1 November 2016 Asia Pacific/ Credit Suisse Research

Philippines Market Strategy The Credit Suisse Connections Series leverages our exceptional breadth of macro and micro research to deliver CONNECTIONS SERIES incisive cross-sector and cross-border thematic insights for our clients.

Economic Research: Michael Wan Pivot towards China: Impact and implications 65 6212 3418 [email protected] Figure 1: China tourists sensitive to politics—positive this time? Santitarn Sathirathai Person 65 6212 5675 Philippine Visitor Arrivals from China seasonally adjusted [email protected] 70,000 March 2014: Philippines Equity Research: Dan Fineman 60,000 submit case to UN 66 2 614 6218 [email protected] 50,000 Chate Benchavitvilai April 2012: 65 6212 3241 40,000 Scarborough Shoal [email protected] standoff Danielo Picache 30,000 632 858 7758 [email protected] 20,000 Patricia Palanca 63 2 858 7752 10,000 [email protected] Varun Ahuja, CFA 0 65 6212 3017

[email protected]

2003 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2000 Muzhafar Mukhtar, CFA 60 3 2723 2084 Source: CEIC, Credit Suisse [email protected] Kathi Go ■ "Pivot towards China". While there are a lot of moving parts regarding the 63 2 858 7756 Philippines’ government new foreign policy, Credit Suisse Economic [email protected] Research Team and Credit Suisse Philippine Equity research team provide Sofia Cabral 63 2 858 7757 our initial assessment of the impact from ‘pivot towards China’ stance on [email protected] both the economy and equities based on what we have observed so far. ■ Economic benefits outweigh costs, support above-consensus GDP view. The shift in foreign policy is likely to bring in more FDI and tourists as gains in both flows from China outweigh the potential decline in flows from the US, at least in the near term. This lends further support to our already above-consensus views on Philippines GDP growth of 6.4% (vs consensus' 6.1%) in 2017, and also consumption (CS: 6.4% vs consensus: 6.1%). ■ Mixed equities implications. The equities implications of Duterte's policy shift are mixed. Gaming stocks—especially BLOOM and MEL—and Pacific are clear beneficiaries of a potential increase in Chinese tourism, but power could suffer from increased competition from Chinese firms. The impact for most other sectors will be mixed but likely slight.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm 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.

1 November 2016

Pivot towards China: Impact & implications "Pivot towards China" While there are a lot of moving parts regarding the Philippines government's new foreign policy, Credit Suisse Economic Research Team and Credit Suisse Philippine Equity research team provide our initial assessment of the impact from ‘pivot towards China’ stance on both the economy and equities based on what we have observed so far. Economic: Benefits outweigh costs in the short-run More FDI and tourists On the macro side, the shift in foreign policy is likely to bring in more FDI and tourists as from China could the gains in both flows from China outweigh the potential decline in flows from the US, at outweigh decline in least in the near term. This lends further support to our already above-consensus views on flows from the US the Philippines GDP growth of 6.4% (vs consensus' 6.1%) in 2017, and also consumption (CS: 6.4% vs consensus: 6.1%). We think that around US$1 bn to US$4 bn (0.3% to 1.2% of GDP) out of a total of US$15 bn investment pledges (4.6% of GDP) could have the potential to start in 2017. This implies a two- to six-fold increase in current investments from China, and compares with the Philippines' typical annual total FDI inflows of US$6-8 bn. Importantly, our analysis suggests that Chinese tourists have been sensitive to political tensions between China and the Philippines. With these political drags on tourism removed, the Philippines should benefit more from the boom in outbound Chinese tourism, which currently accounts for around 11% of total visitor arrivals in the country. While direct tourism revenue only accounts for around 2% of GDP in the Philippines, the indirect benefits could be two times larger, with the gains likely accrued to employment and consumer spending. Equities: Gaming and airline the winners Boost in Chinese Although Duterte's foreign policy shift should prove a moderate net positive for the tourists to benefit economy, the implications for the equities market are mixed. Gaming and airlines are gaming (BLOOM, MCP) clear winners from an expected boost in Chinese tourist arrivals, but power and possibly and airline (CEBU) banks could suffer from competition from Chinese firms. It is unclear whether a Chinese bank would seek a stake in a smaller local bank, but interest among Chinese firms in power seems fairly high. In property, residential could suffer if US investment in BPO weakens, while hospitality could gain from higher Chinese tourist arrivals. Telcos might gain on the margin from more preferential financing terms from Chinese network vendors. The consumer sector should broadly benefit if we are right that consumption would gain on a net basis, though increased Chinese investment in the sector might raise competitive pressures. Outside of gaming, airlines and possibly power, we do not see the China effect as being great. For most of the market, other factors will predominate. Within our top picks, SMPH and RLC should benefit from malls and hospitality exposure. JFC and URC could also benefit as higher tourists' spending and employment boost consumption. For EDC, we have not built in any potential adverse impact, but noted that this is only a longer-term risk while attractive valuation and near-term catalysts remain intact. For gaming, we also have an OUTPERFORM rating on BLOOM.

Philippines Market Strategy 2 1 November 2016

Economic Research

FOR IMPORTANT DISCLOSURES AND DISCLAIMERS, PLEASE SEE THE ECONOMIC RESEARCH DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT. 1 November 2016

Economic Research: Michael Wan Assessing potential economic impact of 65 6212 3418 [email protected] foreign policy shift towards China

Santitarn Sathirathai Potential economic benefits could outweigh costs in the 65 6212 5675 [email protected] short-run While there are a lot of moving parts regarding the Philippines government's new foreign policy, we provide below an initial economic assessment of the ‘pivot towards China’ based on what we have observed so far. ■ Net positive for 2017 GDP and balance of payments. The shift in foreign policy is likely to bring in more FDI and tourists as the gains in both flows from China outweigh the potential decline in flows from the US, at least in the near term. This lends further support to our already above-consensus views on the Philippines GDP growth of 6.4% vs the consensus of 6.1% in 2017, and also consumption (CS: 6.4% vs consensus: 6.1%).

