreement of Collaboration and will start to receive information about politicians’ and local construction companies’ controversial dealings with the Brazilian conglomerate.
• Companies under coverage continue to trade at a discount against historical IMPORTANT NOTICE (US FINRA RULE 2242) This document is intended for INSTITUTIONAL INVESTORS and is not subject to all of the independence and averages; this discount almost disappears when mining companies are disclosure standards applicable to debt research reports prepared for retail investors. Credicorp Capital may do or seek to do business with companies excluded. covered in its research reports. As a result, investors should be aware that the firm • We maintain Buenaventura and InRetail as our Top Picks. may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 30 1to 33, Analyst Certification on Page 30. Additionaldisclosures on page 33. Actualizar Contents
Monthly Andean Strategy Update
Chile: Looking for opportunities in a lackluster catalyst environment 5 Top Picks 7 Colombia: A strong start for Latam equities in 2019; we are maintaining our Overweight position as we foresee better 9 conditions for this year Top Picks 12 Peru: Economic activity continues to recover amid lower political noise 13 Top Picks 15
Valuation Summary 17
Appendix: Monthly Summary 20
Top Winners / Losers of the Month 21 Traded Volume 24 Chile - Pension Funds: Monthly Flows 27 Peru - Pension Funds: Monthly Flows 28 Economic Forecasts 29
2 Actualizar LTM Andean Equities Performance (in USD)
IPSA COLCAP SP BVL General Index MSCI Latam 120
110
100
90
80
70 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19
Source: Credicorp Capital, & Bloomberg
Andean Equities Fwd P/E (12 month rolling) vs 5Y historical average
P/E FWD vs Historical 5Y Average
20.0x 30.0% 18.0x 15.6x 20.0% 16.0x 15.0x 14.3x 14.0x 10.0% 12.0x 10.0x 0.0% 8.0x -10.0% 6.0x -12% -13% 4.0x -20.0% 2.0x -23% .0x -30.0% Chile Peru Colombia
Andean Equities Fwd EV/EBITDA (12 month rolling) vs 5Y historical average
EV/EBITDA FWD vs Historical 5Y Average
9.0x 7.9x 30.0% 8.0x 7.3x 7.5x 25.0% 7.0x 20.0% 6.0x 15.0% 10.0% 5.0x 5.0% 4.0x 0.0% 3.0x -6% -5.0% 2.0x -11% -10.0% 1.0x -17% -15.0% .0x -20.0% Chile Peru Colombia Source: Credicorp Capital, & Bloomberg
3 Strategy Summary within Andean Context Long view Short view (12-to-18 months) (1-to -3 months) Chile Allocation: Underweight (+) Solid GDP growth (4.0% 2018E), normalized inflation and compelling outlook for Despite recent upward correction, valuations investments continue to be discounted. We believe that the (+) Safe haven on the regional landscape with steady corporate earnings growth market continues to have a lack of catalyst with (+) Attractive bottom-up stories with discounted valuations weak earnings performance, and with resilient (+) New payment to the banking sector related to RDS2 and we expect a GDP global risks. Flows will probably come from passive growth of 3.3%, the highest since 2014 investors rather active ones. We remain cautious on (-) Negative impact of global risks upcoming months. (-) No clear catalyst with lacking earning growth (-)Strategy: Exposure to risks coming from Argentina and Brazil We continue to favor a stock picking strategy of companies with solid fundamentals, earnings momentum and clear catalysts. Top picks: SQM, ItauCorpbanca, ILC, Enel Chile Colombia Allocation: Overweight (+) Attractive valuations The most important issues in the short term are: oil (+) GDP growth acceleration prices, exchange rate performance, corporate (+) Better results within the banking sector governance issues/news, 4Q18 results, Ecopetrol's (+) Payment from RDS 2 to the financial sector reserves report and any news related to the potential (-) Volatility across foreign markets divestment from the government. (-) Fiscal consolidation
Strategy:
We continue to believe that the Colombian market offers an attractive entry point due to i) better macro outlook, where we expect a GDP growth of 3.3%, ii) real gross investment should advance 4.5% in 2019 relative to 1.9% in 2018E, and iii) attractive valuations.
Top picks: Davivienda, Nutresa, and Bancolombia Peru Allocation: Neutral (+) GDP grows at its strongest pace in six months. Alicorp's recent acquisition of Intradevco positions it (+) Private expenditure (consumption and investment) has a favorable outlook for as the main local player in home care and 1H19. increases its share in personal care. IFS' Interbank (+) Monetary policy to remain expansionary throughout 1H19. continues to display higher loan growth than the (-) Sub-national public investment is likely to contract as new authorities began their industry and declining provision expenses. Engie terms in Jan19. will show strong 4Q18 results after several quarters (-) Metal prices volatility on trade war remains a concern. of contractions. InRetail displays strong momentum. (-) Valuations excluding mining companies are at their historical averages. Finally, Cerro Verde is trading at a discount against Strategy: peers such as Southern Copper. Mining and mining related names offer the largest upside, though commodity price risks are high. Private consumption has a good 1Q19 outlook, supporting InRetail, Alicorp and IFS. We remain cautious on construction and infrastructure, due to lack of clear drivers.
Top Picks: InRetail and Buenaventura.
4 Chile Looking for opportunities in a lackluster catalyst environment
Net buyer positions Chile – In January, the Chilean stock market posted a positive return in both USD of local and foreign (+12.1%) and CLP terms (+5.9%), outperforming other markets in the LatAm region investors drove in USD. However, it is important to note that the main reason for the outperformance was outperformance in the strong appreciation of the CLP as the gap in local currencies was not significant. In January. terms of flows, foreign investors were net buyers, which we believe was due to attractive valuations. Local investors were also net buyers, taking positions in names that had underperformed the local market in previous months. We are expecting a steady market in February due to summer holidays in Chile, which should have a negative impact on trading activity. Although the IPSA index posted a positive return, market valuations continue to be appealing. However, we continue to see earnings growth as a necessary catalyst for the local market to pick up, so we do not see Chile as a relatively attractive market at the moment. We believe investors will favor other markets such as Brazil, Colombia or even Mexico instead. In this scenario, we are not necessarily favoring attractive valuations, but instead are looking for names that offer attractive earnings growth or significant improvements in profitability. Looking at 2019, we believe the most interesting opportunities are related to small cap names.
Growth should start The economy lost dynamism at the end of 4Q18; we continue to anticipate GDP to slow down in growth of 3.3% for 2019. The Imacec rose 2.6% y/y in Dec-18, way below the market 2019, reaching 3.3% consensus and our own forecast (3.2% and 3.4%, respectively), due to a lower-than- in 2019. expected dynamism in non-mining sectors. Although the BCCh highlighted that services were the most dynamic component again, they were supposed to play an even more important role in Dec-18. We saw a volatile trend in economic activity during 4Q18, with sizeable differences between market expectations and effective data (Oct-18: downside; Nov-18: upside; Dec-18: downside). In summary, the economy lost dynamism in 4Q18, and non-mining sectors did not show signs of significant recovery. Imacec figures point towards a 3.3% y/y GDP growth rate in 4Q18, which would be higher than the 3Q18 figure. Due to this and given today’s disappointing numbers, we remain cautious on the economic growth ahead as we continue to anticipate a 3.3% GDP growth rate for 2019. We still expect the economy to grow below 3% in 1H19 amid a challenging base of comparison (1H18: +4.9% y/y), with risks tilted to the upside for investment and to the downside for private consumption. Finally, we expect the BCCh to remain on hold during the Mar-19 meeting, considering that its 2019 growth forecast could be revised to the downside after a disappointing 4Q18.
Retail will continue The 4Q18 earnings season has already started. It will be another strong quarter for to have a forestry on a y/y basis, while retail will continue the negative trend of previous challenging quarter quarters. This is due to (i) heavy promotional activity, (ii) a tough comp base after the in 4Q18. significant immigration seen in 4Q18 and (iii) lower asset revaluation for Cencosud in 4Q18. On the other hand, the utilities sector will benefit from better hydrology and new contracts. We highlight a potential positive earnings surprise in Entel and a possible negative surprise in Andina.
5 Our Chilean equity sample is trading at 15.0x PE 12m Fwd and 7.9x FV/EBITDA 12m Fwd. These valuations continue to be at a strong discount from the market’s three-year average that is close to one standard deviation for both P/E and EV/EBITDA Fwd, which seems really attractive. However, we continue to believe that earnings should be coupled with the attractive valuations in order to move our stance to a positive outlook. Other emerging markets seem to offer a more attractive entry point, such as Colombia or Mexico.
P/E Forward (12 month rolling) FV/EBITDA Forward (12 month rolling)
26 12 24 11 22
20 10
18 9 7.9x 16 8 14 15.0x
12 7 Feb-13 Feb-15 Feb-17 Feb-19 Feb-13 Feb-15 Feb-17 Feb-19
Source: Company Reports, Credicorp Capital, & Bloomberg
6 Chile Strategy
Our Top Picks We continue to have a cautious and selective approach for the Chilean market. Our are SQM-B, Itau picks are mostly focused on companies with sound fundamentals and clear catalysts in Corpbanca, ILC upcoming months. In our view, SQM continues to be discounted with no clear justification and Enel Chile. for a company with an attractive long-term story. In the case of ILC, we continue to see a company with strong growth opportunities in the banking business as well as a turnaround in healthcare providers, which will be reflected in strong earnings growth in 2019. Top Picks Chile
SQM (BUY; T.P.: CLP 38,600 / USD 61.7 (ADR)). Shares have been pressured by several pieces of news recently. As the transaction between Nutrien and Tianqi has already materialized, we believe the shares will start performing based more on fundamentals going forward; however, we believe this is a risky bet considering the high uncertainty at the international level. Finally, we see positive earnings momentum going forward. Looking at fundamentals, lithium demand growing by double digits in the coming years and production capacity increases in Chile support a promising future for SQM. We believe the agreement with Corfo is positive for the company as it unclogged the bottleneck for capacity increases in Chile. Additionally, the potential increase in capacity has a larger impact on results than the negative effect of a higher royalty tax, additional capex and other annual payments. Finally, we believe shares are trading at attractive valuations, and current prices imply a bearish scenario in terms of LT lithium prices.
