ACCORD CAPITAL EQUITIES CORPORATION

GF EC-058B East Tower, PSE Center, Exchange Road, Ortigas Center, Pasig City, PHILIPPINES 1605 (632)687-5071 (trunk)

THE PHILIPPINE STOCK EXCHANGE [pse: PSE] RECOMMENDATION: ACCUMULATE / HOLD Suggested Entry Level: php237-244 Initial Price Target: php285-304

HE market's 318.47 points (7.69%) surge over the last 22 sessions dating back to the 4,140.27 close at mid-June compelled us to take a second look at the shares of the PSE itself. This action is illustrated in and highlighted by the positively sloped arrow drawn in the accompanying chart. The Index broke above a two-and-a-half month consolidation band (between 4,220 and 4,330) and currently appears poised to, at the very least enter into a basing action to solidify a new support band at 4,350-4,420. For two sessions last week, the index challenged but failed to break below the 4,350 line, lending validity to the line as a possible support. Alternatively, last week's close equally failed to rewrite the all-time high set just days prior. It fell 19.13 points short of the record. We expect optimism to continue to grow in the balance of the year, keeping to our year-end index projection of 4,600-4,800. More important than the index movements, however, is the marked increase in both volume and value turnover. At last week's close, the average daily value turnover was at php5.319 billion, marginally higher than the previous week's php5.317 billion and significantly more than the php5.261 billion average at the end of June. Netting out block sale values, the daily average net value turnover displays a similar rising trend. From the php4.566 billion average at the week prior to last, the number expanded to php4.590 billion last week. (red line in the chart to the right) This is php80 million more than the end-June average. This increased flow of money legitimizes the index' run up. This translates to higher trading-related revenue for the Exchange. REVENUE MIX
OTHER REVENUE, 9% TRADING RELATED, 19%

d n a s u o h T

5,500,000.00

5,000,000.00

4,500,000.00

4,000,000.00

3,500,000.00

3,000,000.00

REVENUE CONTRIBUTION
LISTING RELATED, 47%

Utilizing data the PSE itself presented in its Annual Reports over the last five years, trading related fees and listing-related fees contribute a combined average of roughly two-thirds of revenue. Listing fees account for the bulk, 47% while the former shovels in 20%. The balance is made up of other revenue sources such as interest, dividend income, gains in sale of AFS and foreign exchange gains (or losses.)

Over the period considered, revenue grew at a compound annual rate of 28%, which already factors in and smooths the impact of a -30% drop in 2008 and flat growth in the following year as well as the strong 50% surge last year. We immediately see the potential impact the SERVICE, recent and sustained value turnover may have on the Company's 25% bottomline. The other slices of the revenue pie also show double-digt five-year CAGR. If such pace is sustained, this year's revenue may breach the php1.0 billion mark. There are things to consider, of course, that can bolster or dampen this prospect. TRADING RELATED FEES. As of the end of the first semester, value turnover totaled php662.85 billion. Assuming a similar pace for the second half of the year, the year-end figure should more or less replicate the php1.34 billion set in 2007 (~php1.325B to ~php1.52B). This should translate to a year-on-year increase of anywhere between 12% and 23% in trading fees. (~php197M to php216M). Note that this assumes the other items in this group, data feed and subscription fees keeps to their 22% and 6% CAGR(5). After last Friday's trades, the total had reached up to php728.66 billion. 32% higher year-on-year and less than 40% under 2010's full year aggregate. LISTING FEES. On the other side of the coin, however, is listing fees which as mentioned earlier, accounts for nearly half of the total revenue. Each capital raising activity (IPO, SRO, follow-on, listing by introduction, etc.) rakes in between php15M and php36 million. (In the absence of a more detailed breakdown of the revenue generated by each type of listing, which undoubtedly varies in consideration of the size and value of the offering, and the number of capital raising exercises for the current period, we have applied a simple averaging process which may distort actual figures and render the estimates inaccurate.) It thus becomes practically imperative for the Exchange to push, nay, encourage more companies to list their shares and raise capital through the bourse for the remainder of the year. There was a long list of prospective new offerings at the beginning of
DISCLAIMER: THE MATERIAL CONTAINED IN THIS PUBLICATION IS FOR INFORMATION PURPOSES ONLY. IT IS NOT TO BE REPRODUCED OR COPIED OR MADE AVAILABLE TO OTHERS. UNDER NO CIRCUMSTANCES IS IT TO BE CONSIDERED AS AN OFFER TO SELL OR A SOLICITATION TO BUY ANY SECURITY. WHILE THE INFORMATION HEREIN IS FROM SOURCES WE BELIEVE RELIABLE, WE DO NOT REPRESENT THAT IT IS ACCURATE OR COMPLETE AND IT SHOULD NOT BE RELIED UPON AS SUCH. IN ADDITION, WE SHALL NOT BE RESPONSIBLE FOR AMENDING, CORRECTING OR UPDATING ANY INFORMATION OR OPINIONS CONTAINED HEREIN. SOME OF THE VIEWS EXPRESSED IN THIS REPORT ARE NOT NECESSARILY OPINIONS OF ACCORD CAPITAL EQUITIES CORPORATION ON THE CREDIT-WORTHINESS OR INVESTMENT PROFILE OF THE COMPANY OR THE INDUSTRIES MENTIONED. GF EC-058B East Tower, PSE Center, Exchange Road, Ortigas Center, Pasig City, PHILIPPINES 1605 (632)687-5071 (trunk) page 1 of 2

