WHAT HAPPENED LAST WEEK

Last week, the local bourse closed higher by 0.27% week-on-week (w-o-w) to 6,142.79. The market started in the red on cautious trading as investors awaited key interest rate decisions and as global oil prices continued to surge, with Brent crude futures reaching a 10-month high at USD 95 per barrel on September 19, 2023, Tuesday.

However, the index rebounded in the latter part of the week following the US Fed’s and the Bangko Sentral ng Pilipinas’ (BSP) decisions to keep interest rates steady at a 5.25% – 5.50% target range and 6.25%, respectively. Some bargain-hunting before the off-cycle PSEi rebalancing this week also contributed to the rebound.

WHAT TO EXPECT THIS WEEK

This week, we expect a volatile market as the recomposition in the PSEi takes effect on September 26, 2023, Tuesday. The Philippine Stock Exchange (PSE) announced that Bloomberry Resorts Corp. (BLOOM) and Century Pacific Food, Inc. (CNPF) will be replacing Aboitiz Power Corp. (AP) and Metro Pacific Investments Corp. (MPI) in the benchmark index.

The market may also price in some relief, as an oil price rollback will be implemented this week, following 11 consecutive weeks of price hikes. Diesel pump prices are expected to decrease by PHP 0.30 to PHP 0.70 per liter, gasoline by PHP 0.20 to PHP 0.60 per liter, and kerosene by PHP 0.45 to PHP 0.85 per liter on September 26, 2023, Tuesday.

Resistance: 6,200/6,400

Support: 6,000/5,700

ANALYSIS

The 6,000-level proved to be a strong support as the PSEi bounced back from the said level last week. However, the average value turnover remained tepid at PHP 4.2 billion. The market is still trading below its key moving averages (50-day, 100-day, and 200-day), indicating that the bears remain in control.

Should the PSEi extend its gains, it can retest the next resistance levels at 6,200 to 6,400. Otherwise, if the downtrend continues, it can retrace towards the next support levels around 6,000 and 5,700.

Stay light and observe if the 6,000 support level holds. For those who plan to increase exposure, consider tranche buying around identified support areas (6,000, then 5,700) while leaving some buying power to take advantage of lower prices should the downtrend continue.

STOCK CALLS FOR THE WEEK

Century Pacific Food, Inc./ BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 29.00

Since Metro Pacific Investments Corp.’s (MPI) voluntary delisting announcement last April 26, 2023, traders have speculated on potential names that could replace MPI in the PSEi. In addition, another counter is expected to be taken off the main index — Aboitiz Power (AP). AP’s removal from the PSEi index comes after its public float fell below the 20% minimum threshold for PSEi eligibility.

Last September 20, 2023, the Philippine Stock Exchange (PSE) conducted an off-cycle index rebalancing, with both MPI and AP replaced by Bloomberry Resorts (BLOOM) and Century Pacific Food (CNPF) in the main index. All changes shall be made effective on the start of day, Tuesday, September 26, 2023. For those looking to enter CNPF, accumulating once CNPF breaks above PHP 29.60 is advisable. Set stop limit orders at PHP 27.23. Take profit at around PHP 34.04/ PHP 34.35. For those already with exposure, we recommend taking profits or implementing trailing stops to secure profits.

SM Prime Holdings, Inc. / BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 41.78

SM Prime Holdings, Inc. (SMPH) has shown growth in sales and profit in the previous quarters as a result of increased tenant sales and foot traffic. We see this spilling over the next quarters as the “ber” months signal the beginning of holiday festivities in the Philippines including family reunions and Christmas programs.

While we think that SMPH will benefit from school openings and the upcoming holidays, we continue to be wary of the effects of the suspension of SMPH’s projects in Manila Bay as it poses downside risks for the counter. Hence, we prefer accumulating only once the issue is resolved. For those looking to accumulate SMPH now, accumulating once the counter breaks above its immediate resistance at its 20-EMA day at PHP 30.30 on strong volume is advisable. Set stop limit orders below PHP 27.85. Take profits at around PHP 34.85/ PHP 35.15.

DMCI Holdings, Inc. /BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 12.53

DMCI Holdings, Inc. (DMC) is reportedly exploring opportunities for its core businesses, mainly its mining and power units. We expect its expansion efforts and additional exploration activities for its subsidiaries to positively benefit the counter’s earnings in the long run, leading to improved earnings for the counter in comparison to its first half 2023 earnings. DMC has been consolidating upward, creating higher highs and lows, above key moving averages (50-day and 100-day) since early August.