Itau Corpbanca (BUY; T.P.: CLP 7.65). We continue to favor Itau Corpbanca among Chilean banks. Even though results were lower than expected in 4Q18, we maintain a favorable outlook for Itau Corpbanca for 2019. Monthly results in Dec-18 continued to show a recovery compared to 2017. Accordingly, we highlight that net income in Dec-18 reached ~CLP 126 mn, compared to a net loss of CLP 44.7 bn in Dec-17. It is worth noting that net income for the month was negatively impacted by the fine imposed by the regulator (CLP 5.9 bn). Despite this, 2019 financials should not be affected. Finally, we maintain a positive view for this year; we reiterate our expectation of 20.0% y/y growth in earnings in 2019. This should be primarily driven by i) a recovery in loan growth, particularly coming from the consumer segment, ii) higher spreads compared to prior years, particularly in Colombia, iii) an annual decline in OPEX as integration costs have faded and iv) a lower cost of credit than prior years as key corporate cases have been resolved.
7 ILC (BUY; T.P.: CLP 12,900). Considering the multiples of peers for ILC's business mix, we estimate that the company should trade at a P/E multiple around ~14x. Based on this, the current valuation suggests that shares are trading at over a 30% discount. On the other hand, we see the execution of the call option in the bank and the potential delivery on profitability in Red Salud as short-term triggers for the shares. We continue to be positive on fundamentals as we are expecting double-digit growth in earnings in addition to a dividend yield that should continue to be one of the highest ones in the Chilean market (over 4.0%). Finally, the government recently sent a pension reform bill to Congress. The proposals were in line with our expectations, and we believe they are not disruptive for the industry; therefore, we do not see them as a game changer for the pension funds industry. Therefore, we believe regulatory risk has significantly decreased, so we believe downside risk is limited.
Enel Chile (BUY; T.P.: CLP 77). We are including Enel Chile in our Top Picks. Enel Chile is the largest energy generator and distribution company in Chile and is the most important player in renewable energy in the country, which is an industry that has been evolving and will reach a penetration of 70% by 2050. Enel Chile only has 8% of capacity in coal generation, mitigating the risks due to the decarbonization program, and has a significant pipeline of projects in renewable energy, in which the company will invest USD 1.4bn over the next three years (principally in solar and wind). The company’s capacity matrix gives it a competitive advantage that will help it to continue to maintain its long-term contract level. Enel Chile has a significant pool of PPA contracts and has been one of the few players to win new contracts in the last two auctions, bringing stability to cash generation for the upcoming years. The company is currently trading at 6.4x 2019 EV/EBITDA, far below the sector average for the last three years (8.9x), and pays a ~5% dividend yield with a low net debt to EBITDA of ~2x. Moreover, with the EGP consolidation in 2Q18 and good hydro generation in 4Q18, results for the next quarter should come with good momentum. Finally, we acknowledge that we continue to monitor the evolution of the new Dx segment law in Congress, which could be a negative trigger in the medium term, but we do not expect big changes in the first half of 2019 since conversations are in the early stages.
Chile - Top Picks
Chilean Picks Last Target Total Mkt. P/E FV/EBITDA P/BV Div Yield Price Price Upside Return (USD mn) 2018E 2019E 2018E 2019E LTM 2018E Sectors SQM-B 28,592 38,600 35.0% 37.3% 11,040 24.1 21.9 11.7 10.4 5.3 2.3% Materials Itau Corpbanca 6.5 7.7 16.8% 17.5% 4,974 16.8 14.0 nm nm 1.0 0.7% Banks ILC 11,971.0 12,900.0 7.8% 11.7% 1,774 10.9 9.8 nm nm 1.8 3.9% Conglomerates Enel Chile 70 77 10.0% 14.7% 7,274 14.2 17.4 7.3 6.6 1.5 4.7% Utilities Chilean Picks a 17.4% 20.3% 25,063 16.5 15.7 9.5 8.5 2.4 2.9% IPSA 5,353 6,150 15% 18% 175,855 19.5 17.1 8.7 8.4 1.7 3.2% a Simple average, excluding Market Capitalization
Sources: Bloomberg, Company Reports and Credicorp Capital a Simple average, excluding Market Capitalization b Prices in local currencies
8 Colombia
A strong start for Latam equities in 2019; we are maintaining our Overweight position as we foresee better conditions for this year The Colombian equity market had a slightly lower performance than the MSCI Latam during January. The COLCAP Index increased 14.4%, compared to a 14.8% increase in the MSCI Latam (both in USD terms). In any case, we believe that the positive performance in Colombia was mainly explained by: i) a recovery in oil prices after a negative Dec-18 (Brent oil prices climbed 15.0% during Jan-19) ii) a more dovish stance by the Fed in the USA which led to lower volatility in foreign markets, iii) the second payment (roughly USD 200 mn) to the financial system related to the Ruta del Sol 2 case, iv) dilution of uncertainty created by the new tax reform during 2H18 and v) better business and economic sentiment in Colombia. Despite the recent strong performance of Colombian equities (absolute basis), we are maintaining our medium-term strategy to have an Overweight position within the Andeans; this is supported by: i) compelling Most companies valuations and ii) a better macro outlook for 2019 than 2018 (GDP growth of 3.3% in 2019 had a positive vs 2.7% in 2018E). performance in Jan-19. Market sentiment turned positive, and strong performances were observed in most sectors in Colombia. Our strategy has been primarily focused on banks and Nutresa. Even though these shares had a solid performance in Jan-19, other sectors performed well too. It is worth noting that shares related to the cement and construction sector exhibited a recovery in Jan-19, compared to the end of last year. In fact, shares of Cementos Argos, CLH and Corficolombiana climbed (COP terms) 16.1%, 17.8% and 15.9%, respectively. We believe that the market had a positive reaction to flattish cement dispatches during 2018 and is starting to factor in a recovery of the sector during 2019. Finally, we reiterate that only four shares of the COLCAP Index had a negative return (COP terms) during the period.
Recent leading indicators support our positive view of the local economy. Colombia’s main activity leading indicators continued to post solid results in Nov-18. Specifically, retail sales rose 10.8% y/y, the strongest growth since Dec-14 and well above the market consensus and our estimate (7.1% y/y and 8.8% y/y, respectively), while manufacturing production increased 4.7% y/y, broadly in line with our forecast of 4.5% y/y (consensus: 4.3% y/y). In addition, we highlight that the consumer confidence index rose 11.3 pp on a monthly basis in Dec-18, up to 8.3%, partially recovering from the deterioration observed between Jul-18 and Nov-18 (which amounted to -35.1 pp). It is worth noting that the core VAT measures, initially proposed in the new tax reform, did not pass through Congress. This had a positive effect on consumer confidence. In fact, we foresee a further improvement trend in the upcoming months.
Our top-down strategy continues to rely upon higher economic activity in 2019; valuations remain attractive, but upside has narrowed compared to the previous month. The results of leading indicators in Oct/Nov-18 support our view that GDP growth will reach a multi-year high in 4Q18 (~3.2%). While both industrial production and retail sales have benefited from low comparison bases recently, current conditions are supporting the acceleration of economic activity. Specifically, in the case of retail sales, the sample was boosted by the bi-annual ‘car festival’ held in Bogotá in Nov-18, while the overall fundamentals for private consumption remain favorable: i) inflation reached 3.15% in Jan-19, ii) interest rates remain accommodative and iii) job creation has been resilient. Going forward, we continue to expect economic activity to gain momentum amid strong private investment and resilient consumer spending.
9 In terms of valuation, the Colombian equity market currently trades at 12-month- forward P/E and EV/EBITDA of 15.6x and 7.5x, respectively, compared to averages since 2015 of 19.9x and 9.0x, respectively. Accordingly, the local market is currently trading Our strategy in beyond one standard deviation relative to historical averages and at a +15% discount both Colombia to be in terms of EBITDA and earnings. Overweight is unchanged. Colombia Strategy
Our equity strategy in the local market remains unchanged as we continue to favor banks, specifically Davivienda (BUY, T.P.: COP 41,500/share) and Bancolombia (BUY, T.P.: COP 36,900/share); in addition, our play in private consumption is Nutresa (BUY, T.P.: COP 31,900/share). Our long-held view on Colombian banks should continue to have support among investors. Loan growth should recover in 2019 relative to the previous year. It is worth noting that Davivienda expects a better year for the consumer segment as the economy ended 2018 with signs of improvement. The bank expects loan growth in this segment to reach a figure between 12% to 13%, compared to an increase of 8% to 9% in 2018E. However, our investment thesis for local banks is highly dependent upon a decline in provision expenses, particularly those coming from key corporate cases. Recall that most banks have said that they do not anticipate meaningful provisions related to Electricaribe in 2019; indeed, some banks have indicated that coverage reached 100%, at least in local accounting, in 4Q18. Meanwhile, the recently announced payment to the financial system should partially ease concerns about additional provisions related to Ruta del Sol 2. Finally, we continue to acknowledge that the mass transportation system represents the biggest threat to our thesis. In any case, we reiterate that valuations below 1.5x 2019E P/BV remain attractive, in our view.
Regarding Nutresa, we believe shares are currently trading at discounted and compelling valuations in terms of P/E and EV/EBITDA when compared to historical averages and food peers in the region. First, we see that the risks related to the tax reform and its impact on consumption have faded away. Additionally, Nutresa should post interesting volumes in Colombia in 2019, in line with the better scenario for consumption. In the past few years, the company has focused on sustaining healthy margins and maintaining its strong position in most categories, which should allow the company to have a strong operating leverage this year. Finally, we expect large acquisitions (TMLUC and El Corral) to start reflecting the initiatives implemented by the company in terms of positioning, portfolio mix, value proposition and efficiencies, which will boost results further. All in all, we believe shares are at an attractive entry point with sound fundamentals for 2019.
We continue to see a slow recovery in the cement sector. After flat figures in 2018, we expect a slow recovery in 2019 with 3%-5% dispatch growth during the year, while pricing for cement companies should face downside pressure in 4Q19. We are confident about our slow recovery view because of the improving trends we are seeing for all cement segments, which even in a slow month like December did not go below their lowest points. Furthermore, we are becoming more positive about pricing in Colombia since the mild recovery in demand seems to be allowing cement companies to carry out some price increases (2019). However, we highlight that the national cement capacity should increase by at least 8% in 4Q19 after the entrance of a new 1.5 Mt/year cement plant.
10 We maintain a neutral view on Ecopetrol. At this point, we are expecting a positive outcome for the reserves recovery ratio (to be published Feb 19th, 2019) and corporate results for 4Q18 (Feb 27th, 2019). That said, we believe that both factors are mostly priced in. On the other hand, we acknowledge that a potential divestment by the government along with oil price volatility could have a negative effect on shares of Ecopetrol.
