The document discusses the Philippine value investing story. It notes that the Philippines has a growing $228 billion economy, $75 billion in reserves, no IMF debt, and a healthy banking system. However, it can be difficult to do business due to issues with starting businesses, registering property, and contract enforcement. The document argues that capital is knocking at the door and the Philippines should attract value investors rather than speculators by reforming policies and corporate culture. It identifies lending, banking, and consumer sectors as having growth potential given low household credit and high consumer spending.

1. The Philippine Value Investing Story
Rotary Club of Makati West
26 July 2012
Marcelo Labre
+63 917 825 2828
mlabre@london.edu
www.marcelo.labre.tel

2. Everybody’s eyes on the Philippines!
BAML Feb 2012

3. Why exactly?
 $228 billion official GDP (actual
GDP probably higher)
 $75 billion in international
reserves (33% of GDP)
 No IMF debt, in fact currently a
IMF creditor
 Positive current account surplus at
$2 billion (1% of GDP)
 Public debt at 40% and deficit at
2% of GDP
 Healthiest banking system in SE
Asia (16% Tier 1 Capital Ratio)
Sources: The Economist 24 February 2012, Global Finance (http://www.gfmag.com), The World Bank

4. However, a hard place for business
 Issues with …
– Starting a business
– Registering property
– Investors protection
– Getting credit
– Enforcing contracts
– Resolving insolvency
Source: IFC and The World Bank, Doing Business 2012 Rank, http://www.doingbusiness.org/

5. Capital knocking at the door!
 The Philippines will benefit by letting go of its phobia of foreign capital
 Proposition to attract value investors rather than opportunistic speculators
 Efforts both in government policy and corporate culture and behavior

6. Where will capital go to?
Businesses that attract value investors
 Pass mark on the usual ratio analysis
– Profitability
– Leverage
– Operations
 Is management candid to shareholders?
– Are there hints that management tries to hide “bad news”?
– Does management do what they say they will?
– Are annual financials and internal management reports clear?
 Is management efficient at allocating capital?
– What’s the company’s return on retained earnings?
– How is management retaining earnings and distributing dividends?
– Is the company using debt efficiently?

7. One final point, on sectors
 Lending and Banking  Consumer
– Lowest household credit as a – Highest consumer expenditure as a
proportion of GDP in Asia proportion of GDP in Asia
– Great potential for growth, wealth – Already a big consumer country,
creation boosts household credit wealth creation and more credit to
boost consumer sector
Sources: IMF, Euromonitor World Retail Data and Statistics

8. The Philippine Value Investing Story
Rotary Club of Makati West
26 July 2012
Marcelo Labre
+63 917 825 2828
mlabre@london.edu
www.marcelo.labre.tel