Indicating a bullish momentum for the counter, its RSI, a technical indicator, is on an uptrend with its MACD, another technical indicator, above zero. Furthermore, its 50-day MA has crossed above the 100-day MA, which has been followed by a rally by the counter historically. With its 200-day MA as the counter’s immediate resistance at ~PHP 10.45, we think that accumulating once DMC breaks above this level on strong volume is optimal.

Buy on a convincing break above the 200-day MA at PHP 10.45. Set stop limit orders below PHP 9.60. Take profit at around PHP 12.02/ PHP 12.12.

KEY DATA RELEASES

1) PH Budget Balance for August on September 26, 2023, Tuesday (July: -47.8 billion)

2) US GDP Annualized quarter-on-quarter for 2nd quarter 2023 on September 28, 2023, Thursday (consensus estimate: 2.3%)

3) US Initial Jobless Claims as of September 23 on to be released on September 28, 2023, Thursday (September 16, 2023: 201k)

4) US Core PCE Price Index quarter-on-quarter for 2nd quarter 2023 to be realsed on September 28 2023, Thursday

5) PH Bank Lending year-on-year for August on September 29, 2023, Friday

Earnings of businesses may slow down next year by more than half the growth rate in 2023 amid inflation and slowing revenues.

Ma. Cristina Gabaldon, Metrobank Deputy Head for Investment Management Division, said the bank’s estimates for earnings of listed companies are quite conservative.

“For 2023, our expected earnings growth is at 15%, and our index target is 6,900. For 2024, our expected earnings growth is quite conservative at just 6%, and our index target is 7,700,” she said in an interview with ANC.

“The thing that concerns us is that topline growth for companies is quite slow, in the single digits. This might translate to lower earnings come early 2024, so some things need to happen before we become more bullish in the stock market,” she added.

She said margins of consumer companies may contract because of inflation. Wheat prices may have gone down, but rising oil prices have negated this development.

“Consumer companies and manufacturers make up 10% of the index. So with high inflation and interest rates remaining elevated, we expect things to be higher for longer. This would affect the borrowings of companies. So they might delay their big-ticket borrowings, their expansion, their capex,” she explained.

(Please see the full interview with Ma. Cristina Gabaldon here. Just go to the 25:25 time mark.)

ANTHONY O. ALCANTARA is the editor-in-chief of Wealth Insights. He has over 20 years of experience in corporate communications and has a master’s degree in technology management from the University of the Philippines. When not at work, he goes out on epic adventures with his family, practices Aikido, and sings in a church choir.

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) dropped to its year-to-date low at 6,126.34 (-1.55% w-o-w, -96.6 points). The local bourse fell, following stronger-than-expected US Consumer Price Index (CPI) data for August 2023 (actual: 3.7% vs consensus estimate of 3.6%) and headline PPI inflation (+1.6%).

In addition, foreign investors sold the market as changes to the Financial Times Stock Exchange (FTSE) indices took effect. Investor sentiment also remained weak amid rising global oil prices (West Texas Intermediate crude: above USD 90/barrel), which led to local inflationary woes. Nevertheless, BSP Governor Eli Remolona, Jr., signaled that the BSP is unlikely to hike rates if there are no new supply shocks. He also reiterated that inflation is still expected to be within the central banks’ 2%-4% target by October 2023.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to rebound post-FTSE re-balancing. However, downside risks remain as the market will price in the 11th consecutive week of fuel price hikes, with diesel expected to rise by PHP 2.20 to PHP 2.40 per liter and gasoline to rise by PHP 1.60 to PHP 1.80 per liter. On the international front, investors will be closely monitoring key data releases, such as the US Federal Open Market Committee (FOMC) rate decision and initial jobless claims.

Resistance: 6,200/6,400

Support: 6,000/5,700

ANALYSIS

The PSEi snapped a two-week winning streak, reaching a new year-to-date low. The market is still trading below its key moving averages (50-day, 100-day, and 200-day) indicating that the bears remain in control. Bounces could be limited by role reversal around the broken previous support (6,200 to 6,400). If the bearish sentiment continues, the nearest support is the retest of the low at around 6,000, and then the next is the retest of the low at around 5,700.