Meanwhile, we have mixed feelings about the utilities sector. Tx (within the energy sector) seems to have had a strong start to 2019, at least from a fundamentals perspective. For ISA, we expect double-digit bottom line growth in 4Q18. That said, we reiterate that ISA may face pressure driven by the minimum price released at COP 13,750/share; this is related to the divestment process that EPM is carrying out of its 10.2% stake. Finally, we remain cautious on Gx as a moderated El Niño phenomenon is expected to be present during 1H19. The drought that is rapidly reducing reservoir levels and the Hidroituango situation are likely to promote reliance on thermic Gx. This scenario may put downside pressure on EBITDA margins for companies such as Celsia. Going forward, we will be paying attention to the outcome of the non-conventional and renewable generation auction (Feb 26th, 2019) that incentivizes the diversification of the generation matrix with cleaner technologies (i.e. wind and solar). This may be relevant for Celsia and GEB. In any case, we believe that companies related to the utilities sector do not look particularly attractive in terms of valuation.
Given all the aforementioned, we reiterate that Davivienda, Nutresa and Bancolombia are our Top Picks.
P/E Forward (12 month rolling) FV/EBITDA Forward (12 month rolling)
28 11 26 10 24 22 9 20 18 8 16 15.6x 7.5x 14 7 12 10 6 Feb-16 Feb-17 Feb-18 Feb-19 Feb-16 Feb-17 Feb-18 Feb-19 Source: Company Reports, Credicorp Capital, & Bloomberg
11 Top Picks Colombia
Davivienda (BUY; T.P. COP 41,500). We continue to favor Davivienda among Colombian banks (medium-term perspective). This is mainly due to: i) a pickup in loan growth with an annual estimate of 10.2% y/y for 2019, compared to 7.3% y/y and 8.3% y/y for 2017 and 2018, respectively, ii) a 24-bps y/y decline in cost of credit for 2019E, explained by the full coverage of Electricaribe and lower provisions coming from the RDS2 case, considering the recent payment of the ANI to the financial system (~USD 200.3 mn), iii) the fact that relative valuation looks attractive when compared to that of local and Andean peers and iv) higher profitability, measured in terms of ROAE, in 2019E relative to Bancolombia (14.7% vs 11.9%). Finally, we highlight that the company has exhibited one of the best performances on a YTD basis as it has increased 15.7% in 2019 (as of Feb 7th), and it was one of the most resilient stocks in 2018.
Nutresa (BUY; T.P. COP 31,900). We believe shares are currently trading at discounted and compelling valuations in terms of P/E and EV/EBITDA when compared to historical averages and food peers in the region. First, we see that the risks related to the tax reform and its impact on consumption have faded away. Additionally, Nutresa should post interesting volumes in Colombia in 2019, in line with the better scenario for consumption. In the past few years, the company has focused on sustaining healthy margins and maintaining its strong position in most categories, which should allow the company to have a strong operating leverage this year. Finally, we expect large acquisitions (TMLUC and El Corral) to start reflecting the initiatives implemented by the company in terms of positioning, portfolio mix, value proposition and efficiencies, which will boost results further. All in all, we believe shares are at an attractive entry point with sound fundamentals for 2019.
Bancolombia (BUY; T.P. COP 36,900). We are maintaining Bancolombia in our trading ideas. Despite lower profitability, measured in terms of ROAE, relative to local peers (11.9% for 2019E), we believe that the bank should benefit from a better macro outlook for 2019. We expect GDP growth in Colombia to be above 3.0% in 2019 for the first time since 2014. Meanwhile, our valuation model considers a 20-bps y/y decline in cost of credit given our expectation of lower provision expenses, primarily coming from Electricaribe and the Ruta del Sol 2 case, given the recent payment from the ANI to the financial system. On a relative basis, we believe that investors may continue to have a short-term preference for Bancolombia over Grupo Aval given recent corporate governance issues for Grupo Aval. Moreover, shares are currently trading at 1.3x 2019E P/BV, compared to an average from Andean peers of 1.5x. Finally, Bancolombia allows us to have an indexed position in the Colcap Index.
Colombia - Top Picks
Colombian Picks Last Target Total Mkt. P/E FV/EBITDA P/BV Div Yield Price Price Upside Return (USD mn) 2018E 2019E 2018E 2019E LTM 2018E Sector Davivienda 35,320 41,500 17% 20% 5,117 11.6 9.2 nm nm 1.6 2.6% Banks Nutresa 26,920 31,900 18% 21% 3,973 20.0 18.0 9.7 8.7 1.5 2.2% Food & Beverages Bancolombia 35,840 36,900 3% 6% 10,963 13.8 11.5 nm nm 1.5 3.1% Banks Colombian Picks a 17% 20% 5,117 11.6 9.2 9.7 8.7 1.6 2.6%
Sources: Bloomberg, Company Reports and Credicorp Capital a Simple average, excluding Market Capitalization
12 Peru Economic activity continues to recover amid lower political noise Domestic demand, Monthly economic activity rose 5.3% y/y in November 2018, its strongest pace in six particularly at the months and above market consensus expectations (Bloomberg survey: +4.7% y/y). private sector level, Primary sectors posted a robust acceleration (+8.5% y/y), while non-primary industries should provide continued to show a favorable expansion (+4.5% y/y). The latter was mainly boosted by support to the the construction sector (+13.5% y/y) as public works started to pick up, while the former economy in 1Q19. was partially offset by lower mining production (-3.7% y/y). Nonetheless, our GDP growth forecast for 2019 continues to stand at 3.7%. In addition, we expect GDP to grow between 3.5% to 4.0% in 1Q19 (4Q18: +5.0% y/y), affected by the contraction in sub-national public investment but helped by two more working days than 1Q18. Overall, domestic demand growth continues to strengthen, while mining investment remains strong as the long-term outlook for metal prices has not yet been adversely impacted by uncertainty surrounding the U.S.-China trade talks or the extent of the further deceleration of China’s economy this year.
Metropolitan Lima’s CPI increased 0.07% m/m in January 2019, its lowest pace in eight months. This result was way below market expectations (Bloomberg: +0.17% m/m) and the historical median (2002-2017: +0.23% m/m). As a result, headline inflation did not follow the acceleration trend observed during 2H18 as it slowed slightly from 2.2% y/y in We expect the BCRP December 2018 to 2.1% y/y in January 2019. However, it still remains within the Central to start hiking its Bank’s target range for the third straight month (1%-3%). Also, the Central Bank does not policy rate in June see any reason for inflation to accelerate. Conversely, core inflation (ex-food and energy) 2019 or early 2H19. continued to accelerate, up to 2.4% y/y, in January 2019, its highest level in 16 months. We forecast an annual inflation of 2.5% for 2019.
Hence, the Central Bank held its rate at 2.75% last Thursday. The board remarked that leading indicators of economic activity continue to point towards a gradual narrowing of the output gap as the economy is still growing below its potential. Moreover, its tone in the latest Inflation Report and its most recent meeting do not point towards a first rate hike in the short-run. Our base scenario assumes that the first rate hike will not occur until June 2019 or early 2H19; this will depend on several factors: (i) the impact of the latest inflation data on expectations, (ii) the pass-through from the PEN depreciation (-4% in 2018 after two straight years of appreciation) and (iii) the pace at which the output gap narrows amid the expected significant decrease in sub-national public investment in 1H19 (the Central Although political Bank still projects a negative gap in 2019). We maintain our call that the Central Bank will noise has diminished raise its policy rate by 75 bps later this year, reaching 3.50% by year-end. This level will further, tensions are still imply an expansionary stance. likely to rise again as new information from In the political spectrum, tensions between the executive and legislative branches the Odebrecht have diminished to some extent. Fuerza Popular no longer has a majority of votes in bribery scandal is Congress as some of its members have left the caucus and new political caucuses have revealed. formed. On the other hand, by mid-February, prosecutors of the Odebrecht bribery scandal will sign the Agreement of Collaboration with Odebrecht, and, during March, they will start receiving sensitive information from the company and its former executives. This could trigger further political turmoil as information about more politicians’ and local construction companies’ controversial dealings with the Brazilian conglomerate could be revealed. However, the impact on local equity markets should be limited as Graña y Montero is the only company in the industry with significant liquidity and market presence.
13 Peru Strategy
The Lima Stock Exchange (BVL) posted a solid performance in January, increasing 5.7% in USD terms (4.3% in PEN). Results at the sector level were once again mixed, with a more cautious approach towards mining stocks. InRetail (+20.7%), SiderPeru (+12.7%), IFS (+12.2%) and Aceros Arequipa (+10.0%) were the winners of the month, each one for specific reasons. However, their impact on the overall market was offset by losses in Nexa Peru (-6.0%), Trevali (-5.4%) and BVN (-4.2%), among others.
We are changing our recommendation for Peru from Underweight to Neutral, mainly due to improving macroeconomic momentum. Domestic demand continued to show signs of healthy growth in November and December. However, catalysts for external demand are not clear as uncertainty persists due to the U.S.-China trade negotiations and We move Peru from the possibility of a more pronounced global economic deceleration. Even though local Underweight to political noise has diminished, it remains to be seen whether a reconfiguration of power in Neutral as domestic Congress turns out to be supportive for growth. demand continues to accelerate. Mining companies still offer the largest upsides, though the earnings season should play in favor of names linked to domestic demand in the short term. Most mining companies in our sample remain discounted (e.g. Cerro Verde). However, in the short term, it could be better to enter names related to domestic demand as we expect them to outperform during this earnings season. In fact, Ferreycorp has already produced strong 4Q18 results, and Unacem saw its cement deliveries grow at the highest rate since 2013. Furthermore, we also expect sound results in InRetail, IFS and Alicorp. Going forward, private consumption has a favorable outlook in 1H19. The construction and infrastructure sector is recovering slowly, but there are no short-term triggers in sight. The only exception is Unacem, whose reorganization might still bring more value than current prices reveal.
Still trading at a significant discount against the historical average. At 14.3x 12M forward P/E, companies under our coverage are trading at a ~13% discount against the two-year historical average (corrected for the significant losses in Buenaventura). Likewise, the 12M forward FV/EBITDA of 7.3x represents a ~12% discount against the five-year historical average. However, the discount almost disappears when controlling for mining companies. These companies make up 35% of our sample; Buenaventura alone accounts for ~20%. Thus, greater value remains concentrated in the risky mining sector
P/E Forward (12 month rolling) * FV/EBITDA Forward (12 month rolling) * 22 11 The discount in 12M forward multiples 20 10 almost disappears in our ex-mining 18 9 sample. 16 8 14.3x 7.3x 14 7
12 6 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Source: Company Reports, Credicorp Capital, & Bloomberg *Mean in the chart considers the last 2 years.