■ External funding of investment – a lot more from China, a little less from the US. We think that around US$1 bn to US$4 bn (0.3% to 1.2% of GDP) out of a total of US$15 bn investment pledges (4.6% of GDP) could have the potential to start in 2017. This implies a two- to six-fold increase in current investments from China, and compares with the Philippines' typical annual total FDI inflows of US$6-8 bn. While the US is still the most important source of FDI in the Philippines, we found that US FDI is driven by structural economic considerations rather than just solely from political noise. Availability of concessional financing from China will also help finance the rise in investment.

■ Real investment boost to GDP will take time to realise. Although the potential Chinese FDI is large compared to existing FDI flows, it is still quite small relative to the overall size of the economy, which is heavily geared towards private consumption. We also found that some of these investment projects would probably have happened anyway even without Chinese collaboration, while other large scale ones will at best take time to materialise, as they are still in the initial planning stages.

■ Tourism – getting larger slice of the Chinese tourist boom. Our analysis suggests that the Philippines has been losing market share in Chinese tourists to other Asian economies and that these tourists are also sensitive to political tensions between China and the Philippines. With these political drags on tourism removed, the Philippines should benefit more from the boom in outbound Chinese tourism, which currently accounts for around 11% of total visitor arrivals in the country. While direct tourism revenue only accounts for around 2% of GDP in the Philippines, the indirect benefits could be two times larger, with the gains likely accrued to employment and consumer spending. More investments from China, but full pledges will take time to realise We estimate that around US$1 bn to US$4 bn (0.3% to 1.2% of GDP) out of the total US$15 bn investment pledges (4.6% of GDP) could have the potential to start in 2017. This implies a two- to six-fold increase in investments from China (currently ~US$0.5 bn), and compares with the Philippines' typical annual FDI inflows of US$6-8 bn. Our analysis suggests that the majority of the investment agreements are in the initial planning stages and will take time to sort out details. As such, we doubt companies and the government are able to start executing the full US$15 bn list of projects in 2017 (see Figure 3 and Appendix for full list of projects).

Philippines Market Strategy 4 1 November 2016

There are nonetheless some infrastructure projects which have already received initial approvals from local governments and would therefore be more advanced in the process. These include the Davao coastline and port development project (US$0.8 bn) and the Harbour reclamation project (US$0.15 bn). These are, however, not new projects and would probably have happened anyway regardless of Chinese collaboration (see Figure 2). We are also sanguine on the agreement between MVP Global and Tianjin Suli to build a cable manufacturing facility worth US$3 bn, given that there are far more details on the financing and equity arrangements compared with the other projects1. This project will likely be counted officially as FDI in the balance of payments. Not all will be pure investment, but Chinese companies can take equity stake in infrastructure projects based on experience of other countries To be clear, not all of the committed projects are for "pure" investment. We estimate that projects with equity stakes involved account for around US$5 bn of the total US$15 bn pledged projects, with most of these in the manufacturing, utilities or agriculture space. It's still uncertain whether the US$7.5 bn worth of infrastructure projects involve just paying for construction services done or actual investment by Chinese companies (see Figure 3). Nonetheless, the experience of other countries such as and Malaysia suggests that the Chinese companies are typically part of a joint venture putting in equity (e.g., Jakarta High Speed Rail and also Bandar Malaysia project), with the Chinese state also providing concessional financing as part of the deal (see section below).

Figure 3: Infrastructure makes up the bulk of Figure 2: Announced size of deals with China investment deals with China

Value (US$ bn) Remarks USD bn Announced investment deals between the Philippines and China by sector Total Investment and Loan 24.0 8.00 Facilities with China 7.00 Total Investment agreements 15.0 …Planned infrastructure 6.00 These investments would likely investment by local have happened anyway 5.00 governments 0.9 Potential to be counted as new 4.00 … Manufacturing 3.0 FDI in 2017 3.00 … Others 11.1 Mostly in planning stage 2.00 Loan Facilities 9.0 1.00 … $3bn credit line from Bank of 3.0 Non-binding with eight China Philippines conglomerates 0.00 … Concessional loans 6.0 With China Government Source: Credit Suisse

Source: Various News Reports, Credit Suisse Economic Research Source: Various News Reports, Credit Suisse Economic Research External funding of investment likely to improve Attractiveness will also depend on terms of the loans from China The change at the margin from President Duterte's visit is also the loan commitments, i.e., the US$3 bn credit line from Bank of China and US$6 bn soft loans from the government. Based on past experience, China will likely provide these concessional loans for specific

1 http://bilyonaryo.com.ph/2016/10/20/mvp-forges-jv-with-chinas-tianjin-for-high-end-cable-production-in-ph/ Under the agreement, the Suli Group will have a 70 percent share in the new joint venture while MVP will hold the remaining 30 percent. The Chinese group will finance the business and run the operations, while MVP will serve as the local partner.

Philippines Market Strategy 5 1 November 2016

projects and tie them in with conditions to use Chinese companies for construction-related services. The planned investments mentioned above (~US$1 bn) have not yet officially decided on financing options yet, and could eventually tap the Chinese instead of domestic banks or capital markets, depending on the terms. The experience of Indonesia and suggests that interest rates could range from 2% to 4%, and will likely be FX denominated, while loan tenures could stretch as long as 40 years, with a five- to ten-year grace period. The willingness of Philippines' corporates and local governments to tap into these financing arrangements from China will as such depend on the relative attractiveness of the terms and tenor versus the domestic market (see Figure 5). The availability of these loans could help finance the rise in investment rate and associated increase in import needs as we move into 2017, providing some support to the PHP.