Stay light but watch out for possible basing as the PSEi may revisit previous critical support levels which could provide trading opportunities. For those who plan to increase exposure, consider tranche buying around identified support areas (6,000, then 5,700) while leaving some buying power to take advantage of lower prices should the downtrend continue.

STOCK CALLS FOR THE WEEK

Century Pacific Food, Inc.*/ TRAILING STOPS | FMSEC TARGET PRICE: PHP 29.00

Since we released our company report entitled, “Positioned for a better catch,” Century Pacific Food, Inc. (CNPF) rallied by as much as 12%, hitting our fundamental target price of PHP 29.00. Furthermore, the counter rose to a 52-week high last September 8, 2023, trading above all key moving averages (20-day, 50- day, 100-day, and 200-day).

We continue to like CNPF given the positive impact of El Niño on its margins driven by the healthy correction in skipjack tuna prices. CNPF is positioned for a better catch as skipjack tuna tends to follow warmer waters, enabling the company to load up low-cost inventory.

Aside from this, we are optimistic about the company’s growth prospects given its diversified product portfolio and a solid track record of organic and inorganic brands launched.

After hitting our fundamental target price, we recommend taking profits or implementing trailing stops. The next resistance levels are at PHP 29.50 to PHP 29.60.

International Container Terminal Services, Inc. / BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 252.30

We expect ICT’s expansion efforts to benefit the counter in the next quarters. As an example, the recent acquisition of six new automated stacking cranes and two new larger ship-to-shore cranes for the planned expansion of VICT is expected to increase VICT’s annual throughput capacity by 250,000 twenty-foot equivalent units (TEUs) to 1.25 million TEUs.

Furthermore, ICT was also declared the preferred bidder for the Durban Container Terminal (DCT) Pier 2 at the Port of Durban in South Africa along with joint venture partner Transnet Port Terminals under a 25-year concession which is likely to bring inflows for the counter as well.

Accumulating once ICT pulls back to PHP 205.00 is advisable. Set stop limit orders below PHP 188.60. Take profit at around PHP 235.75/ PHP 237.80

Nickel Asia Corp. / BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 8.19

Indonesian nickel smelters are reportedly importing ore from the Philippines in a bid to ease the tightening supply which put upward pressure to costs across the supply chain. The tightness in nickel supply is attributable to the mining quota delays and suspension of mining operations amid an ongoing investigation into illegal mining.

Over the past month, nickel prices rose by as much as 7.14% from the year-to-date low of USD 19,499/ton to USD 20,891/ton. Year-to-date, Nickel Asia Corp. (NIKL) has dropped by as much as -35% to reach a year-to-date low of PHP 4.99 last August 17, 2023. The counter consolidated within the PHP 5.70 to PHP 6.30 range, before breaking down further and establishing support at the PHP 5.00 level.

NIKL is now trading sideways between the PHP 5.00 to PHP 5.40.00 range, hovering below 100- and 200-day moving averages. We think that a bullish reversal will only occur once NIKL breaks above PHP 5.40 to form a higher high.

Accumulating NIKL once it breaks above PHP 5.40 on strong volume is advisable. Set stop limit orders below PHP 5.00 and take profits at around PHP 6.21/PHP 6.30.

KEY DATA RELEASES

Overall Balance of Payments (BOP) for August 2023 on Tuesday, Septembert 19, 2023 (July 2023: USD 53 million)

US FOMC interest rate decision on Thursday, September 21, 2023 (consensus estimate: no change in rates)

US Initial Jobless Claims as of September 16, 2023, on Thursday, September 21, 2023 (August 2023: 220k)

BSP Overnight Borrowing Rate on Thursday, September 21, 2023 (consensus estimate: no change in rates)

S&P Global US Manufacturing PMI for September on Friday, September 22, 2023 (August 2023: 47.9; consensus estimate: 47.9)

PH Money Supply M3 SRF y-o-y for July 2023 on Friday, September 22, 2023

PH Bank Lending y-o-y for July 2023 on Friday, September 22, 2023 (June 2023: 7.9%)

PH Bank Lending net of RRPs y-o-y for July 2023 on Friday, September 22, 2023 (June 2023: 7.8%).

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) rose by 0.68% week-on-week (w-o-w) to 6,222.94 (+41.88 points). The local bourse was mostly up throughout the week on bargain-hunting as investors digested data on the easing labor market in the US, boosting expectations of a US Fed rate hike pause in September.