14 Top Picks Peru
Both of our Top Picks in Peru have company-specific catalysts that will unlock value throughout 2019. On top of signals that domestic demand, and particularly private consumption, show a resilient recovery, we continue to recommend InRetail due to the potential synergies from the Quicorp acquisition. In mining, the sector with the largest upside, we choose Buenaventura because its efficiency program is unlocking value on top of better metal prices.
InRetail (BUY; T.P.: USD 32.50). We maintain InRetail as a Top Pick due to its strong positioning in Pharma, possible synergies after the acquisition of Quicorp and its We see an leadership in the food industry. InRetail has been able to outperform its peers with the new opportunity in commercial strategy “Everyday low price”, while also exploring the discount format InRetail as synergies through the Mass brand and now the cash & carry format too. Even though Mass is not with Quicorp could significant in terms of sales and EBITDA, it prevents the company from being kept out of unlock more value that segment if it starts to pick up. The acquisition of Quicorp has definitely changed the than meets the eye. scenario for InRetail. It was made at a fair multiple (EV/EBITDA 12x vs pharma global peers’ figure of 13x) considering the opportunities arising from the deal: (i) higher negotiating power with global suppliers, possibly allowing the company to reduce the price gap with traditional drugstores and thereby penetrate the informal channel, (ii) possible synergies coming from reducing headcounts, closing 160 stores and consolidating logistics and distribution, (iii) vertical integration as Quimica Suiza owns two national laboratories that distribute ~40% of the medicines in the country and (iv) international expansion into Ecuador, Bolivia and Colombia. So far, the company has positively surprised us in terms of synergies.
Buenaventura (BUY; T.P. USD 17.30). Earnings are expected to improve in 2019 on the back of the de-bottlenecking program’s results. Going forward, the company expects to There are still add a total of USD 120-150mn of EBITDA by 2020, driven by profitability rather than catalysts for production. In direct operations, the main reasons for our recommendation are Buenaventura; Tambomayo’s improved efficiency and metal recovery rates, Orcopampa’s and however, it is a risky Uchucchacua’s efficiencies and El Brocal’s improved efficiency due to the Esperanza bet. tunnel and increased copper production at Marcapunta. Furthermore, regarding associates, we believe that Cerro Verde will continue to add value and that Yanacocha will take a turn for the better due to the Quecher Main gold project (200k oz Au per year from 2020 onwards) in the medium term and the copper sulfides project in the long term. Finally, although we like the stock, there is still risk related to metal prices; if expectations about the trade negotiations between the USA and China sour again, all mining companies will be affected.
Peru - Top Picks
Peruvian Picks Last Target Total Mkt. P/E FV/EBITDA P/BV Div Yield Price Price Upside Return (USD mn) 2018E 2019E 2018E 2019E LTM 2018E Sectors Buenaventura 16.25 17.30 6% 6.6% 3,222 14.8 11.2 8.9 7.8 1.0 0.2% Mining InRetail 32.75 32.50 -1% -0.3% 3,367 42.2 23.2 13.3 12.2 2.8 0.5% Retail Peruvian Picks a 6% 3.2% 6,589 28.5 17.2 11.1 10.0 1.9 0.3% S&P/BVL 20,315 23,400 15% 18% 34,879 17.5 14.0 8.8 7.7 1.9 2.6% a Simple average, excluding Market Capitalization, IFS share price in USD Source: Company Reports, Bloomberg and Credicorp Capital
15 Valuation Summary
February 2019
16 Chile
ADTV P/E FV/EBITDA P/BV Div. Yd. ROAE ROAA Company Sector Px Last Px Target Rating Mkt. Cap Local ADR 2018E 2019E 2018E 2019E LTM 2019E 2018E 2019E 2018E 2019E AESGener Utilities 195 180 HOLD 2,483 2.4 4.4 9.0 7.0 7.2 0.9 7.6% 21.4% 10.4% 7.0% 3.6% Aguas-A Utilities 395 385 HOLD 3,555 2.5 17.4 17.6 10.6 10.4 3.5 5.9% 20.9% 20.0% 7.6% 7.3% Andina-B Food & Beverages 2,510 2,880 HOLD 3,442 4.6 0.5 19.8 18.3 9.0 8.7 2.9 4.0% 14.8% 15.4% 5.6% 6.0% AntarChile Conglomerates 9,775 13,900 BUY 6,774 1.2 10.2 10.7 6.0 5.9 1.0 3.9% 9.7% 8.8% 2.8% 2.5% Banco de Chile Banks 103.8 98.0 UPERF 15,921 6.3 2.8 17.2 16.4 nm nm 3.3 3.2% 18.8% 18.7% 1.8% 1.7% Banco Santander Banks 52.3 56.0 HOLD 14,953 8.4 10.7 16.1 14.8 nm nm 3.3 4.0% 19.5% 20.0% 1.6% 1.6% Besalco Construction 665 745 BUY 582 0.6 38.3 23.8 12.5 9.2 2.0 2.3% 5.3% 8.2% 1.5% 2.2% CCU Food & Beverages 9,317 9,530 HOLD 5,227 3.9 4.9 11.4 20.8 6.4 10.1 3.3 5.3% 25.0% 12.6% 14.2% 7.2% Cencosud Retail 1,210 1,900 HOLD 5,260 8.2 14.9 13.1 9.2 9.3 0.9 2.0% 5.7% 6.4% 2.3% 2.6% CMPC Pulp & Paper 2,383 3,100 BUY 9,046 6.2 14.4 13.8 6.5 6.5 1.1 3.5% 7.5% 7.5% 4.1% 4.1% Colbun Utilities 154 153 HOLD 4,101 1.9 17.1 18.7 7.8 8.2 1.1 4.7% 6.4% 5.8% 3.5% 3.2% Concha y Toro Food & Beverages 1,393 1,520 HOLD 1,580 1.4 21.1 16.0 14.6 11.5 1.9 2.4% 8.8% 11.0% 4.6% 5.9% Copec Pulp & Paper 9,128.0 11,200.0 HOLD 18,016 9.1 14.7 15.0 8.1 8.0 1.7 2.7% 11.4% 10.4% 5.3% 4.8% Embonor-B Food & Beverages 1,780 1,980 BUY 1,210 0.8 18.7 17.6 8.2 8.2 2.7 4.4% 13.4% 13.6% 6.7% 6.8% Enel Americas Utilities 135 140 BUY 11,733 12.1 10.7 20.6 15.9 6.5 5.8 1.9 1.5% 9.3% 11.9% 2.4% 2.8% Enel Chile Utilities 69.1 77.0 BUY 7,359 6.0 2.4 14.0 17.1 7.3 6.5 1.5 4.3% 10.7% 8.3% 5.3% 3.8% Engie Chile Utilities 1,324 1,480 BUY 2,118 1.9 19.7 8.0 8.4 5.5 1.0 1.5% 5.3% 11.9% 3.1% 7.2% Entel Telecom & IT 6,510 6,550 HOLD 2,985 2.7 nm 38.2 7.7 7.2 1.5 0.0% 0.0% 4.1% 0.0% 1.4% Falabella Retail 5,118 5,400 HOLD 18,921 17.1 26.1 23.1 14.1 13.2 2.8 1.2% 10.3% 10.3% 3.4% 3.6% Forus Retail 1,952 2,310 BUY 766 0.6 19.1 19.2 10.3 9.9 2.3 2.1% 12.6% 11.8% 11.0% 10.5% Habitat Financials 942.3 1,260.0 BUY 1,431 0.1 11.1 9.6 7.5 6.5 2.6 7.2% 23.8% 25.8% 18.7% 20.4% ILC Conglomerates 12,047 12,900 BUY 1,829 1.4 10.9 9.8 nm nm 1.8 4.1% nm nm nm nm Itau Corpbanca Banks 6.4 7.7 BUY 4,989 3.6 0.3 16.5 13.7 nm nm 1.0 2.1% 6.1% 7.0% 0.7% 0.8% Latam Airlines Transport 7,699.0 7,330.0 HOLD 7,089 7.1 5.7 52.2 24.4 7.7 7.2 1.7 0.7% 3.2% 6.6% 0.7% 1.5% Masisa Materials 43 43 HOLD 515 0.3 23.2 51.5 10.3 11.9 0.5 2.2% 2.2% 1.0% 1.5% 0.8% Parque Arauco Real Estate 1,815 1,970 HOLD 2,474 2.1 14.2 16.6 18.4 17.7 4.7 3.3% 13.6% 10.8% 5.3% 4.2% Quiñenco Conglomerates 1,871 2,135 HOLD 4,724 1.2 18.5 18.0 nm nm 1.1 5.3% nm nm nm nm Ripley Retail 564 663 HOLD 1,657 2.1 15.5 14.9 18.9 17.3 1.2 3.9% 7.4% 7.6% 2.5% 2.5% Security Conglomerates 290 330 HOLD 1,628 1.1 12.0 10.0 nm nm 1.5 4.8% 12.2% 13.7% 0.9% 0.9% SK Industrial 1,169 1,265 BUY 1,908 0.2 20.5 16.8 10.1 8.3 1.4 3.9% 6.9% 8.2% 2.5% 3.0% SM-ChileB Conglomerates 332 332 HOLD 6,062 1.6 42.3 38.7 nm nm 2.8 0.9% 6.9% 7.0% 1.3% 1.3% SMU Retail 182.0 247.5 BUY 1,595 1.1 27.5 21.0 8.7 8.0 2.2 0.0% 5.9% 6.8% 2.1% 2.8% SM SAAM Transport 63 74 BUY 935 0.4 17.0 15.2 8.2 7.6 1.2 3.8% 5.7% 6.4% 3.0% 3.5% Sonda Telecom & IT 1,111.3 1,060.0 BUY 1,470 1.7 54.3 28.2 12.8 11.2 1.9 1.1% 3.8% 7.2% 2.1% 3.9% SQM-B Materials 27,490 38,600 BUY 10,988 25.4 45.9 23.7 21.5 11.6 10.4 5.3 4.0% 20.2% 21.0% 10.1% 10.1% Chile Sample 5,379 6,150 180,912 150.0 19.7 17.5 9.0 8.6 1.8 3.0% 10.7% 10.7% 2.3% 2.2%
