Philippines Strategy:Weathering higher interest rates

Banks benefit the most. An increase in interest rates should benefit thebanking sector the most on the back of improved net interest margins. Weestimate that the three largest banks would an average EPS enhancement of5% should a 25bp increase in benchmark rates. Large CASA deposits (>60%)should come in handy, as well as loans where majority are repriceable.

    Property companies likely to continue launches. We expect that propertycompanies will continue to launch more residential projects in 2018 to ride theresurgence in demand from last year. Ayala Land and Megaworld, the twolargest residential developers by take-up value, are keen to increase launchesthis year in light of declining inventory levels. In addition, we continue to seestrong demand from Chinese buyers due to expansion of offshore gaming.

    Consumer/Retail