On the local front, investors cheered the approval of the House Bill 8958 or the proposed “Capital Markets Efficiency Promotion Act” which reduces the stock transaction tax. The main gauge rallied despite the upward surprise in inflation (August 2023: 5.3%; consensus estimate: 4.7%), uptick in July 2023 unemployment rate to 4.8% (June 2023: 4.5%), and the widening of the National Government’s debt to PHP 14.24 trillion (+10.5% y-o-y) as of end-July.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade sideways with a slight downward bias as investors closely monitor the upcoming August 2023 US inflation print and its implication on the direction of policy rate decisions later this month. The market is pricing in an acceleration in US inflation rate at 3.6% y-o-y (July 2023: 3.2%) amid concerns of elevated oil prices following the extended supply cuts from Saudi Arabia and Russia.

On the local front, investors will digest the 10th consecutive week of fuel price hikes, with diesel expected to rise by as much as PHP 0.65/liter, gasoline by PHP 0.45/liter, and kerosene by PHP 0.60/liter. Year-to-date price adjustments resulted in a net increase of PHP 10.70/liter for diesel, PHP 15.30/liter for gasoline, and PHP 7.74/ liter for kerosene.

Resistance: 6,380/6,400

Support: 6,000/5,700

ANALYSIS

The PSEi traded sideways with a slight upward bias, extending its gains from the previous week. Market indicators MACD (moving average convergence, divergence) and RSI (relative strength indicator) are currently reflecting upward inclines. However, the market is still trading below its key moving averages (50-day, 100-day, and 200-day).

Bounces could be limited by role reversal around the broken previous support (6,380 to 6,400). If the bearish sentiment continues, the nearest support is the retest of the low at around 6,000, then the retest of the low at around 5,700.

Stay light, but watch out for possible basing as the PSEi is consolidating between the 6,150 to 6,300 range. For those who plan to increase exposure, consider tranche buying around identified support areas (6,000, then 5,700) while leaving some buying power to take advantage of lower prices should the downtrend continue.

STOCK CALLS FOR THE WEEK

Robinsons Retail Holdings, Inc .* / BUY | FMSEC TARGET PRICE: PHP 57.00

Robinsons Retail Holdings, Inc. (RRHI) posted a 19.0% y-o-y decline in the 2nd quarter 2023 attributable net income to PHP 1.26 billion, bringing the aggregate 1st half 2023 attributable net income to PHP 1.79 billion (-34.3% y-o-y) – dragged by higher forex losses and lower earnings from associates.

This is lower than our already below-consensus estimates. In terms of technical analysis, RRHI is trading between PHP 48.50/PHP 49.50 support zone to PHP 57.65/59.00 resistance zone. After failing to break above resistance level at PHP 57.65 in mid-July, the counter has been on a downtrend since, but it rebounded after hitting the support at PHP 49.50.

RRHI is currently trading near oversold levels with RSI at 35.3, presenting a potential opportunity to rebound. Accumulating RRHI at current levels is advisable. Set stop limits at PHP 46.05. Take profits at around PHP 57.65/PHP 59.00. For long-term investors, our fundamental target price for RRHI is PHP 57.00.

Fruitas Holdings, Inc. / BUY ON PULLBACKS| NO CONSENSUS TP

Fruitas Holdings, Inc. (FRUIT) ended 1st half 2023 with revenues of PHP 1.1 billion (+45% y-o-y) and net income of PHP 43.5 million (+48% y-o-y) — mainly driven by same-store sales growth, business expansion, and the addition of the Ling Nam store operations.

As of 30 Jun 2023, FRUIT has a network of 822 stores and anticipates expanding to 50 new locations in the 2nd half of 2023. FRUIT has been trading on a downward trend since May. Recently, the counter broke out of its resistance at PHP 1.10 with MACD both above zero and signal line, indicating a bullish reversal. However, FRUIT is hovering near oversold levels with RSI at 60.

Accumulate once FRUIT pulls back to PHP 1.10/PHP 1.15. Set stop limit orders below PHP 1.00 and take profits at around PHP 1.27/PHP 1.32.

BDO Unibank, Inc .*/ BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 165.00

We raised our target price for BDO Unibank, Inc. (BDO) to PHP 165.00. Lower-than-expected provisions brought BDO’s earnings ahead of our expectations at PHP 35.20 billion (+47.0% y-o-y). At the PPOP level, BDO’s operating performance was as in line. Revenues were higher by 34% y-o-y amid 29%/11% y-o-y growth in net/non-interest incomes.