Source: Company Reports, Credicorp Capital, & Bloomberg. For LATAM, EV/EBITDAR
17 Colombia
ADTV P/E FV/EBITDA P/BV Div. Yd. ROAE ROAA Company Sector Px Last Px Target Rating Mkt. Cap Local ADR 2018E 2019E 2018E 2019E LTM 2019E 2018E 2019E 2018E 2019E Avianca Transport 1,905 2,160 UPERF 609 0.4 0.8 nm nm 5.3 4.9 0.5 0.0% -5.2% -2.3% -1.0% -0.4% Bancolombia Banks 35,840 36,900 BUY 10,963 6.8 16.6 13.8 11.5 nm nm 1.5 3.1% 10.6% 11.9% 1.2% 1.3% BVC Financials 11,300 13,300 BUY 219 0.2 13.1 12.5 8.0 7.2 1.5 6.5% 11.0% 11.5% 8.4% 8.9% Canacol Oil & Gas 9,910 10,680 HOLD 564 0.1 0.8 nm 5.5 5.0 2.8 2.5 0.0% -3.2% 35.2% -1.1% 12.1% Celsia Utilities 4,300 5,000 HOLD 1,476 0.5 18.4 24.8 7.2 7.8 1.1 4.0% 7.0% 4.6% 2.5% 1.8% Cemargos Cement & Construction 8,150 10,300 HOLD 3,473 2.5 67.3 60.5 11.8 11.1 1.5 2.9% 2.1% 2.4% 0.9% 1.0% CLH Cement & Construction 4,890 6,900 UPERF 873 0.6 11.5 10.5 6.8 6.8 0.6 0.0% 4.9% 5.1% 2.3% 2.6% Corficolombiana Conglomerates 22,280 UR UR 1,680 0.8 15.0 10.7 nm nm 1.5 2.4% 10.3% 11.8% 1.9% 2.4% Davivienda Banks 35,320 41,500 BUY 5,117 1.5 11.6 9.2 nm nm 1.6 2.6% 12.6% 14.7% 1.3% 1.5% Ecopetrol Oil & Gas 2,865 3,580 HOLD 37,788 12.9 25.8 8.4 8.4 4.6 4.3 2.3 7.7% 26.9% 23.9% 11.2% 10.8% GEB Conglomerates 1,940 2,200 HOLD 5,714 1.1 16.4 15.6 nm nm 1.6 4.9% 9.7% 9.9% 4.7% 4.7% ETB Telecom & IT 251 310 UPERF 286 0.1 nm nm 2.4 2.6 0.5 0.0% -8.0% -23.6% -3.6% -9.7% Éxito Retail 14,400 17,290 HOLD 2,068 1.8 18.6 12.2 8.1 8.1 1.0 2.3% 4.1% 5.9% 0.5% 0.7% Grupo Argos Conglomerates 18,020 21,500 HOLD 4,757 2.0 27.8 26.9 9.5 9.5 1.0 1.9% 3.5% 3.6% 1.2% 1.2% Grupo Aval Banks 1,100 UR UR 8,008 2.1 1.7 9.9 8.9 nm nm 1.5 4.3% 15.0% 16.0% 1.7% 1.9% Grupo Sura Conglomerates 34,860 39,100 HOLD 6,382 4.5 16.1 12.6 nm nm 0.8 1.6% 5.2% 6.3% 1.8% 2.2% ISA Utilities 13,900 14,700 HOLD 4,939 1.7 13.3 11.7 8.9 8.6 1.4 4.2% 10.8% 12.2% 2.7% 3.1% Nutresa Food & Beverages 26,920 31,900 BUY 3,973 1.0 20.0 18.0 9.7 8.7 1.5 2.2% 4.9% 5.3% 3.0% 3.1% Colombia Sample 1,469 1,720 98,890 40.6 17.6 15.8 7.7 7.4 1.0 4.8% 12.5% 12.5% 2.5% 2.6%
Source: Company Reports, Credicorp Capital, & Bloomberg
18 Peru
ADTV P/E FV/EBITDA P/BV Div. Yd. ROAE ROAA Company Sector Px Last Px Target Rating Mkt. Cap Local ADR 2018E 2019E 2018E 2019E LTM 2019E 2018E 2019E 2018E 2019E Aceros Arequipa Materials 0.78 0.85 BUY 298 0.1 5.0 5.1 4.0 3.7 0.5 7.1% 10.2% 9.4% 5.8% 4.9% Alicorp Food & Beverages 11.46 13.00 HOLD 2,937 1.0 18.5 17.3 11.9 10.6 3.4 2.4% 17.3% 16.7% 6.5% 6.0% Buenaventura Mining 16.25 17.30 BUY 3,222 19.1 14.8 11.2 8.9 7.8 1.0 0.2% 7.4% 8.9% 5.0% 6.2% Cementos Pacasmayo Cement & Construction 6.75 8.10 HOLD 867 0.4 0.1 24.4 19.7 10.2 9.1 1.8 4.4% 7.7% 9.4% 4.2% 5.1% Cerro Verde Mining 21.50 28.30 BUY 7,526 0.1 12.9 11.7 5.6 5.0 1.4 2.3% 10.9% 11.0% 7.5% 7.8% Enel Generacion Peru Utilities 2.10 2.60 BUY 1,794 0.0 10.1 10.8 6.2 6.2 2.0 5.9% 20.2% 17.9% 13.9% 12.7% Enel Distribucion Peru Utilities 5.25 6.85 HOLD 1,009 0.1 9.2 8.8 6.3 6.0 1.7 4.6% 18.1% 17.1% 8.2% 8.1% Engie Peru Utilities 5.55 7.80 HOLD 1,004 0.1 9.9 9.2 6.6 6.3 0.9 6.0% 9.4% 9.6% 4.5% 5.0% Ferreycorp Materials 2.59 3.00 BUY 760 0.5 8.8 8.6 7.6 7.2 1.2 5.7% 13.2% 12.8% 5.7% 5.6% Graña y Montero Cement & Construction 1.90 2.50 HOLD 377 0.1 0.4 21.8 12.5 5.2 6.2 0.6 0.0% 2.7% 4.5% 0.7% 1.2% IFS Conglomerates 46.00 49.00 BUY 5,203 0.9 14.5 12.1 nm nm 2.7 3.8% 18.4% 18.9% 1.9% 2.1% InRetail Retail 32.75 32.50 BUY 3,367 0.9 42.2 23.2 13.3 12.2 2.8 0.5% 6.7% 10.6% 2.3% 3.3% Luz del Sur Utilities 11.00 13.75 HOLD 1,612 0.1 12.7 12.6 9.4 9.1 2.0 5.5% 16.2% 15.6% 7.5% 7.1% Minsur Mining 1.49 1.95 BUY 1,293 0.1 32.5 25.5 6.5 6.9 1.0 0.0% 3.2% 3.9% 1.7% 2.0% Unacem Cement & Construction 2.73 UR UR 1,352 0.1 nm nm nm nm 1.1 0.0% 0.0% nm 0.0% nm Volcan Mining 0.73 1.00 HOLD 2,257 0.5 27.0 26.6 9.2 9.3 3.4 1.7% 13.0% 12.0% 3.7% 3.7% Peru Sample 20,315 23,400 34,879 24.2 17.5 14.0 8.8 7.7 1.9 2.6% 11.4% 12.2% 3.9% 5.5%
Source: Company Reports, Credicorp Capital, & Bloomberg
19 Appendix: Monthly Summary
February 2019
20 Chile - Top Winners / Losers Of The Month
WINNERS:
Entel: Strong performance is explained by after positive earnings momentum along with a stabilization of the client base in Chile
Parauco: The positive performance is explained by attractive valuations and stability in a volatile market
CAP: The accident related to the largest iron-ore producer (Vale) could drag the iron-ore supply in the short-term.
Latam: Better outlook for fuel prices and traffic has boosted market expectations.
Masisa: The positive performance is explained by the improving positioning of the opposition party in Venezuela
Top Winners Return Top Winners YTD Return Top Winners LTM Return
Entel 16.5% Entel 17.4% Corpbanca 7.3% Parauco 13.0% Parauco 16.5% Santander 3.1% CAP 12.6% CAP 16.4% Chile 3.0% Latam Airlines 11.9% Latam Airlines 13.0% BCI 2.9% Masisa 9.8% Masisa 12.6% AESGener 2.2%
Top Losers Return Top Losers YTD Return Top Losers LTM Return
Andina-B -2.2% Andina-B -2.2% Vapores -38.0% Vapores -1.1% Vapores -1.1% Cencosud -29.6% Forus -28.2% Latam Airlines -24.4% Enel Generacion -20.2%
LOSERS:
Andina-B: The sale of Coca-Cola’s stake in Andina negatively impacted shares. shares.
Vapores: No relevant news.
21 Colombia - Top Winners / Losers Of The Month
WINNERS:
CLH: positive reaction to Colombian cement dispatch figures.
Aval: Recovery form the significant plunge in Dec-18; positive reaction to Ruta del Sol 2 (RDS2) payment.
Cemargos: positive reaction to Colombian cement dispatch figures.
Corficolombiana: positive reaction to Ruta del Sol 2 (RDS2 ) payment.
Davivienda: positive reaction RDS2 to payment; better outlook for the banking system in 2019.
Top Winners Return Top Winners YTD Return Top Winners LTM Return
CLH 17.8% CLH 17.8% Dav iv ienda 11.8% Av al 16.8% Av al 16.8% Ecopetrol 9.8% Cemargos 16.1% Cemargos 16.1% Bcolombia 5.9% Corficolombiana 15.9% Corficolombiana 15.9% Canacol 3.3% Dav iv ienda 15.3% Dav iv ienda 15.3%
Top Losers Return Top Losers YTD Return Top Losers LTM Return
BVC -2.8% BVC -2.8% Conconcreto -63.5% ETB -1.2% ETB -1.2% CLH -60.1% Conconcreto -0.8% Conconcreto -0.8% ETB -47.6% ISA -0.4% ISA -0.4% Av ianca -39.8% Cemargos -29.6%
LOSERS:
BVC: Low volumes offset the company’s strong fundamentals and corporate improvements.
ETB: With the stoppage of the divestment process, the stock was left behind by the local rally.
Conconcreto: Possible reaction to media noise on Hidroituango.
ISA: The release of the minimum price of COP 13,750/share led to downside pressure on the stock.
22 Peru - Top Winners / Losers Of The Month
WINNERS:
InRetail: Expectations on synergies from its Quicorp acquisition materializing.
