Philippine Markets Newsletter

RCBC collates GHG emissions data, lends to renewable energy projects, and brings financial literacy to young Filipinos…also, JGS tearsheet

September 30, 2022

The Rizal Commercial Banking Corporation (RCBC), is the first local bank to join the Partnership for Carbon Accounting Financials (PCAF), a project that enables a harmonized assessment and reporting of greenhouse gas emissions from loans and investments. Beforehand, the bank’s management stated that it will be focusing its lending projects on at least 1,600 megawatts (MW) of renewable energy (RE) projects over the next two years.

We take a look at one of the unit investment trust funds (UITFs) offered by the bank. In addition to examining the fund’s portfolio, we are including a fundamental analysis of one of the fund’s largest holdings, providing you with the current Uniform Accounting Performance and Valuation Tearsheet for that company.

Philippine Markets Newsletter:
Friday Uniform Portfolio Analytics
Powered by Valens Research

In the first three months of 2022, Rizal Commercial Banking Corp. (RCBC) reported an increase in unaudited consolidated net income of 36%, to PHP 2.1 billion from the same period in 2021.

To explore more opportunities this year, the bank boosted the issuance of ASEAN sustainability bonds in February 2022.

With an increased focus on reducing its carbon footprint, RCBC is the first local bank to participate in PCAF, a global project among financial institutions to enable harmonized assessments and reporting of GHG emissions financed by loans and investments. With that in mind, for the next two years, RCBC will devote its lending efforts primarily to renewable energy (RE) projects totaling at least 1,600 MW. Around 70% of the bank’s loan projects will be allotted for solar farm projects, while the balance will be for wind, geothermal, and hydropower projects.

Another area of growth for the bank is DiskarTech, its smart app aimed at educating the general public about personal finance. RCBC’s financial education initiative seeks to address this knowledge gap by teaching young Filipinos about digital finance, financial technology, and financial inclusion through payments, insurance, savings, investments, and loans. As such, DiskarTech is also the first and only Taglish and Cebuano financial inclusion app in the Philippines.

As we continue to monitor RCBC’s performance, let’s focus on one of its UITFs — R25 Blue-Chip Equity Fund.

RCBC launched its R25 Blue-Chip Equity Fund on November 8, 2019. It aims to achieve capital growth and high returns for its participants in the long term by pooling together Philippine Peso denominated funds of various investors for investment and reinvestment in a portfolio that is primarily invested in local equities listed on the Philippine Stock Exchange.

A fund such as this one is suitable for investors with an aggressive risk profile, a long investment horizon, and seeking to invest in products that can provide high returns on capital but can also be volatile and liable to losses. Additionally, investors are advised to keep an eye on Liquidity Risk and Market/Price Risk before investing.

  • At its inception in November 2019, R25 Blue-Chip Equity Fund’s beginning net asset value per unit (NAVPU) was PHP 1.00. On the announcement of lockdown due to the pandemic, it shrank by 41% within four months since it was launched. During the period, the PSEi slightly underperformed the fund with a loss of 43%.

  • In January 2021, the fund recovered and maintained NAVPU around PHP 0.89 which lasted for a month, a 52% growth from its lowest in March 2020, as the economy recovers from the effects of COVID-19. PSEi also recovered and climbed by 58% on the same period.

  • The NAVPU slightly shrink by 15% to PHP 0.76 as the country had another tightening of economic activities and its benchmark slightly underperformed by shrinking by 16%.

  • The fund saw an increase in the succeeding months, reaching another high of PHP 0.93 in November 2021. This 23% growth is attributed to a more vaccinated population and the easing of travel restrictions in the country. The fund slightly outperformed the PSEi’s gain of 21% in this period.

  • In less than a year, however, the fund’s NAVPU dropped to PHP 0.78 following the Russia-Ukrain conflict, oil crisis, and raising of the inflation rate. Furthermore, this 15% shrinkage is slightly outperforming its benchmark’s drop of 17%.