Figure 4: Examples of financing terms from China for major projects Country Financed by Terms Project Progress Indonesia China Development 25% equity, 75% loans from China Jakarta-Bandung Delays due to land Bank Development Bank; High Speed Rail acquisition Loan terms: 40-year, 10-year grace period 60% US$, 2% interest per year 40% RMB, 3.46% interest per year Thailand Export Import Bank of 15 year loan payment period, five year grace Thailand High Thailand government China period Speed Rail rejected the financing 2.5% interest or higher under discussion. proposal as interest rates Either USD or RMB denominated were deemed too high Source: Institute of Southeast Asian Studies, Post, Various News Websites, Credit Suisse Economic Research

Figure 5: Comparison of interest rates in the Philippines Comparison of Philippines Interest rates (%) 6.0

5.0

4.0 At what 3.0 rate and tenor? 2.0

1.0

0.0 10 year PH USD govt 25 year PH USD govt Commercial Bank Soft loan from China bond yield bond yield average lending rate (likely FX (Peso denominated ) denominated)

Source: CEIC, Credit Suisse Economic Research A little less investment from the US Improvement in China investment to outweigh US slowdown The US is currently a more important source of FDI compared with China, accounting for around 30% of total FDI, compared with 5% for China (see Figure 6). Nonetheless, our assessment is that any potential slowdown in 2017 is likely to be mild, for two reasons.

Philippines Market Strategy 6 1 November 2016

First, feedback from our recent research trip suggests that while some foreign investors in the BPO, manufacturing and agriculture sectors are holding back on expansion plans due to the political environment, these are still small as a percentage of total investments. We also have not heard of existing US companies pulling out of the country because of the political environment. Second, and more importantly, US FDI tends not to respond too much to political tensions, unlike what we see in China (see Figure 7). We believe that US FDI is driven more by structural economic considerations rather than just solely from politics. For instance, US FDI hardly moved in Thailand post the coup in May 2014, as seen in Figure 8. In Malaysia, post the 1MDB saga, we saw some moderation in FDI from the US, but this decline was already happening way before 2015 (see Figure 9).

Figure 6: US FDI far more important than China- Figure 7: FDI from China could have been affected related FDI at the moment by political tensions in 2012

% share of the Philippines FDI accumulated since USD mn Philippines FDI (Equity) 35.0% 2014 1,200 China + HK US 30.0% 1,000 Scarborough 25.0% 800 Shoal 600 20.0% 400 ? 15.0% 200 0 10.0% -200 -400 5.0% -600 0.0% -800

Source: CEIC, Credit Suisse Economic Research Source: CEIC, Credit Suisse Economic Research

Philippines Market Strategy 7 1 November 2016

Figure 9: Some moderation in US FDI into Malaysia, Figure 8: US FDI to Thailand did not respond that but this was happening before the 1MDB issue in strongly to May 2014 coup any case

FDI into Thailand Foreign Direct Investment into Malaysia USD mn USD mn China + HK USA (RHS) 4,500 5,000 US China + HK 4,000 4,000 3,500 3,000 3,000 1MDB May 2014 2,500 Coup 2,000 2,000 1,000 1,500 1,000 0

500 -1,000 0 -2,000 -500 -3,000 2009 2010 2011 2012 2013 2014 2015 2016 YTD Source: CEIC, Credit Suisse Economic Research Source: CEIC, Credit Suisse Economic Research Tourism: getting a larger slice of the Chinese tourist boom Our analysis suggests the Philippines has been losing market share in Chinese tourists to other Asian economies and that these tourists are also sensitive to political tensions between China and the Philippines. Figure 10 suggests that the Philippines' visitor arrivals from China have been sensitive to political tensions with China. For instance, Chinese tourist arrivals fell 50% peak to trough during the Scarborough Shoal incident in April 2012, and fell close to 40% in 2014 after the Philippines submitted evidence for its case to the UN on the South China Sea dispute. These declines were likely due to China placing travel advisories against the Philippines and decreased promotion from China travel groups, in our view. Interestingly, this decline was specific to the Philippines' share of Chinese tourists in Asia (see Figure 11). The Philippines continues to gain regional tourism market share if we take out Chinese tourists from the equation, especially from Korean tourists. With these political drags on tourism removed, the Philippines should benefit more from the boom in outbound Chinese tourism, which currently accounts for around 11% of total visitor arrivals in the country. The lifting of travel advisory against the Philippines, stronger promotion and marketing efforts between the Department of Tourism and Chinese National Tourism Administration, and possibility of Visa application procedure relaxations should as such help boost the Philippines' share of Chinese tourists in 2017, in our view. While direct tourism revenue only accounts for around 2% of GDP in the Philippines, the indirect benefits could be two times larger, with the gains likely accruing to employment and consumer spending.

Philippines Market Strategy 8 1 November 2016

Figure 10: Philippines visitor arrivals from China Figure 11: This is drop is also specific to the have been sensitive to political tensions Philippines' share of China tourists

Person Philippine Visitor Arrivals from China Philippines market share of Asia regional tourist seasonally adjusted arrivals (%) 70,000 5.0% March 2014: from China from Asia ex China 60,000 Philippines submit 4.5% case to UN 4.0% 50,000 April 2012: 3.5% 40,000 Scarborough 3.0% Shoal standoff 2.5% -0.3% 30,000 -0.3% 2.0% 20,000 1.5% 1.0% 10,000 0.5%

0 0.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: CEIC, Credit Suisse Economic Research Source: CEIC, Credit Suisse Economic Research Meanwhile, US tourist arrival slowdown should be limited While the US is still more important as a source of tourist arrivals (14% for the US vs 11% for China in 2016 YTD), and is a larger spender than the average Chinese tourist, we believe that US tourists tend to be less sensitive to political noise. For instance, the experience of Thailand tourist arrivals post political shocks suggests that US tourist arrivals, while still slowing, tend to be less volatile and sensitive to shocks than Chinese tourist arrivals (see Figure 13). Admittedly, this still is a second best comparison to the Philippines' situation, as the Thailand experience is a slowdown across the whole sector due to security concerns and not specific to US tourists.