Siderperu: Tagged along after Aceros Arequipa published solid 4Q18 results.
IFS: Expected to be one of the top performers this earnings season.
Aceros Arequipa: Released better-than-expected results for 4Q18.
Credicorp: Benefited from global risk-on sentiment, after FED kept its policy rate unchanged.
Top Winners Return Top Winners YTD Return Top Winners LTM Return
In Retail 20.7% In Retail 20.7% In Retail 55.2% Siderperu 12.7% Siderperu 12.7% Siderperu 26.8% IFS 12.2% IFS 12.2% IFS 14.1% Ac. Arequipa 10.0% Ac. Arequipa 10.0% Backus 9.7% Credicorp 9.9% Credicorp 9.9% Graña y Montero 8.1%
Top Losers Return Top Losers YTD Return Top Losers LTM Return
Milpo -6.0% Milpo -6.0% Trev ali -78.2% Trev ali -5.4% Trev ali -5.4% Relapasa -62.1% BVN -4.2% BVN -4.2% Atacocha B -54.4% Bco. Continental -2.5% Bco. Continental -2.5% Volcan B -45.3% Luz del Sur -1.4% Enel Distribucion -1.3% Panoro Minerals -39.9%
Losers:
Nexa Resources Peru: Selling positions, but no particular public reason.
Trevali: 4Q18 production disappointed and 2019 guidance showed a cost increase.
BVN: Profit taking and lower gold prices; 4Q18 production was somewhat weak.
Banco Continental: No particular reason.
Luz del Sur : VAD final resolution came worse than company’s proposal.
23 Chile - Traded Volume
In January, traded volume was USD 4,307mn, 9.4% lower than in January 2018, considering one more trading day. Daily average traded volume was USD 196mn, USD 30.6mn lower than the USD 226mn seen during same month last year and 27.7% higher than the USD 153mn seen in December 2018. As for relevant non-recurring flows, we highlight the OPA of AquaChile (USD 849mn), the IPO of Inmobiliaria Manquehue (USD 70mn), the auction in Enjoy (USD 9.35MN) and block trades in Cencosud (USD 21.3mn), Quiñenco (USD 22.8mn) and Falabella (USD 13.23mn). For 2019, accumulated traded volume reached USD 4,307mn, 9.4% lower than the USD 4,307mn seen in same period of 2018 and 42.3% above the accumulated five-year average for the period.
Avg. Traded Volume & IGPA Evolution
300 Avg. Traded Volume IGPA 35,000
250 30,000
25,000 200
USDm 20,000 150 15,000 100 10,000
50 5,000
- - Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bolsa de Comercio de Santiago & Credicorp Capital
Moving Avg LTM & Yearly Avg
250 Mvng Avg LTM 2014 Avg. 2015 Avg. 2016 Avg. 2017 Avg. 2018 Avg. 2019 Avg.
200 +19%
+45%
150 -37% Moving Average Average LTM Moving +16% 100
50 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bolsa de Comercio de Santiago & Credicorp Capital
24 Colombia - Traded Volume
During December, ADTV reached COP 99,396 mn and USD 30.96 mn equivalent to decreases of - 38.8% y/y and -42.9% y/y respectively. This also represented decreases of -17.7% m/m in terms of COP and -18.0% m/m in terms of USD. Total traded volume was COP 1,888,526 mn decreasing by - 35.4% y/y and by -21.8% m/m. In dollars, this figure is equivalent to USD 588.23 mn, and posted contractions of -39.8% y/y and -22.1% m/m.
Average Traded Volume Avg. Traded Volume COLCAP 180 2,000 160 1,800 140 1,600 1,400 120 1,200 USDmn 100 1,000 80 800 60 600 40 400 20 200 - - Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Source: BVC & Credicorp Capital
Moving Average LTM
110 Mvng. Avg. LTM 2013 Avg. 2014 Avg. 2015 Avg.
2016 Avg. 2017 Avg. 2018 Avg. -14% 90 -8%
70
-40%
50 -5% -1%
Moving Average Average Average LTM LTM MovingMoving
30 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Source: BVC & Credicorp Capital
25 Peru - Traded Volume
Traded volume in January was USD 289.2mn (-34.3% y/y) with specific trades at the beginning of the month. The average daily traded volume (ADTV) decreased to USD 12.6mn, a 37.2% drop from the USD 20.0mn registered in January 2018 due to fewer large specific trades. Likewise, ADTV decreased 17.6% on a m/m basis (USD 15.3mn in December 2018). YTD, the accumulated traded volume was 35.4% lower than the five-year average. Through January 25th, pension funds and other local institutional investors were net buyers with USD 18.5mn and USD 80.1mn, respectively. On the other hand, local retail investors were net sellers with USD 66.7mn. Foreign retail and institutional investors were net sellers with USD 1.4mn and USD 30.5mn, respectively. Local retail investors, pension funds and institutional investors were involved in 86.52% of total trading.
Avg. Traded Volume & SP/BVL Evolution
120 Avg. Traded Volume SP/BVL General Index 25,000
100 20,000
80
15,000 USDmn 60 10,000 40
5,000 20
- - Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: BVL & Credicorp Capital
Moving Avg LTM & Yearly Avg
Mvng Avg LTM 2013 Avg. 2014 Avg. 2015 Avg.
35 2016 Avg. 2017 Avg. 2018 Avg. 2019 Avg. 30 -35% 25 127% -46% 51% 20
-6% -50%
Moving AverageAverageAverageAverageAverageAverageAverage MovingMovingMovingMovingMovingMovingMovingLTM LTM LTM LTM LTM LTM LTM Moving Average MovingLTM 15 40% 10
5
- Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: BVL & Credicorp Capital
26 Chile - Pension Funds: January Flows
In January, pension funds were net sellers of local equities (USD 25.0mn) after eight consecutive months of being net buyers. The net divestment was highly influenced by i) Cencosud (USD 62.0mn) and ii) Chile (USD 47.3mn). The exposure to the asset class reached 11.10%, increasing 32 bps m/m. Exposure through direct investments (8.93%) increased 32 bps m/m, while investment funds remained flat (1.84%). Additionally, we highlight that the major investment of pension funds during the LTM was Falabella (USD 658mn), due to the capital increase (USD 581mn) in Oct-18; excluding this effect the major investment was SQM-B (USD 621mn). On the other side, the major divestment was EnelGx (USD 936mn), due to the tender offer in which Enel Chile increased its stake in the company.
January marks the sixteenth consecutive month of investment in Embonor-B, the eleventh in Falabella, SM-Chile B and Copec and the seventh in SMU. On the other hand, it was the fifth consecutive month of divestment in Sonda, Cencosud and EnelAm and the fourth in Antarchile.
As for sector allocation, pension funds are overweight in Consumer Discretionary (Falabella and Ripley) and are significantly underweight in Materials (SQM-B and CMPC).
Local Stocks Movements
900 845
700 461 500 282 273 291 268 300 157 67
100 29 USD USD mn -100 -25 -71 -300 -281 -500 -441 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Monthly Top Investments / Divestments
Top Net Investments Top Net Investments Total Total January LTM QUINENCO 40.7 FALABELLA 658 SQM-B 39.8 SQM-B 621 FALABELLA 35.0 ENELCHILE 477 RIPLEY 11.4 MALLPLAZA 283 COPEC 11.2 COPEC 183 Top Net Divestments Top Net Divestments Total Total January LTM CENCOSUD -62.0 ENELGXCH -936 CHILE -47.3 ENELAM -150 ENELAM -45.7 ECL -58 AESGENER -16.7 CHILE -32 ENELCHILE -16.5 AGUAS-A -27
Net Investments January -25.0 Net Investments LTM 2,027
Source: SAFP & Credicorp Capital
27 Peru - Pension Funds: August Flows
Peruvian Pension Funds’ (AFPs) exposure to local equities decreased to 10.8% in August 2018, when the S&P/BVL General Index fell 4.73% in PEN (-5.62% in USD).
In August, the net gap between the upper limit on equity investments vs actual funds invested was USD 700.4mn, USD 175.5mn lower than in July. At an aggregate level, exposure to local equities decreased, while that of international equities increased.
We observed net investments in local equities of USD 112.5mn. The main investments during August 2018 included Credicorp (USD 80.5mn), Alicorp (USD 13.7mn) and Buenaventura (USD 8.0mn). On the other hand, the main divestments for the month were InRetail (USD 1.2mn) and Volcan (USD 0.1mn).
Local Stock Movements
361
224
132 113 88 98 82 72 64 58 55 58 39 47 28
USDm 23 19 12 12 6 1
0 -1 -20 -14 -15 -17 -22 -27 -32
-301 -170
Jul-16
Jul-17
Jul-18
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Jan-16
Jun-16
Jan-17
Jun-17
Jan-18
Jun-18
Feb-16
Mar-16
Feb-17
Mar-17
Feb-18
Mar-18
Aug-16
Sep-16
Nov-16
Dec-16
Aug-17
Sep-17
Nov-17
Dec-17
Aug-18
May-16
May-17 May-18 Source: SBS, Credicorp Capital. Monthly Top Investments / Divestments
Top Net Fund 1 Fund 2 Fund 3 Total Investments BAP 1.0 43.4 36.1 80.5 ALICORC1 0.3 8.2 5.2 13.7 BVN ADR 0.0 -0.2 8.3 8.0 NEXA 0.3 -1.3 5.5 4.5 SCOTIAC1 0.0 1.6 0.6 2.2
Top Net Fund 1 Fund 2 Fund 3 Total Divestments INRETC1 0.0 -1.2 0.1 -1.2 VOLCABC1 0.0 -0.6 0.4 -0.1 LUSURC1 0.0 0.0 0.0 0.0 ATACOAC1 0.0 0.0 0.0 0.0 GRAM ADR 0.0 0.0 0.0 0.0
Net Investment 1.5 50.0 61.0 112.5 August
Source: SBS, Credicorp Capital.