Even though the fund’s performance hasn’t been better than the market’s, it does not mean the companies in its holdings are of lower quality. As-reported metrics would have investors believe that the fund’s portfolio consists of companies that do not generate economic profit. Uniform Accounting reveals the truth behind the companies this fund invests in.

The table below shows the top eight core non-financial holdings of R25 Blue-Chip Equity Fund along with its Uniform return on assets (ROA), as-reported ROA, and ROA distortion—the difference between Uniform and as-reported ROA.

Most of the companies in R25 Blue-Chip Equity Fund show as-reported ROAs below cost-of-capital levels, suggesting that they are not generating economic profit. Moreover, the fund is generating an average as-reported ROA of 4%, slightly lower than the global corporate average returns of 6%.

However, on a Uniform Accounting basis, this UITF’s holdings have actually delivered better profitability with an average Uniform ROA of 8%, doubled the average as-reported ROA.

The Uniform Accounting framework addresses financial statement inconsistencies attributable to the flaws present in the Philippine Financial Reporting Standards (PFRS). This enables investors to determine the true underlying performance of companies and avoid distorted financial analysis and valuation.

As such, it should not be surprising that when analyzing the non-financial holdings of R25 Blue-Chip Equity Fund, the figures that easily stand out are the large discrepancies between Uniform ROA and as-reported ROA for these companies.

While at a glance, the difference between as-reported ROA and Uniform ROA may not seem that great, the distortion in percentage ranges from -259% to 269%, with International Container Services, Inc. (ICT:PHL), SM Investments Corporation (SM:PHL) and SM Prime Holdings, Inc. (SMPH:PHL) having the highest positive distortions.

Of these holdings, only JG Summit Holdings, Inc. (JGS:PHL) was revealed to have a lower Uniform ROA, presenting a potential cause for concern. Companies such as this need to be closely monitored for drastic changes that could negatively affect the fund itself, especially when the support behind the stocks’ performance begins to wane.

As-reported metrics understate the profitability of International Container Services, Inc., suggesting an above-average firm with an as-reported ROA of 9%. In reality, this firm more closely resembles one that is outperforming, with a Uniform ROA of 33% above the average cost of capital. In addition, the company has consistently generated returns of at least 10% over the past half-decade.

Similarly, as-reported metrics understate the profitability of SM Investments Corporation with an as-reported ROA of 4%. In fact, its Uniform ROA is at 9%. Furthermore, the company reported a Uniform ROA of at least 6% over the past decade.

Likewise, as-reported metrics understate the profitability of SM Prime Holdings, Inc., suggesting a below-average firm with an as-reported ROA of only 3%, when this company actually has a 4% Uniform ROA. Moreover, prior to the pandemic, the company has maintained to generate returns of at least 6% since 2006.

By focusing on as-reported metrics alone, these companies look like anything but profitable businesses.

That said, looking at profitability alone is insufficient to deliver superior investment returns. Investors should also identify if the market is significantly undervaluing a company’s earnings growth potential.

This table shows the earnings growth expectations for the major non-financial holdings of the fund. It features three key data points:

  1. The two-year Uniform earnings per share (EPS) growth represents the Uniform earnings growth the company is likely to have for the next two years. The earnings number used is the value of when we convert consensus sell-side analyst estimates according to the Uniform Accounting framework.

  2. The market expected Uniform EPS growth represents what the market thinks Uniform earnings growth is going to be for the next two years. Here, we show how much the company needs to grow Uniform earnings in the next two years to justify the current stock price of the company. This is the market’s embedded expectations for Uniform earnings growth.

  3. The Uniform EPS growth spread is the difference between the two-year Uniform EPS growth and market expected Uniform EPS growth.