3 n a J 0 1 n a J 7 1 n a J 4 2 n a J 1 3 n a J 7 b e F 4 1 b e F 1 2 b e F 8 2 b e F 7 r a M 4 1 r a M 1 2 r a M 8 2 r a M 4 r p A 1 r p A 8 1 r p A 5 2 r p A 2 y a M 9 y a M 6 1 y a M 3 2 y a M 0 3 y a M 6 n u J 3 1 n u J 0 2 n u J 7 2 n u J 4 l u J 1 l u J
DAILY AVG GROSS VAL AVEAGE NET VALUE

ACCORD CAPITAL EQUITIES CORPORATION

GF EC-058B East Tower, PSE Center, Exchange Road, Ortigas Center, Pasig City, PHILIPPINES 1605 (632)687-5071 (trunk)

the year, but understandably, the downturn experienced in the early part of the year made such undertakings not feasible. Hopefully, the recent recovery and the continued resiliency of the market can encourage these firms to brave the extenal headwinds and push through with their plans. Thus far, we have only seen one IPO, Megawide Construction Corporation [pse: MWIDE] last February. At the beginning of the year, there were reportedly 20 or so firms that were in various stages of having their shares listed and publicly-traded. Using our earlier simplified per offering average, this will translate to listing fee generation of between php300M to a quarter-of-a-billion. Assuming a pace of only one listing per month, our earlier cited target price for PSE is unchanged. FUNDAMENTAL RATIOS. The PSE mantains a healthy balance sheet. 2006 4.48 0.30 0.72% 0.93% 0.61 Shareholders carry no more than php0.13 debt per peso invested in the Company 2007 4.72 0.31 0.62% 0.81% 1.92 as at the end of 2010. Through the first three months of the year, this has risen to 2008 4.70 0.28 1.20% 1.55% 1.08 php0.42 per peso the highest in the last five years considered. This is nevertheless 2009 4.76 0.33 2.03% 2.64% 4.12 not an alarming level. We recall that the Exchange had invested heavily on the 2010 5.25 0.13 1.27% 1.55% 2.76 trading infrastucture that was launched almost exactly a year ago. Profitability Q1 2011 2.11 0.42 1.28% 1.62% 4.51 has been maintained with per asset and per equity earnings of 1.28% and 1.62%, respectively, more or less flat compared to end-2010 levels. Q1 revenue reached php218.4 million17% more than the same period last year. There was only one IPO for the period, MWIDE, which together with other capital raising activities pushed listing fees by php6.105 million to php47.701 million. This is in line with our modest and most conservative projections of around php300 million for the full-year. Annualized per share earnings of php11.96 as of Q1 is just php1.70 short of last year's figure. Ceteris paribus, we project 2011 EPS to reach php17.30, which at an average PE range of 13x to 18x translates to a trading range of php225 to php312. TECHNICAL CONSIDERATIONS. After having rallied off its php211 low of June 21 to the php264 peak in Monday last week, PSE shares have retreated php7.00 (-2.65%) to close Friday at php257. This was opposite the market's direction. Nevertheless, it posted a 5.2% weekly gain, 3.5x the index' return for the same period. Unfortunately, even as the broad market leaves some room for an upside, carried over by the momentum of last week, the Exchange's traded shares suggests a possible pullback as technical indicators hover marginally above or below overbought lines. The initial retracement range is seen towards the php237-244 band, which in turn defines our ideal entry levels. Resistance is set at the php265 price point over the near-term. (jc)
CR DE ROA ROE PBK

DISCLAIMER: THE MATERIAL CONTAINED IN THIS PUBLICATION IS FOR INFORMATION PURPOSES ONLY. IT IS NOT TO BE REPRODUCED OR COPIED OR MADE AVAILABLE TO OTHERS. UNDER NO CIRCUMSTANCES IS IT TO BE CONSIDERED AS AN OFFER TO SELL OR A SOLICITATION TO BUY ANY SECURITY. WHILE THE INFORMATION HEREIN IS FROM SOURCES WE BELIEVE RELIABLE, WE DO NOT REPRESENT THAT IT IS ACCURATE OR COMPLETE AND IT SHOULD NOT BE RELIED UPON AS SUCH. IN ADDITION, WE SHALL NOT BE RESPONSIBLE FOR AMENDING, CORRECTING OR UPDATING ANY INFORMATION OR OPINIONS CONTAINED HEREIN. SOME OF THE VIEWS EXPRESSED IN THIS REPORT ARE NOT NECESSARILY OPINIONS OF ACCORD CAPITAL EQUITIES CORPORATION ON THE CREDIT-WORTHINESS OR INVESTMENT PROFILE OF THE COMPANY OR THE INDUSTRIES MENTIONED. GF EC-058B East Tower, PSE Center, Exchange Road, Ortigas Center, Pasig City, PHILIPPINES 1605 (632)687-5071 (trunk) page 2 of 2