28 Economic Forecasts
CHILE National Accounts (YoY) 2015 2016 2017 2018F 2019F Current GDP (USDmm) 244,417 250,266 277,184 299,440 311,003 GDP (%) 2.3 1.3 1.5 4.0 3.3 Domestic Demand (% v ar.) 2.5 1.3 3.1 4.6 3.7 Total Consumption (% v ar.) 2.6 2.9 2.7 3.8 3.4 Inv estment / GDP 23.8 22.9 21.6 22.0 22.4 CPI 4.4 2.7 2.3 2.6 3.0 Reference rate (end of y ear) 3.50 3.50 2.50 2.75 3.50 Ex change rate (end of y ear) 709 667 615 696 650 Ex change rate (av g.) 655 677 649 640 655 Fiscal Balance (% GDP) -2.2 -2.7 -2.8 -1.8 -1.7 Foreign Reserves (USDmm) 38,643 40,494 39,500 39,000 40,000 Source: INE, BCCh, Dipres & Credicorp Capital Estimates
PERU National Accounts (YoY) 2015 2016 2017 2018F 2019F Current GDP (USDmm) 191,600 194,817 214,452 226,649 229,677 GDP (%) 3.3 4.0 2.5 3.8 3.7 Domestic Demand (% v ar.) 2.9 1.1 1.4 4.2 3.8 Total Consumption (% v ar.) 4.9 2.7 2.2 3.2 3.5 Inv estment / GDP 24.5 22.8 21.7 22.3 22.2 CPI 4.4 3.2 1.4 2.2 2.5 Ov ernight interest rate (end of y ear) 3.75 4.25 3.25 2.75 3.50 Ex change rate (end of y ear) 3.41 3.36 3.24 3.37 3.35-3.40 Ex change rate (av g.) 3.19 3.38 3.26 3.29 3.35-3.40 Fiscal Balance (% GDP) -2.1 -2.6 -3.1 -2.5 -2.3 Foreign Reserves (USDmm) 61,485 61,686 63,621 61,100 61,900 Source: INEI, BCR & Credicorp Capital Estimates
COLOMBIA National Accounts (YoY) 2015 2016 2017 2018F 2019F Current GDP (USDmm) 192,710 283,133 314,477 333,432 344,803 GDP (%) 3.0 2.0 1.8 2.7 3.3 Domestic Demand (% v ar.) 2.4 1.2 1.9 3.0 3.6 Total Consumption (% v ar.) 3.4 1.4 2.2 3.3 3.4 Inv estment / GDP 23.8 23.4 23.1 22.9 23.2 CPI 6.8 5.8 4.1 3.2 3.6 Ov ernight interest rate (end of y ear) 5.75 7.50 4.75 4.25 5.00 Ex change rate (end of y ear) 3,175 3,002 2,984 3,200 3,000 Ex change rate (av g.) 2,760 3,051 2,951 2,940 3,050 Fiscal Balance (% GDP) -3.0 -4.0 -3.6 -3.1 -2.6 Foreign Reserves (USDmm) 46,741 46,683 47,637 48,319 48,343
Source: DANE, BanRep, Bloomberg & Credicorp Capital Estimates
29 Important Disclosures
This research report was prepared by Credicorp Capital Peru S.A and/or Credicorp Capital Colombia Sociedad Comisionista de Bolsa and/or Credicorp Capital S.A. Corredores de Bolsa, companies authorized to engage in securities activities in Peru, Colombia and Chile, respectively and indirect subsidiaries of Credicorp Capital Ltd. (jointly referred to as “Credicorp Capital”). None of the companies jointly referred to as Credicorp Capital are registered as broker-dealers in the United States and, therefore, they are not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution only to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report can do so only through Credicorp Capital Securities Inc., a registered broker-dealer in the United States. Under no circumstances may a U.S. recipient of this research report effect any transaction to buy or sell securities or related financial instruments directly through Credicorp Capital. CCSI or any of its representatives are not involved in any way in the preparation, development, or supervision of the research report and does not have any influence whatsoever over the research content. Any analyst whose name appears on this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and is not a registered representative of Credicorp Capital Securities Inc. and, therefore, is not subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.
A. Analyst Disclosures The functional job title of the person(s) responsible for the recommendations contained in this report is Equity Research Analyst unless otherwise stated on the cover.
Regulation AC - Analyst Certification: Each Equity Research Analyst listed on the front-page of this report is principally responsible for the preparation and content of all or any identified portion of this research report and hereby certifies that with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the Equity Research Analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each Equity Research Analyst also certifies that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that Equity Research Analyst in this research report. Each Equity Research Analyst certifies that he or she is acting independently and impartially from the referenced company/shareholders, directors and is not affected by any current or potential conflict of interest that may arise from any of the companies’ activities. Analyst Compensation: The research analyst(s) primarily responsible for the preparation of the content of this research report attest(s) that no part of his or her compensation was, is or will be, directly or indirectly, related to the specific recommendations that he or she expressed in the research report. The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of one of the companies jointly referred as Credicorp Capital, which are non-US affiliates of Credicorp Capital Securities Inc., a SEC registered and FINRA member broker-dealer. Equity Research Analysts employed by the companies jointly referred as Credicorp Capital, are not registered/ qualified as research analysts under FINRA/NYSE rules, are not registered representatives of Credicorp Capital Securities Inc. and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Please refer to www.credicorpcapital.com for further information relating to research and conflict of interest management.
30 B. Ownership and Material Conflicts of Interest
Other significant financial interests
Type of instruments Equal or less than USD 50,000 Equal or less than USD 100,000 Equal or less than USD 500,000 Equal or less than USD 1,000,000 More than USD 1,000,000 Other equity securities Minsur
AesGener, Banco de Chile, Cencosud, CMPC, Colbun, Corpbanca, ECL, Falabella, Latam, Cementos Pacasmayo, Enel Dx Ripley, Grupo Sura, InRetail and Debt securities Alicopr and Luz del Sur Entel Santander, SQM, Enjoy, Security, Peru and Engie Energía Perú. Minsur Bancolombia, Banco de Bogotá, Ecopetrol, Grupo Aval, Ferreycorp, IFS, Milpo and Unacem
Avianca, Bancolombia, Celsia, Derivatives on equity/debt Cemargos, CLH, Éxito, Grupo securities Argos, Grupo Aval and Isa.
Credicorp Capital Securities Inc. or its affiliates ´beneficially own´ securities issued by the companies referenced in this report according to the following table:
Type of instruments Equal or less than USD 10,000 Equity securities Ferreycorp and InRetail Debt securities Derivatives on equity/debt - securities
C. Compensation and Investment Banking Activities
Credicorp Capital Securities Inc. or its affiliates have managed or co-managed a public offering of securities, in the past 12 months, for the following company(ies): Davivienda, ISA, Alicorp, Engie Energia Peru and Luz del Sur. Credicorp Capital Securities Inc. or its affiliates currently have or had, within the past 12 months, the following company(ies) as investment banking client(s): Davivienda, EEB, ISA, Aceros Arequipa, AIH, Alicorp, Buenaventura, Cementos Pacasmayo, Engie Energia Peru, Ferreycorp, Graña y Montero, IFS, InRetail, Luz del Sur, Milpo and Volcan. Credicorp Capital Securities Inc. or its affiliates also have received compensation, within the past 12 months, for investment banking services from the following company(ies): Davivienda, EEB, ISA, Aceros Arequipa, AIH, Alicorp, Buenaventura, Cementos Pacasmayo, Engie Energia Peru, Ferreycorp, Graña y Montero, IFS, InRetail, Luz del Sur, Milpo and Volcan. Credicorp Capital Securities Inc. or its affiliates also expect to receive or intend to seek compensation, in the next 3 months, for investment banking services from the following company(ies): Davivienda, EEB, ISA, Aceros Arequipa, AIH, Alicorp, Buenaventura, Cementos Pacasmayo, Engie Energia Peru, Ferreycorp, Graña y Montero, IFS, InRetail, Luz del Sur, Milpo and Volcan.
D. Other Compensation and Non-Investment Banking Activities
Credicorp Capital Securities Inc. or its affiliates currently provide or have provided, within the past 12 months, non-investment-banking securities-related services to the following company(ies): Banco de Chile, BCI, Copec, ItauCorpbanca, EISA, Falabella, Hatitat, Ripley, Salfacaforp, Santander, Security, SMU, Avianca, Banco de Bogotá, Bancolombia, BVC, Canacol, Cemargos, Davivienda, GEB, ETB, Exito, Grupo Argos, Grupo Sura, ISA, Nutresa and Promigas. Credicorp Capital Securities Inc. or its affiliates also have received compensation, within the past 12 months, for non-investment-banking securities-related services from the following company(ies): Banco de Chile, BCI, Copec, ItauCorpbanca, EISA, Falabella, Hatitat, Ripley, Salfacaforp, Santander, Security, SMU, Avianca, Banco de Bogotá, Bancolombia, BVC, Canacol, Cemargos, Davivienda, GEB, ETB, Exito, Grupo Argos, Grupo Sura, ISA, Nutresa and Promigas.
31 Credicorp Capital Securities Inc. or its affiliates currently provides or have provided, within the past 12 months, non-securities-related services to the following company(ies): Banco de Chile, BCI, Corpbanca, Forus, Habitat, Lan, Banco de Bogota, Bancolombia, Davivienda, Arequpia, AIH, Alicorp, Cementos Pacasmayo, Cerro Verde, Enel Dx Peru, Enel Gx Peru, Engie Energia Peru, Ferryecorp, Graña y Montero, Luz del Sur, Milpo and Unacem. Credicorp Capital Securities Inc. or its affiliates also have received compensation, within the past 12 months, for non-securities services from the following company(ies): Banco de Chile, BCI, Corpbanca, Forus, Habitat, Lan, Banco de Bogota, Bancolombia, Davivienda, Arequpia, AIH, Alicorp, Cementos Pacasmayo, Cerro Verde, Enel Dx Peru, Enel Gx Peru, Engie Energia Peru, Ferryecorp, Graña y Montero, Luz del Sur, Milpo and Unacem.
E. Market Making
Credicorp Capital Securities Inc. or its affiliates act as market maker in the following company(ies): Almendral, Besalco, Invercap, Masisa, Quiñenco, Grupo Security, DK, SMSAAM, Enjoy, BVC, GEB, ETB, Alicorp, Cementos Pacasmayo, Enegie Energia Peru and Ferrycorp.