Meanwhile, opex grew at a slower pace of 17% y-o-y with the cost-to-income ratio improving to 57.8% in the 2nd quarter of 2023, from 1st quarter 2023’s 60.1%. While PPOP was in line with expectations, we nonetheless raised our forecasts to reflect the impact of the reserve requirement ratio (RRR) cut on BDO’s earnings. As for price action, BDO is currently trading on an uptrend above key moving averages (50-day, 100-day, and 200-day) with 50-day moving average acting as the immediate support.

Accumulating once BDO pulls back to PHP 133.00/ PHP 135.00 is advisable. Set stop limits below PHP 122.36. Take profits at around PHP 153.00/ PHP 157.00. For long-term investors, our target price is PHP 165.00.

KEY DATA RELEASES

1. US Consumer Price Index (CPI) YoY for August on Wednesday, September 13, 2023 (consensus estimate: 3.6%; July 2023: 3.2%)
2. US Initial Jobless Claims as of September 9 on Thursday, September 14, 2023
3. OF cash remittances YoY for July 2023 on Friday, September 15, 2023 (consensus estimate: 1.3%; June 2023: 2.1%).

WHAT HAPPENED LAST WEEK

Last week, the local bourse closed at a new nine-month low at 6,160.61 (-129.66 points; -2.06% w-o-w). The index mainly traded in the red throughout the week amid the lack of local positive catalysts, cautious trading ahead of the Jackson Hole Symposium, and the US 10-year bond yield reaching a 16-year high at 4.34%. The market slightly rebounded on Thursday as US jobs growth was seen less robust, offering support for a US Fed pause.

WHAT TO EXPECT THIS WEEK

We expect a volatile market this week, with a downward bias, as the index hovers around the 6,000 support while the technical indicator RSI nears oversold levels (~32.75). Midweek, a surge in trading activity is also expected as the MSCI Quarterly Index Review takes effect on August 31, 2023, when the Philippines will have a marginal country weight decrease of 0.016%.

There will be no changes in the MSCI Philippines Standard Index composition; top weight increases include BDO Unibank (+0.202%), SM Prime Holdings Inc. (SMPH) (+0.196%), and Bank of the Philippine Islands (BPI) (+0.150%), while the sole weight decrease is Ayala Corporation (AC) (-1.326%).

Furthermore, gains may be capped as investors digest the recent pronouncements from US Fed Chair Jerome Powell, who hinted at another rate hike by year-end during his August 25 speech at the Jackson Hole Symposium. Meanwhile, on the local front, the market will also be pricing in the eighth consecutive week of fuel price hikes as diesel is expected to rise by PHP 0.40 to PHP 0.70 per liter and gasoline by PHP 0.10 to PHP 0.30 per liter.

Resistance: 6,380/6,400

Support: 6,000/5,700

ANALYSIS

Last week, the PSEi fell for the fifth straight week, reinforcing the downtrend after it broke below the support around 6,400 in the previous week. The market is currently trading below its key moving averages (50-day, 100-day, and 200-day) and its technical indicator MACD is showing increased bearish momentum.

Bounces could be limited by role reversal around the broken previous support (6,380 to 6,400). Should the market continue its descent, the nearest support is the retest of the low at around 6,000, then next is the retest of the low at around 5,700.

Stay light but watch out for possible basing as the PSEi nears oversold RSI (currently at 32.75) which could provide trading opportunities. For those who plan to increase exposure, consider tranche buying around identified support areas (6,000, then 5,700) while leaving some buying power to take advantage of lower prices should the downtrend continue.

STOCK CALLS FOR THE WEEK

First Gen Corp. BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 28.19

First Gen Corp. (FGEN) reported a recurring net income of USD 167 million (PHP 9 billion) (+30% y-o-y) mainly driven by higher earnings contributed by Energy Development Corp. (EDC) as a result of better operating income from higher electricity prices. FGEN’s solid performance in the 1st half or 2023 is expected to be sustained for the rest of the year on the back of significant milestones.

In terms of price action, FGEN is currently consolidating within the PHP 18.80 to PHP 21.70 range. Moreover, the counter is below short-term moving averages (9-day, 20-day, and 50- day) but remains above the long-term moving averages (100-day and 200-day). For a more optimal risk-reward ratio, it is advisable to take position around the support zone at PHP 18.80.

