Peru Equity Guide 2020 Bet on consumption in the middle of global uncertainty Bet on consumption in the middle of global uncertainty Management Alberto Arispe CEO (511) 630 7500 [email protected] Corporate Finance Special Operations Ricardo Carrión Miguel Rodriguez Manager Manager (51 1) 630 7500 (51 1) 630 7500 [email protected] [email protected] Equity Research Marco Contreras Marco Alemán Jose Inurritegui Anthony Hawkins Head of Research Senior Analyst Analyst Assistant (51 1) 630 7528 (51 1) 630 7527 (51 1) 630 7529 (51 1) 630 7500 [email protected] [email protected] [email protected] [email protected] Sales & Trading Eduardo Fernandini Hernando Pastor Mayra Carrión Hilmer Calderón Head Trader Sales Trader Sales Trader Sales Trader (51 1) 630 7516 (51 1) 630 7511 (51 1) 630 7510 (51 1) 243 8024 [email protected] [email protected] [email protected] [email protected] Rosa Torres Belon Walter León Blanca Pajuelo Mishell Morales Sales Trader Sales Trader - Miraflores FX Sales FX Sales (51 1) 630 7520 (51 1) 243 8024 (51 1) 630 7515 (51 1) 630 7525 [email protected] [email protected] [email protected] [email protected] Backoffice Ramiro Misari Edilay Broncano Franklin Mujica Head of Operations & IT Backoffice Analyst IT Analyst (51 1) 630 7523 (51 1) 630 7500 (51 1) 630 7500 [email protected] [email protected] [email protected] Internal Control Lissete Cuyuche Controller (51 1) 630 7500 [email protected] Accounting and Administration Luz Quispe Juan Carlos Huisa Gema Torres Chief Accountant Accounting Assistant Office Manager (51 1) 630 7523 (51 1) 630 7500 (51 1) 630 7500 [email protected] [email protected] [email protected] www.kallpasab.com Peru Equity Guide 2020 2 Bet on consumption in the middle of global uncertainty Index Presentation ………………………………………………...…………………………………………………………………………………………………………………………………………………………..4 I. Peru: Macroeconomic Outlook 2020 ………………………………………………………………………………………………………………………………………………………………………………..5 i. 2019: GDP would close with the lowest growth since 2009 …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..5 ii. Expectations for 2020 …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..5 iii. Investment boosted by the mining sector …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..6 iv. Fiscal Situation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..7 v. Monetary Situation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..8 vi. Inflation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..8 vii. Exchange Rate …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..8 II. Metals Prices: Outlook ………………………………………………………………………………………………………………………………………………………………………………..9 i. Gold and Silver …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..9 ii. Copper ………………………………………..……………………………………………………………………………………………………………………………………………………………………..10 iii. Zinc ………………………………………...…………………………………………………………………………………………………………………………………………………………………..10 iv. Tin ………………………………….……………………………………………………………………………………………………………………………………………………………………..11 III. Peruvian Equities ………………………………………………………………………………………………………………………………………………………………………………………………………12 IV. Strategy: Overweighting Consumption ………………………………………………………………………………………………………………………………………………………………………………..13 V. Companies under Coverage ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..14 Financials i. Credicorp ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..15 ii. Intercorp Financial Services ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..17 Consumption iii. Alicorp ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..19 iv. InRetail ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..21 Infrastructure v. Cementos Pacasmayo ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..23 vi. Ferreycorp ………………………………………………………………………………………………………………………………………………………………………………..………………………………………………………………………………………………………………………25 vii. Graña y Montero ………………………………………………………………………………………………………………………………………………………………………………..27 viii. Unacem ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..29 Energy ix. Enel Distribución Perú ………………………………………………………………………………………………………………………………………………………………………………..31 x. Enel Generación Perú ……………………………………………………………………………………………………………………………………………………………………………………..33 xi. Engie Energía Perú …………………………………….……………………………………………………………………………………………………………………………………………………..35 xii. Luz del Sur …………………….…………………………………………………………………………………………………………………………………………………………………………………..37 xiii. Refinería La Pampilla …………………………………………………………………………………………………………………………………………………………………………………..39 Mining xiv. Buenaventura ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..41 xv. Cerro Verde ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..43 xvi. Nexa Resources Perú ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..45 xvii. Minsur ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..47 xviii. Southern Copper ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..49 xix. Trevali ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..51 xx. Volcan ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..53 www.kallpasab.com Peru Equity Guide 2020 3 Bet on consumption in the middle of global uncertainty Dear Investor, We would like to present the "Peru Equity Guide 2020" developed by Kallpa SAB's Equity Research Team. In this document you will be able to find our overview of the Peruvian market and the economy for 2020. Furthermore, we wish to share our recommendations of the stocks we like the most from the Lima Stock Exchange (BVL) and we also update the target prices of the 20 companies we have under coverage. 2019 was a positive year both for developed countries and emerging economies. After a highly volatile period in 2018, S&P 500 had a positive performance of 28.9% in 2019, while emerging economies yielded 18.2%. The North American market led the growth of the stock market, supported by the three reductions in the reference rate of the US Federal Reserve (Fed). This, due to the fear of a deeper global economic slowdown, as well as the trade tensions with China. The trade negotiations continued along 2019, while tariffs increased between both countries. Finally, in December, the United States decided to suspend a scheduled tariff increase due to a progress within the first phase of a trade deal that could be signed in January 2020. Stock markets in emerging countries also had a good year. The MSCI Emerging Markets Index rose 18.2%, recovering the loss of 15.3% that it had in 2018. A lower risk aversion and a slightly weaker dollar benefited this market segment. However, despite the above, the region suffered from a greater perception of risk towards the end of 2019, due to the various social and political conflicts that broke out in Chile, Ecuador, Bolivia and Argentina. Peru was no stranger to this situation and the political conflict between the legislative and the executive power ended with the decision of President Martín Vizcarra to dissolve Congress and call for parliamentary elections on January 26, 2020. In addition to political uncertainty, the local economy had a strong slowdown, due to the lower growth of the fishing and mining sectors, which affected the country's exports. In this context, the GDP growth estimates for 2019 were reviewed downwards from an estimated 4.0% at the beginning of the previous year to the 2.3% we currently expect. Due to all of the above-mentioned, the Peruvian market did not perform well during the year. The MSCI Peru Index rose only 1.1% in 2019. For 2020 we are more optimistic. We expect an economic growth of 3.2%, which will be boosted by the recovery of the primary sectors. Likewise, we estimate that consumption will continue to maintain a solid growth above 3.0%. We believe that in this context the Lima Stock Exchange (BVL) can have a positive performance. However, the market will remain quite alert to external factors, such as the development of trade negotiations between China and the United States, the Fed's monetary policy, the US presidential elections and the latter's recent conflict with Iran. Finally, we always recommend investing in companies with good fundamentals, overweighting companies related to the consumer sector, which we believe have a high potential for growth in their profits. Sincerely, Marco Contreras Head of Research Kallpa Securities SAB www.kallpasab.com Peru Equity Guide 2020 4 Bet on consumption in the middle of