Figure 12: US tourists still more important than Figure 13: US tourists appear less sensitive to China tourists at the moment political developments % share of Tourist Arrivals in the Philippines by country Thailand Tourist Arrivals from US vs China %yoy 30.0% 2010 2016 YTD US China 2010 25.0% clashes 300%

20.0% 250% 2008 200% Airport 2014 15.0% Closure coup 150% 10.0% 100%

5.0% 50%

0% 0.0% -50% 2011 floods -100% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CEIC, Credit Suisse Economic Research Source: CEIC, Credit Suisse Economic Research

Philippines Market Strategy 9 1 November 2016

Potential disinflation through rising competition The Philippines' pivot towards China could also increase competitive pressure from Chinese companies in key sectors such as power, consumer goods and also telecommunications, helping to put downward pressure on inflation in these areas. While this may be undesirable for listed firms, it should overall benefit consumers, and in turn help the economy (see equity research section below). In addition, a potential pick up in infrastructure could also help the Philippines address its supply-side logistics bottlenecks, and hence bring down inflation rates over the longer-run, increasing consumers' purchasing power.

Figure 14: Greater competition from China could Figure 15: Improving infrastructure can help help bring down inflation at least for some sectors address the Philippines' supply-side bottlenecks The Philippines Logistics Performance Index The Philippines' CPI weights Rank 80

70 The lower the rank Food the better 36% 60

50

40 Others 30 58% 20

Electricity 10 Telephone 4% 0 services 2007 2010 2012 2014 2016 2% Source: CEIC, Credit Suisse Economic Research Source: World Bank Logistics Performance Index, Credit Suisse Economic Research The key uncertainty – further shift in foreign policy We continue to monitor closely President Duterte's shift in foreign policies as there are still many moving parts and our assessment here is based on what we have seen so far. Should further pivot towards China and away from the US accelerate significantly, then the negative impact on inward FDI from the US could rise to the point that the net impact on total FDI turns negative, for example. The recent remarks by the President and also the Speaker of the House to require visas for Americans visiting the Philippines, if implemented, might also have a negative impact on tourism and FDI if the new requirements prove onerous enough. These developments also have to be balanced against the wide range of domestic reforms the government is undertaking at the moment, for instance the tax reform package and also the push to improve infrastructure, both of which are credit positive according to both Moody's and S&P.

Philippines Market Strategy 10 1 November 2016

Figure 17: The US remains the largest source of Figure 16: A potential rethink of BPO investments? remittances for the Philippines BPO Export Revenue to USA (% share of total) The Philippines' Remittances from USA (% 90.0% 60.0% share)

85.0% 50.0%

80.0% 40.0%

75.0% 30.0%

70.0% 20.0%

65.0% 10.0%

60.0% 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: CEIC, Credit Suisse Economic Research The likely overstates the importance of US as a source of remittances as it includes remittances coursed through US banks. Source: CEIC, Credit Suisse Economic Research

Philippines Market Strategy 11 1 November 2016

Appendix

Figure 18: The Philippines' investment deals with China No. China investment into Philippines Value (US$ bn) Time Period 1 Globe Signs $750 mn Pacts With Huawei, Others for Wider Use of LTE 0.750 Telecoms - says it signed several agreements with Huawei Technologies, Nokia and Wuhan Fiberhome worth ~$750 mn over a five-year period to accelerate use of new LTE technologies to enhance data services. 2 Baiyin Nonferrous Group to evaluate trade financing for Global Ferronickel’s Palawan mine and study building a stainless 0.700 Steel/Mining steel plant with annual capacity of 1mn t nickel ore sourced in the Philippines, Global Ferronickel said in a stock exchange filing. 3 China Railway Engineering Corp. signed a memorandum of understanding for a $2.5 bn project with MVP Global 2.500 Infrastructure (Railway) Infrastructure Group. 4 Davao coastline and port development project by Mega Harbor Port and Development and China Harbour Engineering 0.780 Infrastructure (Port) 5 Agreement between MVP Global and Tianjin Suli Cable Group to build a $3 bn cabling manufacturing facility 3.000 Manufacturing 6 $148 mn Manila Harbour Centre reclamation project with R-II Builders and China Harbour Engineering 0.148 Infrastructure (Reclamation) 7 CCCC Dredging (China Communications Construction Company) to sign $328 mn Cebu bulk terminal project with Mega 0.328 Infrastructure (Port) Harbour Port 8 DoubleDragon Properties Corp. and its subsidiary Hotel of Asia Inc. signed a P6.6 bn deal with China's JinJiang Inn to expand 0.140 Tourism their accommodations business in the Philippines. 9 Subic-Clark railway project by Bases Conversion and Development Authority (BCDA) and China Harbour Engineering Co 1.900 Infrastructure (Railway) 10 A rapid transit bus link between Bonifacio Global City and Ninoy Aquino International Airport. This will be carried out by the Infrastructure (Transport) BCDA and China Road and Bridge Corp 11 BCDA-China Fortune Land Real Estate project (memorandum of understanding) Real Estate 12 Safe and smart city projects for BCDA by BCDA and Huawei Technologies Infrastructure 13 Joint venture agreement of Jimei Group of China and Expedition Construction Corp. for infrastructure projects Infrastructure 14 North Negros biomass and South Negros biomass project by North Negros Biopower and Wuxi Huaguang Electric Power Engineering Utilities 15 Joint development project on renewable energy by Columbus Capitana and China CAMC Engineering Utilities 16 New Generation Steel Manufacturing Plant by Mannage Resources and SIIC International Trade HK; 0.200 Manufacturing 17 Renewable energy projects by Xinjiang TBEA Sunoasis Utilities 18 Manila EDSA Bus Transportation program by Phil State Group and Yangtse Motor group and Minmetals International 0.100 Infrastructure (Transport) 19 Hybrid rice production by SL Agritech and Jiangsu Hongqi Seed Inc. 0.160 Agriculture 20 Bus manufacturing facility by Zhuhai Bus and Coach Co. 0.300 Manufacturing 21 Banana plantation project by AVLB Asia Pacific and Shanghai Xinwo Agriculture Development Co. 0.100 Agriculture 22 300MW Pulangi-5 Hydro Project by Greenergy Co. and Power China Guizhou Engineering Corp. 1.000 Utilities 23 River, Marikina River and Manggahan Floodway bridges construction project by Zonar Construct and SinoHydro; 0.600 Infrastructure (Bridge) 24 Ambal Simuay sub-river basin flood control project by One Whitebeach Land Development and Sino Hydro; 0.325 Infrastructure (Flood Control) 25 Nationwide island provinces link bridges by Zonarsystems and PowerChina Sino Hydro 0.800 Infrastructure (Bridge) Source: Various News Reports, Credit Suisse Economic Research