Accumulating once FGEN pulls back to PHP 18.80 is advisable. Set stop limit orders below PHP 17.30. Take profit at around PHP 21.60/21.70.

Puregold Price Club* BUY | FMSEC TARGET PRICE: PHP 31.00

Puregold Price Club, Inc. (PGOLD) reported lower earnings y-o-y of PHP 2.0 billion in the 2nd quarter of 2023, despite net sales rising by 7.2% y-o-y, as negative operating leverage pulled down quarterly earnings before interest and taxes (EBIT) by 6.4% y-o-y to PHP 6.7 billion.

As for the price action, PGOLD has been trading below its 50-, 100-, and 200- moving averages (MA) within a downtrend channel. PGOLD has also created a year-to-date low at PHP 27.50 last August 4, 2023. Nevertheless, the counter seemed to have established a support around this area, which also marks the lower trend line of the descending channel. Notably, the counter has historically bounced back after hitting this level, hence, PGOLD may retest the next resistance levels.

Accumulating PGOLD at current levels is advisable. Set stop limit orders below PHP 25.58 and take profit at around PHP 32.00/PHP 33.00. For long-term investors, our fundamental target price for PGOLD is PHP 31.00 (+11.51% upside from latest close).

Semirara Mining and Power Corp. BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 39.89

Semirara Mining and Power Corp. (SCC) ended the 2nd quarter 2023 with net income of PHP 10.2 billion (-5% y-o-y), bringing the 1st half of 2023 net income of PHP 25.8 billion (-26% y-o-y) from high base effect and significant correction in global coal index prices.

However, earnings came in ahead of consensus estimates driven by higher coal shipments, improved plant availability, and increased electricity sales amid elevated spot prices. As for price action, SCC is currently trading above key moving averages (200-day, 100-day, and 50-day) with MACD both above the zero and the signal line. However, the counter is hovering at overbought levels with RSI at 73.1, hence, we think that the counter is due for a pullback.

Accumulating once SCC pulls back at PHP 30.00 is advisable. Set stop limit orders below PHP 27.60. Take profits at around PHP 34.50/PHP 36.00.

KEY DATA RELEASES

1) US 2Q23 GDP quarter-on-quarter growth rate on Wednesday, August 30, 2023 (1Q23: 2.4%; estimates: 2.4%)

2) US Initial Jobless Claims as of August 26 on Thursday, August 31, 2023 (as of Augst 19: 230k)

3) US Unemployment Rate for August on Friday, September 1, 2023 (July 2023: 3.5%; estimates: 3.5%)

4) US S&P Global Manufacturing PMI for August on Friday, September 1, 2023 (July 2023: 47)

5) PH Budget Balance for July on August 28 – September 1 (June 2023: 225.4 billion)

6) PH S&P Global Manufacturing Purchasing Managers’ Index (PMI) for August on Friday, September 1 (July 2023: 51.9).

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) dropped by -1.81% week-on-week to close at 6,290.27 (-115.64 points), a nine-month low. The market fell on account of China’s economic woes — especially with news of real estate giant Evergrande filing for bankruptcy — and more hawkish comments from the US Fed. Amid these news, investors lightened positions ahead of the long weekend in observance of the Ninoy Aquino Day holiday on August 21, 2023.

Investors also considered the lower-than-expected Philippine overseas cash remittances growth, which came in at 2.1% y-o-y (consensus estimate: 2.9%) to USD 2.81 billionfor the month of June 2023. In addition, the Bangko Sentral ng Pilipinas’ (BSP) decided to maintain its key policy rate steady at 6.25%, as widely anticipated.

The BSP’s inflation forecasts, however, were adjusted higher to 5.6% (from 5.5%) and 3.3% (from 2.8%) for 2023 and 2024, respectively, on account of higher global oil prices. For 2025, the forecast is 3.4%.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade sideways with a downward bias as investors monitor key data releases such as the US Purchasing Mangers’ Index (PMI) and initial jobless claims for August 2023.

Investors are also monitoring the upcoming Jackson Hole Economic Policy Symposium from August 24-26, 2023, to get guidance from US Fed Chair Powell’s speech on the rate outlook. On the local front, the market will price in the sixth consecutive week of fuel price hikes, with diesel expected to rise by PHP 0.20 per liter, gasoline by PHP 1.10 per liter, and kerosene by PHP 0.70 per liter.