F. Rating System Stock ratings are based on the analyst’s expectation of the stock’s total return during the twelve to eighteen months following assignment of the rating. This view is based on the target price, set as described below, and on the analyst’s opinion, general market conditions and economic developments. Buy: Expected returns of 5 percentage points or more in excess over the expected return of the local index, over the next 12-18 months. Hold: Expected returns of +/- 5% in excess/below the expected return of the local index over the next 12-18 months. Underperform: Expected to underperform the local index by 5 percentage points or more over the next 12-18 months. Under Review: Company coverage is under review. The IPSA, COLCAP and IGBVL indexes are the selective equity indexes calculated by the Bolsa de Comercio de Santiago, the Bolsa de Valores de Colombia, and the Bolsa de Valores de Lima, respectively. In making a recommendation, the analyst compares the target price with the actual share price, and compares the resulting expected return for the IPSA, the COLCAP, and/or the SPBVL indexes, as estimated by Credicorp Capital S.A. Corredores de Bolsa, Credicorp Capital Colombia Sociedad Comisionista de Bolsa, and/or CredicorpCapital Peru S.A, and then makes a recommendation derived from the difference in upside potential between the shares and the respective index. G. Distribution of Ratings
Buy Hold Underperform Restricted / UR
Companies covered with this rating 39% 46% 7% 7%
Compensation for investment banking 36% 33% 40% 0% services in the past 12 months*
*Percentage of investment banking clients in each rating category. H. Price Target Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in certain industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social conditions. This discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.
32 II.ADDITIONAL DISCLOSURES
This product is not for retail clients or private individuals.
The information contained in this publication was obtained from various publicly available sources believed to be reliable, but has not been independently verified by the companies jointly referred as Credicorp Capital, therefore they do not warrant the completeness or accuracy of such information and does not accept any liability with respect to the accuracy or completeness of such information, except to the extent required by applicable law. This publication is a brief summary and does not purport to contain all available information on the subjects covered. Further information may be available on request. This report may not be reproduced for further publication unless the source is quoted. This publication is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any securities, or as an invitation, inducement or intermediation for the sale, subscription or purchase of any securities, or for engaging in any other transaction. This publication is not for private individuals.
Any opinions, projections, forecasts or estimates in this report are those of the author only, who has acted with a high degree of expertise. They reflect only the current views of the author at the date of this report and are subject to change without notice. The companies jointly referred to as Credicorp Capital have no obligation to update, modify or amend this publication or to otherwise notify a reader or recipient of this publication in the event that any matter, opinion, projection, forecast or estimate contained herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. The analysis, opinions, projections, forecasts and estimates expressed in this report were in no way affected or influenced by the issuer. The author of this publication benefits financially from the overall success of Credicorp Capital. The investments referred to in this publication may not be suitable for all recipients. Recipients are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. Any loss or other consequence arising from the use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and Credicorp Capital accepts no liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their own investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. Some of the investments mentioned in this publication may not be readily liquid investments. Consequently it may be difficult to sell or realize such investments. The past is not necessarily a guide to future performance of an investment. The value of investments and the income derived from them may fall as well as rise and investors may not get back the amount invested. Some investments discussed in this publication may have a high level of volatility. High volatility investments may experience sudden and large falls in their value which may cause losses. International investing includes risks related to political and economic uncertainties of foreign countries, as well as currency risk.
To the extent permitted by applicable law, no liability whatsoever is accepted for any direct or consequential loss, damages, costs or prejudices whatsoever arising from the use of this publication or its contents.
This report may not be independent of Credicorp Capital’s proprietary interests. Credicorp Capital trades the securities covered in this report for its own account and on a discretionary basis on behalf of certain clients. Such trading interests may be contrary to the recommendation(s) offered in this report
Credicorp Capital (and its affiliates) has implemented written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research business, which are available upon request. The Credicorp Capital research analysts and other staff involved in issuing and disseminating research reports operate independently of Credicorp Capital’s Investment Banking business. Information barriers and procedures are in place between the research analysts and staff involved in securities trading for the account of Credicorp Capital or clients to ensure that price sensitive information is handled according to applicable laws and regulations.
33 Credicorp Capital Securities Inc., is a wholly owned subsidiary of Credicorp Capital Ltd.
Nothing herein excludes or restricts any duty or liability to a customer that Credicorp Capital Securities Inc. have under applicable law. Investment products provided by or through Credicorp Capital Securities Inc. are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution, may lose value and are not guaranteed by the entity that published the research as disclosed on the front page and are not guaranteed by Credicorp Capital Securities Inc.
Investing in non-U.S. Securities may entail certain risks. The securities referred to in this report and non-U.S. issuers may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Rule 144A securities may be offered or sold only to persons in the U.S. who are Qualified Institutional Buyers within the meaning of Rule 144A under the Securities Act. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Securities discussed herein may be rated below investment grade and should therefore only be considered for inclusion in accounts qualified for speculative investment.
Analysts employed by one of the companies jointly referred to as Credicorp Capital, all of which are non-U.S. broker-dealers, are not required to take the FINRA analyst exam. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position.
In jurisdictions where Credicorp Capital Securities Inc. is not registered or licensed to trade in securities, or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements.
The information in this publication is based on sources believed to be reliable, but Credicorp Capital Securities Inc. does not make any representation with respect to its completeness or accuracy. All opinions expressed herein reflect the author's judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice.
Credicorp Capital Securities Inc. or its affiliates may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance.
Credicorp Capital Securities Inc. and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer. The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a company's actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company's products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement.
Other countries: Laws and regulations of other countries may also restrict the distribution of this report. Persons in possession of this document should inform themselves about possible legal restrictions and observe them accordingly.
34 CONTACT LIST
ANDEAN RESEARCH TEAM SALES & TRADING
Daniel Velandia, CFA Felipe García Head of Research & Chief Economist Head of Sales & Trading [email protected] [email protected] # (571) 339 4400 Ext 1505 # (571) 339 4400 Ext. 1132
EQUITY RESEARCH EQUITY SALES & TRADING
Carolina Ratto Mallie CHILE PERU COLOMBIA Head of Equity Research - Retail [email protected] René Ossa Rodrigo Zavala Juan A. Jiménez # (562) 2446 1768 Head of Equity Head of Equity - Peru Head of International Equity Sales [email protected] [email protected] [email protected] CHILE PERU COLOMBIA # (562) 2651 9324 # (511) 313 2918 Ext 36044 # (571) 339 4400 Ext 1701
Tomás Sanhueza Daniel Córdova Sebastián Gallego, CFA German Barousse Renzo Castillo Santiago Castro Head of Equity Research - Consumer & Head of Equity Research Peru Head of Equity Research - Banks Vice President Equity Sales Equities Sales International Sales & Trading Transport. [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] # (511) 416 3333 Ext 33052 # (571) 339 4400 Ext 1594 # (562) 2450 1637 # (511) 416 3333 Ext 36167 # (571) 339 4400 Ext 1344 # (562) 2446 1751 Steffania Mosquera Cristóbal Grez Maria Fernanda Luna Credicorp Capital Andrés Cereceda Luis Vicente Senior Analyst: Cement & Construction, Associate Equity Sales Equities Sales Securities INC Associate: Pulp & Paper, Materials, Senior Analyst: Mining & Utilities Non Bank financials [email protected] [email protected] Rafael Solis Healthcare, Pension Funds [email protected] [email protected] # (562) 2450 1629 # (511) 416 3333 Ext 36182 Institutional Equity Sales [email protected] # (511) 416 3333 Ext 37854 # (571) 339 4400 Ext 1025 [email protected] # (562) 2446 1798 Ursula Mitterhofer Pablo Aguilar # (786) 999 1619 Angela Gonzalez Associte Sales & Trading Equities Sales Joel Lederman Raúl F. Jacob Senior Analyst: Transport, TMT & I.T. [email protected] [email protected] David Crummy Associate: Utilities Analyst: Cement & Construction [email protected] # (562) 2450 1613 # (511) 416 3333 Ext 36153 Equity Sales Trader [email protected] [email protected] # (571) 339 4400 Ext 1365 [email protected] # (562) 2651 9332 # (511) 416 3333 Ext 36065 Credicorp Capital UK Ltd. # (786) 999 1618 Daniel Mora Felipe Navarro Analyst Marilyn Macdonald Analyst: Construction, Industrial & Ports [email protected] International Equity Sales [email protected] # (571) 339 4400 Ext 1609 [email protected] # (562) 2450 1688 # (4477) 7151 5855
Carlos Vial Analyst FIXED INCOME SALES & TRADING [email protected] # (562) 2450 1694 Andrés Nariño Alfredo Bejar Director Sales Offshore Head of International FI Ana María Bauzá [email protected] [email protected] Research Coordinator # (571) 339-4400 Ext. 1459 # (511) 205 9190 Ext 36148 [email protected] # (562) 2450 1609 CHILE PERU COLOMBIA
FIXED INCOME & ECONOMICS RESEARCH Guido Riquelme Evangeline Arapoglou Carlos Sanchez Head of Sales Head of international FI Sales Head of Fixed Income CHILE PERU COLOMBIA [email protected] [email protected] [email protected] # (562) 2446 1712 # (511) 416 3333 Ext 36099 # (571) 323 9154 Josefina Valdivia Juan Pablo Brosset Camilo A. Durán Head of Fixed Income Fixed Income Analyst Macro Analyst Juan Francisco Mas Andrés Valderrama Gustavo Trujillo [email protected] [email protected] [email protected] Fixed Income Sales Fixed Income Sales Head of Sales # (562) 2651 9308 # (511) 416 3333 Ext 36018 # (5511) 339 4400 Ext. 1383 [email protected] [email protected] [email protected] # (562) 2446 1720 # (511) 416 3333 Ext 40352 # (571) 323 9252 Ignacio Sabelle Fixed Income Analyst Rafael Gaete Natalia Jurado Andrés Agudelo [email protected] Local Fixed Income Sales Fixed Income Sales Fixed Income Sales # (562) 2651 9368 [email protected] [email protected] [email protected] # (562) 2651 9336 # (511) 416 3333 Ext 36027 # (571) 339 4400 Ext 1180 Felipe Guzmán Senior Economist Diego Hidalgo Guillermo Arana Emilio Luna [email protected] Local Fixed Income Sales Fixed Income Sales Fixed Income Sales # (562) 2651 9385 [email protected] [email protected] [email protected] # (562) 2450 1693 # (511) 313 2902 Ext. 36144 # (571) 339 4400
Lizeth Espiritu Patricio Luza Fixed Income Sales Fixed Income Sales [email protected] [email protected] # (562) 2450 1619 # (511) 416 3333 Ext. 36168
Carla Tejada Fixed Income Analyst [email protected] # (511) 416 3333 Ext. 36143
Ana Lucía Rondón Medina Sales Renta Fija [email protected] # (511) 416 3333 Ext. 40339
Credicorp Capital Securities INC
Jhonathan Rico Michael Tafur Fixed Income Trader Fixed Income [email protected] [email protected] # 1 (786) 9991614 # 1 (786) 9991607
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