Philippines Market Strategy 12 1 November 2016

Equity Research

FOR IMPORTANT DISCLOSURES AND DISCLAIMERS, PLEASE SEE THE EQUITY RESEARCH DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm 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. 1 November 2016

Equities: Gaming and airline the winners Although Duterte's foreign policy shift should prove a moderate net positive for the economy, the implications for the equities market are mixed. Gaming and airlines are clear winners from an expected boost in Chinese tourists, but Equity Research Analyst Team power and possibly banks could suffer from competition from Chinese firms. It is unclear Dan Fineman whether a Chinese bank would seek a stake in a smaller local bank, but interest among 66 2 614 6218 Chinese firms in power seems fairly high. [email protected] Chate Benchavitvilai In property, residential could suffer if US investment in BPO weakens, while hospitality 65 6212 3241 could gain from higher Chinese tourist arrivals. Telcos might gain on the margin from chate.benchavitvilai@credit- suisse.com more preferential financing terms from Chinese network vendors. The consumer sector Danielo Picache should broadly benefit if we are right that consumption would gain on a net basis, though 632 858 7758 increased Chinese investment in the sector might raise competitive pressures. [email protected] Patricia Palanca Outside of gaming, airlines and possibly power, we do not see the China effect as being 63 2 858 7752 great. For most of the market, other factors will predominate. [email protected] Varun Ahuja, CFA Within our top picks, SMPH and RLC should benefit from malls and hospitality exposure. 65 6212 3017 JFC and URC could also benefit as higher tourists' spending and employment boost [email protected] consumption. For EDC, we have not built in potential adverse impact, but noted that this is Muzhafar Mukhtar, CFA only a longer-term risk while attractive valuation and near-term catalyst remain intact. 60 3 2723 2084 muzhafar.mukhtar@credit- Gaming: Positive suisse.com Kathi Go − Potential relaxation of visa regulations for Chinese visitors will be a huge positive for 63 2 858 7756 tourist arrivals for gaming given that player demand is largely spontaneous. − We estimate that Chinese account for 23% of total, and 63% of foreign VIP, gaming revenues. On the other hand, gaming revenues from US tourists is insignificant. − Companies that could benefit more from the theme are BLOOM and MCP given their higher exposure to Chinese players.

Figure 19: China/HK/Macau accounts for 60-100% Figure 20: …and thus as much as 24%-38% of total of foreign VIP revenues… revenue, much higher exposure than RWM

100% 3% 100% 3% 1% 12% 90% 20% 16% 90%

80% 80% 30% 70% 20% 19% 70% 60% 62% 63% 60% 60% 72%

50% 100% 50%

40% 40% 42% 8% 6% 30% 60% 63% 30% 8% 7% 20% 20% 9% 38%

10% 10% 12% 24% 23% 16% 5% 0% 0% RWM BLOOM MCP Industry RWM BLOOM MCP Industry

China/HK/Macau Korea SEA Others China/HK/Macau Korea SEA Local Others

Source: Company data, Credit Suisse Equity Research estimates Source: Company data, Credit Suisse Equity Research estimates

Philippines Market Strategy 14 1 November 2016

Airline: Positive − would be a beneficiary of any surge in Chinese tourist demand for the Philippines. − We do note that as Thailand's experience has shown, a rapid rise in Chinese outbound tourist could trigger a greater competitive response from Chinese airlines themselves. However, Cebu Pacific would still benefit from an increase in demand for domestic connecting flights.