On average, Philippine companies are expected to have 5%-6% annual Uniform earnings growth over the next two years. Meanwhile, R25 Blue-Chip Equity Fund’s major holdings are forecasted to significantly outperform with a 34% projected Uniform earnings growth in the next two years, while the market is forecasting an average with a projected 28% Uniform earnings decline.

Most of the companies in R25 Blue-Chip Equity Fund have positive Uniform earnings growth. Among these companies, Ayala Corporation (AC:PHL), Ayala Land, Inc. (ALI:PHL), and SM Investments Corporation have the highest positive Uniform earnings growth spread.

The market is pricing Ayala Corporation’s Uniform earnings to grow by 3% in the next two years, while sell-side analysts are projecting 146% growth for the company’s earnings.

Moreover, the market is pricing Ayala Land Inc.’s Uniform earnings to grow by 9% in the next two years, while sell-side analysts are projecting the company’s earnings to grow by 72%.

Additionally, the market is pricing SM Investments Corporation’s Uniform earnings to have immaterial growth in the next two years, while sell-side analysts are projecting the company’s earnings to grow by 31%.

Overall, as-reported numbers would significantly understate the expected earnings of these companies as shown by the Uniform-adjusted sell-side estimates.

Uniform Accounting metrics show that these mature, but high growth and high return companies have intact business models that should drive economic profitability moving forward.

SUMMARY and JG Summit Holdings, Inc. Tearsheet

Today, we’re highlighting one of the largest individual stock holdings in R25 Blue-Chip Equity Fund, JG Summit Holdings, Inc. (JGS:PHL).

As the Uniform Accounting tearsheet for JG Summit Holdings, Inc. highlights, the company trades at a Uniform P/E of 26.2x, above the global corporate average of 18.9x but below its historical average of 39.3x.

High P/Es require high EPS growth to sustain them. In the case of JG Summit Holdings, Inc., the company has shown a 219% Uniform EPS growth last year.

Sell-side analysts provide stock and valuation recommendations that poorly track reality. However, sell-side analysts have a strong grasp of near-term financial forecasts like revenue and earnings.

We take sell-side forecasts for Philippine Financial Reporting Standards (PFRS) earnings as a starting point for our Uniform earnings forecasts. When we do this, JG Summit Holdings, Inc.’s sell-side analyst-driven forecast shows that Uniform earnings are expected to shrink by 110% and grow by 388% in 2022 and 2023, respectively.

Based on the current stock market valuations, we can back into the required earnings growth rate that would justify JG Summit Holdings, Inc.’s PHP 48.30 stock price. These are often referred to as market-embedded expectations.

Furthermore, the company has an earning power below the long-run corporate averages. Moreover, its cash flows and cash on hand fall short of obligations, and it also has an intrinsic credit risk of 230bps. Together, these indicate a high dividend risk and moderate credit risk.

Lastly, JG Summit Holdings, Inc.’s Uniform earnings growth is well below peer averages, and is well above peer average valuations.

About the Philippine Markets Newsletter
“Friday Uniform Portfolio Analytics”

Investors who don’t engage in the buying or selling of securities for a living often rely on professionals to manage their own investments within the scope of their investment policies.

With so many funds and managers out there, it can get confusing and difficult to decide which one best suits your needs as an investor.

Every Friday at the end of the month, we focus on one fund in the Philippines and take a deeper look into their current holdings. Using Uniform Accounting, we identify the high-quality stocks in their portfolio which may not be obvious using the as-reported numbers.

We also identify which holdings may be problematic for the fund’s returns that they would need to reconsider from a UAFRS perspective.

To wrap up the fund analysis, we highlight one of their largest holdings and focus on key metrics to watch out for, accessible in our tearsheets.

Hope you’ve found this week’s focus on R25 Blue-Chip Equity Fund interesting and insightful.

Stay tuned for next week’s Friday Uniform Portfolio Analytics!


Angelica Lim
Research Director
Philippine Markets Newsletter
Powered by Valens Research

View All

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683