Stock Market Weekly: Market to trade sideways with a downward bias amid SONA 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) surged by +0.34% week-on-week to close at 6,647.56 (+22.77 points). The local bourse started the week in the red, partly on profit taking from the previous week’s gains and the less-than-expected China 2nd quarter 2023 GDP (6.3% year-on-year) and PH May OFW remittance results (2.8% y-o-y).

However, the market subsequently rose for three consecutive days amid strong US banks’ earnings and continued positive sentiment from local corporate earnings. The Bank of the Philippine Islands (BPI) kicked off local 1st half 2023 earnings by reporting a net income of PHP 25.1 billion, up by 23% y-o-y.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade sideways with a downward bias as investors closely monitor major earnings and key data releases. Investors will also await President Ferdinand Marcos, Jr.’s second State of the Nation Address (SONA) today, July 24, 2023. Coinciding with the SONA, several transport groups will stage a three-day transport strike to protest the government’s Public Utility Vehicle modernization program.

Meanwhile, local fuel prices are forecasted to increase by as much as PHP 1.20 to PHP 1.40/liter of gasoline and PHP 0.30 to PHP 0.40/liter of diesel. On the international front, the Federal Reserve is anticipated to raise its benchmark lending rate by 25 basis points during the upcoming Federal Open Market Committee (FOMC) meeting.

Resistance: 6,750/6,800

Support: 6,400/6,600

The market sustained last week’s rally above the 6,600 support level after briefly snapping gains early in the week. The PSEi traded above key moving averages (20-day, 50-day, 100-day, and 200-day) with technical indicator MACD both above the signal line and zero, which indicates a potential uptrend.

We believe that should the PSEi continue to rally, it can retest the 6,750 resistance, hence negating the current bearish sentiment in the market. Otherwise, if the market pulls back, it can retest the next support levels at around 6,600 to 6,400.

Lighten up if the PSEi bounces but fails to break above 6,750. Add to position once the market decisively breaks above 6,750.

STOCK CALLS FOR THE WEEK

Robinsons Land Corp. BUY ON BREAKOUT | FMSEC Target Price: PHP 25.00

Robinsons Land Corp. (RLC) dropped by as much as 19% from its year-to-date (YTD) high of PHP 16.50 last January 25, 2023, to its YTD low of PHP 13.40 on March 16, 2023. The counter formed a gap down pattern last May 26, 2023, attributable to RLC’s ex-dividend date. The stock is currently trading above key moving averages (20-day, 50-day, and 100-day) with the MACD above both zero and signal line.

Hence, the counter is potentially on an upward momentum. Since RLC retraced and closed the gap on July 20, 2023, breaking above the PHP 14.70 resistance, the counter is poised to retest the next resistance levels from PHP 15.00/200-MA to PHP 17.90. In addition, we remain confident that the outlook for RLC’s main business segment remains robust given the continued improvement in operations amid further reopening and the reinstatement of full rental rates.

At the same time, its office segment continues to be stable on the back of quality tenants composed mostly of Business Process Outsourcing (BPO) firms. Accumulating once RLC breaks above PHP 15.00/200-MA on strong volume is advisable. Set stop limit orders below PHP 13.75. Take profits at around PHP 17.25/PHP 17.90. For long term investors, we have a target price of PHP 25.00 (+68% upside from its recent close).

Megawide Construction Corp. BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 5.60

Megawide Construction Corp. (MWIDE) will be acquiring 100% ownership of real estate firm PH1 World Developers Inc. (PH1) from Citicore Holdings Investment Inc. (CHII). The transaction involves a sale of shares of CHII in PH1 to MWIDE via a cash transaction worth PHP 5.2 billion.

MWIDE’s planned acquisition of PH1 is in line with the company’s vertical integration strategy in a bid to create more value for the company. As a real estate firm, PH1 will complement MWIDE’s construction business, allowing the company to provide end-to-end products and services to customers.

As for price action, the counter is currently trading above its key moving averages (20-day, 50-day, and 100-day) with its MACD both above zero and the signal line. Furthermore, MWIDE is retesting its key resistance at PHP 3.50. Hence, we think that a break above PHP 3.50 will result in the counter retesting PHP 4.0.

Accumulating once MWIDE breaks above PHP 3.50 on strong volume is advisable. Set stop limit orders below PHP 3.22. Take profits at around PHP 4.0.

Megaworld Corp. BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 2.77

Year-to-date, Megaworld Corp. (MEG) declined by as much as 19% from its YTD high of PHP 2.37 last February 8, 2023. MEG is currently consolidating within the PHP 1.90 and PHP 2.12 range. Moreover, the counter is currently trading below key moving averages (50-day, 100-day, and 200-day) with bullish MACD crossover last June 27, 2023. Hence, we think that a break above PHP 2.12 will result in the stock retesting PHP 2.40. Accumulating once MEG breaks above PHP 2.12 on strong volume is advisable. Set stop limit orders below PHP 1.90. Take profit at around PHP 2.44/PHP 2.50.

KEY DATA RELEASES

1. PH Budget Balance for Jun 2023 on Wed, July 26, 2023 (June 2023: 122.2 billion)

2. PH Money Supply M3 SRF y-o-y for Jun 2023 on Friday, July 28, 2023 (June 2023: 6.6%)

3. PH Bank Lending y-o-y for Jun 2023 on Friday, July 28, 2023 (June 2023: 9.0%)

4. PH Bank Lending net of RRPs y-o-y for June 2023 on Friday, July 28, 2023 (June 2023: 9.4%)

5. US FOMC interest rate decision on Thursday, July 27, 2023 (consensus estimate: 25 bps rate increase)

6. US Initial Jobless Claims as of July 22, 2023, on Thursday, July 27, 2023 (Jun 2023: 228k)