Figure 21: Thailand experienced surge in Figure 22: CEBU dominates domestic market share, capacity/traffic as Chine relationship improved will benefit from more domestic connecting flights ASK(mn) China-Thailand airline capacity Domestic market share (Philippines) 45,000 100% 40,000 11% 11% 90% 35,000 80% 29% 29% 30,000 70% 25,000 60% 20,000 50% 15,000 40% 10,000 30% 59% 59% 5,000 20% - 10% 2010 2011 2012 2013 2014 2015 0% 1H15 1H16

Chinese airlines Other airlines Cebu PAL AirAsia

Source: Company data, Credit Suisse Equity Research estimates Source: Company data, Credit Suisse Equity Research estimates Telco: Positive (assuming no new entrant) − The Philippine telecom operators are likely to make significant investment in the data network over the next 3-5 years, and potentially be buying more Chinese equipment for their network. An improvement in diplomatic and business relationship could lead these Chinese equipment manufacturers to provide more lucrative financing deals to Philippine operators. Both PLDT and Globe might benefit from this. − Currently, PLDT is using three vendors: Huawei, NSN and Ericsson, and will maintain this strategy for pricing power/diversification. Globe on the other hand is sourcing equipment primarily from Huawei. − We do note that there could be a negative risk in the case that Chinese operators decide to launch cellular services in the Philippines as the third player. This however is very unlikely. While Chinese operators are well-capitalised, we do not see the possibility of a new entrant in the market over the next three years given the limited availability of spectrum. Please see our sector report “Philippines Telecoms Sector - Quick Take: Introduction of a third operator faces many hurdles” for more details. − Our negative thesis on the sector is based on the telcos’ high contribution from structurally declining SMS/ILD services while data monetisation continues to be poor due to competition and customers’ tendency to use WiFi. We see further

Philippines Market Strategy 15 1 November 2016

downside for PLDT as it is still in the early phase of restructuring but maintain OUTPERFORM rating on Globe on valuation ground. Property: Negative on developers, Positive on hospitality − Property values specifically in underdeveloped markets outside of may receive a boost given the potential for infrastructure projects in the aforementioned new provincial growth centers. − On the residential segment we think there will be pockets of developments that Chinese developers can commit to such as economic and socialised housing. The huge housing backlog is an area of frustration for past administrations and it can be an addressable market that the government in partnership with a new foreign investor can tap. On the flipside, any new investment into saturated segments like middle-income residential condos can only exacerbate the oversupply situation, which is a negative for the rental market. − The boost in tourism is a positive for the hospitality industry, in general. The contribution of hotel operations is still small, though, on the back of the robust expansion pipeline of almost all the major property developers we think this can be a potential driver for growth. − Overall we believe this could be positive for property names with hospitality exposure: RLC, AL but negative for developers like MEG and FLI.

Figure 23: Housing backlog shows need for Figure 24: ALI and RLC highest exposure to socialized/economic housing… hospitality

1 2% 3% 6% High-end/luxury 0 8% 6% Government estimates a total of 6.2mn 0.9 housing backlog till 2030, 67% of which 27% Mid cost housing 0 15% 21% is in the socialized and economic segment 0.8 33%

Affordable/low cost housing 605,692 0.7 18% 30% Economic housing 2,588,897 0.6 24% 75% 0.5 Socialized housing 1,582,497 55% 0.4 Can't afford/needs subsidy 1,449,854 0.3 - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 55% 47% 0.2 41%

0.1 18% 16% 0 ALI FLI MEG RLC SMPH

Residential Malls Office Hotels

Source: Company data, Credit Suisse Equity Research estimates Source: Company data, Credit Suisse Equity Research estimates Power: Negative − China as a new source of capital could lower entry barriers, either for Chinese investor or JV with local new entrant, which could lead to increased competition and lower generation ASPs. − We note that except for renewables, there is no foreign ownership cap on power generation. − We note that during the President’s visit to China, Alfredo Yao of the Zest-O group has signed a partnership deal with Energy China to invest more than $2 bn in a 1,200-megawatt coal-fired power plant in Luzon in the Philippines.

Philippines Market Strategy 16 1 November 2016

− An increase in supply / competition in the sector would negatively affect pretty much all names; AP, EDC, FGEN, Seminara, and conglomerates with power exposure / aspirations including Ayala, MPIC, AEV, JGS, SMC. Banks: Negative − Potential for M&A can be ripe especially if we take into account the entry of any Chinese bank on the back of the relaxation of the foreign ownership limit in the sector. − An aggressive new player (i.e., Chinese financial institutions that will initially offer credit lines) or an existing domestic bank but with new capital is disruptive for margins given the potential for more intense competition for pricing on big-ticket investment deals.

Figure 25: Phils Banks sector is highly fragmented… Figure 26: …and competition has driven down NIMs

10.0 BDO 9.0 Others 19% 25% 8.0 7.0 6.0 DBP BPI 5.0 2% 13% 4.0 UBP 3% 3.0 MBT SECB 2.0 4% 13% RCB 1.0 5%CHIB - 5% PNB LBP 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 5% 6% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Earning Asset Yield Funding Cost Interest Spread NIM

Source: Company data, Credit Suisse Equity Research estimates Source: Company data, Credit Suisse Equity Research estimates

Consumers: Tourism positive on consumption, but competition to rise − Stronger tourism positive on consumption, assuming BPO remains…  Consumption could benefit from an increase in tourist arrival from China through both tourists’ spending and higher employment (tourism is relatively labour- intensive).  While the recent rhetoric against the US creates some concern on the BPO sector (~7% of GDP) given that the US is a major source of BPO investment, we believe this will only have limited impact in 2017. We understand that some companies might be holding back their investments, but do not plan for a broad- based reduction in BPO investment. We note that regional evidences suggest that US FDI didn’t seem to be that sensitive to political shocks, and is driven more by economic considerations.  Overall, our base case is that an improvement in relationship with China would be net positive on consumption, as the positive impact from a rise in tourism outweigh the limited decline in BPO investment. − …but risk for more intense competition also rises  Packaged foods and beverage – Closer ties could encourage more Chinese companies to either set up a manufacturing facility here, and/or bring their products to the Philippines market.  Retail (Food and non-food) – A possible influx of Chinese companies bringing their products or brands to the Philippine market (as a result of closer ties) could add additional pressure to an already competitive segment.

Philippines Market Strategy 17 1 November 2016

− Potential to penetrate China market is small  URC – entered the Chinese market back in 2000 but has been unable to scale up the business. It is currently only contributing 1% of consolidated sales in FY15.  JFC – Already in Chinese market (business about 11% of system-wide sales), where business is currently seeing some SSSG weakness.  EMP – news reports saying that it is planning to export Emperador to China; however the Chinese alcoholic drinks market is dominated by Chinese spirits and beer…hence unlikely that will be able to penetrate the market there. Better opportunity with the whisky business with Dalmore & Jura brands but this could be limited by competition from bigger and more known brands. − Net positive impact on consumption could benefit JFC and in turn DNL (supplier of ingredients to JFC). RRHI (food and non-food retails) could also benefit.

Philippines Market Strategy 18

CS Philippines coverage: Valuation summary

Figure 27: CS Philippines coverage–valuation summary CS Current Target Up/down ADTO-6M Mkt cap P/E (x) EPS (%YoY) P/B (x) ROE (%) Div (%) Company RIC rating price price side (%) (US$mn) (US$mn) FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY16E

Banks Asia United Bank AUB.PS N 47.75 44.94 (6) 0.0 477 14.3 12.7 6.8 12.7 0.9 0.9 6.8 - BDO Unibank Inc BDO.PS U 112.80 94.80 (16) 5.2 8,479 15.5 13.4 6.2 16.0 1.9 1.7 12.6 1.1 Bank of Philippine Islands BPI.PS U 101.10 77.90 (23) 3.6 8,183 20.4 18.1 7.0 12.7 2.3 2.1 12.0 1.4 MBT.PS O 81.30 109.20 34 6.8 5,317 12.5 10.5 6.6 18.7 1.2 1.1 10.2 1.2 SECB.PS N 220.40 205.30 (7) 8.2 3,421 16.9 15.8 2.1 6.8 1.5 1.6 11.7 0.8 Weighted average 16.6 14.6 6.0 14.2 1.8 1.7 11.7 1.2 Consumer Jollibee Foods Corporation JFC.PS O 238.0 296.0 24 3.2 5,244 39.2 33.0 11.9 19.0 7.0 6.1 19.5 0.9 Corporation URC.PS O 182.0 226.3 24 8.1 8,179 29.3 24.1 7.4 21.6 5.3 4.5 19.1 1.7 Emperador Inc. EMP.PS N 7.25 7.60 5 0.3 2,407 17.3 15.9 (2.7) 8.7 2.1 1.9 12.7 2.4 D&L Industries, Inc. DNL.PS O 10.98 13.60 24 1.1 1,616 29.8 25.0 19.7 19.1 5.7 5.0 20.0 1.8 Robinsons Retail Holdings, Inc. RRHI.PS N 77.30 80.10 4 1.9 2,205 22.2 19.2 11.0 15.9 2.3 2.1 10.7 0.8 SSI Group, Inc. SSI.PS N 2.76 3.10 12 0.4 188 16.3 13.4 (38.0) 22.1 0.9 0.9 5.7 - Weighted average 29.6 24.9 8.4 18.5 5.0 4.4 17.4 1.5 Telecom Globe Telecom GLO.PS O 1,780 2,250 26 3.9 4,867 15.7 15.5 3.5 1.3 3.8 3.6 24.7 4.9 PLDT TEL.PS U 1,530 1,400 (8) 7.0 6,808 11.8 17.5 (20.0) (33.0) 2.7 2.5 23.9 5.1 Weighted average 13.4 16.7 (10.2) (18.7) 3.1 3.0 24.2 5.0 Note: Highlighted stocks are included in the Top Longs Source: Thomson Reuters DataStream, Credit Suisse Equity Research estimates

1 November 2016 1 November

CS Philippines coverage: Valuation summary (continued)

Figure 28: CS Philippines coverage–valuation summary CS Current Target Up/down ADTO-6M Mkt cap P/E EPS (%YoY) P/B (x) ROE (%) Div (%) Company RIC rating price price side (%) (US$mn) (US$mn) FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY16E

Gaming Belle Corporation BEL.PS N 2.92 3.24 11 0.1 631 16.8 11.6 49.7 44.7 1.2 1.1 7.2 3.3 Resorts BLOOM.PS O 5.92 7.07 19 1.6 1,342 377.1 61.8 n.m. 510.3 3.0 2.8 0.8 - Melco Crown MCP.PS U 4.30 3.28 (24) 1.0 501 n.m. n.m. n.m. n.m. 8.3 29.4 (77.9) - Premium Leisure Corp PLC.PS N 1.13 1.02 (9) 0.5 736 57.7 33.6 n.m. 71.7 2.2 2.1 3.9 1.9 Travellers International RWM.PS N 3.35 3.80 14 0.1 1,087 14.3 17.5 (8.6) (18.4) 1.2 1.1 8.5 1.5 Weighted average 133.7 31.2 5.1 173.5 2.7 5.1 (5.0) 1.2 Property ALI.PS N 36.25 40.70 12 10.8 10,986 25.9 23.4 16.0 11.1 3.6 3.3 14.6 1.4 Land FLI.PS U 1.77 1.60 (10) 0.7 884 7.9 7.1 7.4 11.3 0.7 0.7 9.4 3.2 Megaworld Corp MEG.PS U 4.02 4.00 (0) 4.4 2,669 11.7 10.5 6.9 11.7 1.0 0.9 8.9 0.9 Robinsons Land RLC.PS O 30.95 36.30 17 1.5 2,610 18.8 15.9 17.7 18.0 2.0 1.8 11.3 1.2 SM Prime Holdings SMPH.PS O 26.90 31.90 19 9.6 16,003 30.8 26.9 20.4 14.5 3.7 3.3 12.4 1.0 Weighted average 26.1 23.0 17.3 13.3 3.2 2.9 12.7 1.2 Utilities Corp AP.PS O 45.95 52.50 14 1.9 6,965 17.5 15.5 9.6 13.4 3.3 3.0 19.2 3.6 Energy Development Corp EDC.PS O 5.90 7.50 27 1.6 2,277 11.7 11.1 18.3 5.5 2.1 1.9 19.2 3.6 First Gen FGEN.PS O 22.95 28.70 25 1.6 1,731 10.3 9.3 29.7 14.1 1.0 0.9 10.3 1.6 Manila Electric (Meralco) MER.PS N 276.00 320.00 16 1.7 6,408 16.3 15.8 (0.3) 3.5 4.4 4.4 25.2 9.1 MWC.PS U 30.25 21.80 (28) 1.4 1,256 12.1 11.5 3.7 4.9 1.5 1.3 12.7 2.8 Semirara Mining SCC.PS O 125.90 165.00 31 1.8 2,763 11.8 10.0 34.4 17.7 4.0 3.2 37.4 3.2 Weighted average 14.9 13.7 12.0 9.7 3.3 3.1 22.2 5.0 Others Cebu Air Inc CEB.PS N 105.00 130.00 24 1.8 1,311 5.7 7.6 62.6 (24.6) 1.9 1.5 37.7 3.0 Int'l Container Terminal Inc. ICT.PS O 77.80 112.00 44 3.1 3,258 31.2 29.0 n.m. 7.5 3.7 3.4 20.0 1.2 Note: Highlighted stocks are included in the Top Longs Source: Thomson Reuters DataStream, Credit Suisse Equity Research estimates

1 November 2016 1 November

1 November 2016

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Philippines Market Strategy 21 1 November 2016

Companies Mentioned (Price as of 01-Nov-2016) Aboitiz Power Corp (AP.PS, P45.95) Asia United Bank (AUB.PS, P47.75) Ayala Land (ALI.PS, P36.25) BDO Unibank Inc (BDO.PS, P112.8) Bank of Philippine Islands (BPI.PS, P101.1) Belle Corporation (BEL.PS, P2.92) Bloomberry Resorts Corporation (BLOOM.PS, P5.92) Cebu Air Inc (CEB.PS, P105.0) D&L Industries, Inc. (DNL.PS, P10.98) Emperador Inc. (EMP.PS, P7.25) Energy Development Corporation (EDC.PS, P5.9) Filinvest Land (FLI.PS, P1.77) First Gen Corporation (FGEN.PS, P22.95) Globe Telecom (GLO.PS, P1780.0) Int'l Container Terminal Inc. (ICT.PS, P77.8) Jollibee Foods Corporation (JFC.PS, P238.0) Manila Electric (Meralco) (MER.PS, P276.0) Manila Water Company (MWC.PS, P30.25) Megaworld Corp (MEG.PS, P4.02) Melco Crown (Phils) Resorts Corporation (MCP.PS, P4.3) Metropolitan Bank & Trust Co (MBT.PS, P81.3) Philippine Long Distance Telephone Company (TEL.PS, P1530.0) Premium Leisure Corp (PLC.PS, P1.13) Robinsons Land Corporation (RLC.PS, P30.95) Robinsons Retail Holdings, Inc. (RRHI.PS, P77.3) SM Prime Holdings (SMPH.PS, P26.9) SSI Group, Inc. (SSI.PS, P2.76) Security Bank Corp (SECB.PS, P220.4) Semirara Mining Corporation (SCC.PS, P125.9) Travellers International Hotel Group, Inc. (RWM.PS, P3.35) Universal Robina Corporation (URC.PS, P182.0)

Disclosure Appendix Important Global Disclosures Dan Fineman, Chate Benchavitvilai, Danielo Picache, Patricia Palanca, Varun Ahuja, CFA, Muzhafar Mukhtar, CFA, Kathi Go and Sofia Cabral each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

Philippines Market Strategy 22 1 November 2016

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 43% (63% banking clients) Neutral/Hold* 39% (61% banking clients) Underperform/Sell* 15% (56% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please re fer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. See the Companies Mentioned section for full company names The subject company (AUB.PS, MEG.PS, URC.PS, MER.PS, EDC.PS, SMPH.PS, BEL.PS, MBT.PS, RLC.PS, BDO.PS, GLO.PS, ALI.PS, PLC.PS, CEB.PS, AP.PS, MWC.PS, RWM.PS, FGEN.PS, RRHI.PS, TEL.PS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. 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Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (BEL.PS, SSI.PS, ALI.PS, PLC.PS, ICT.PS) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. This research report is authored by: Credit Suisse Securities (Philippines) Inc. Danielo Picache ; Patricia Palanca ; Kathi Go ; Sofia Cabral Credit Suisse AG, Singapore Branch Michael Wan ; Santitarn Sathirathai ; Chate Benchavitvilai ; Varun Ahuja, CFA Credit Suisse Securities (Malaysia) Sdn Bhd. Muzhafar Mukhtar, CFA Credit Suisse Securities (Thailand) Limited Dan Fineman To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the

Philippines Market Strategy 23 1 November 2016

NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Philippines) Inc. Danielo Picache ; Patricia Palanca ; Kathi Go ; Sofia Cabral Credit Suisse AG, Singapore Branch Michael Wan ; Santitarn Sathirathai ; Chate Benchavitvilai ; Varun Ahuja, CFA Credit Suisse Securities (Malaysia) Sdn Bhd. Muzhafar Mukhtar, CFA Credit Suisse Securities (Thailand) Limited Dan Fineman For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Philippines Market Strategy 24 1 November 2016

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