Resistance : 6,600/6,750

Support: 6,000/6,200

ANALYSIS

Last week, the PSEi fell for the fourth straight week, breaking below the 6,400 support level. Furthermore, the market traded below key moving averages (50-day, 100-day, and 200-day) with the technical indicator moving average convergence/divergence (MACD) falling below the signal line.

We believe that should the PSEi continue its descent, it could retrace towards the next support levels at around 6,000 to 6,200. Otherwise, should the PSEi bounce back, it could retest the next resistance levels at 6,600 to 6,750, hence negating the current bearish sentiment in the market.

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

AC Energy Philippines, Inc. | BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 6.65

ACEN Corp. (ACEN) reported consolidated revenues of PHP 20.5 billion (+28% y-o-y) mainly attributable to the boost in net generation due to the stronger wind regime throughout the period and higher operating capacity with testing and commissioning of new projects, allowing ACEN to achieve a net selling merchant position at the Wholesale Electricity Spot Market (WESM).

After dropping by as much as 40% year-to-date, ACEN has found a near-term bottom around the PHP 5 level. In terms of management guidance, ACEN currently has 4.3 GW of capacity, both operational and under construction, of which 1.6 GW is in the Philippines, 1.0 GW in Australia, 0.9 GW in Vietnam and Lao People’s Democratic Republic, 0.5 GW in India, and 0.3 GW across Indonesia and other markets.

Accumulating once ACEN breaks above PHP 5.90 on strong volume is advisable. Set stop limit orders below PHP 5.43. Take profits at around PHP 6.79.

BDO Unibank, Inc. | BUY ON PULLBACKS | FMSEC Target Price: PHP 165.00

We raised our target price for BDO Unibank, Inc. (BDO) to PHP 165.00. Lower-than-expected provisions brought BDO’s earnings ahead of our expectations at PHP 35.20 billion (+47.0% y-o-y). While the pre-provision operating profit (PPOP) was in line with expectations, we nonetheless raised our forecasts to reflect the impact of the reserve requirement ratio (RRR) cut on BDO’s earnings.

Post-adjustments, we upgraded our net interest income forecast by 5.1%/4.7% for 2023 and 2024, respectively. We also lowered our credit cost assumptions in line with the bank’s current provisioning. As such, we have raised our net earnings forecast for BDO by 10%/11% in 2023 and 2024, respectively.

Our new target price (TP) implies 1.7x/1.5x price-to-book (PB) ratio for 2023 and 2024, respectively. We think this is justified as the return on equity (ROE) should be sustained at the mid-teens in the next 12 to 24 months (about 2 years). We see this to be driven by: (i) robust core operations – with solid loans growth, Current Account Savings Account (CASA) generation, and volume driven businesses driving revenues; (ii) improved cost-to-income ratio to < 60% vs pre-COVID; (iii) scope for lower provisioning – as asset quality risks remain benign; and (iv) the generally improving macro outlook and broadening economic drivers.

Accumulating once BDO pulls back to PHP 133.00/PHP 135.00 is advisable. Set stop limits below PHP 122.36. Take profits at around PHP 153.00/ PHP 157.00. For long-term investors, our target price is PHP 165.00 (+19.39% from the last closing price).

Alliance Global Group, Inc. BUY | CONSENSUS TARGET PRICE: PHP 17.11

Alliance Global Group, Inc. (AGI) will benefit from a surge in tourism with subsidiaries in travel-related sectors. With townships in different regions, Megaworld Corp. (MEG) recorded a 31% y-o-y growth in net income as local tourism and meeting, incentive, convention, and exhibition (MICE) events increased room and occupancy rates and revenues from hotels and resorts to PHP 1.7 billion (+58% yo-y) in the 1st half of 2023.

Travellers International Hotel Group, Newport World Resorts (formerly Resorts World Manila) operator and owner, recorded overall core revenues growth of 28% y-o-y in the 1st half of 23 as MICE events and improved hotel occupancy rates drove up non-gaming core revenues from hotels, food, beverage, and others to PHP 3.3 billion (+42% y-o-y).

Net gaming revenues from casinos also grew to PHP 11.9 billion (+29% y-o-y) from foot traffic surpassing pre-pandemic levels. These resulted in AGI’s consolidated revenues surging to PHP 48.8 billion (+8% y-o-y) with attributable profit at PHP 4.6 billion (+5% y-o-y).

With travel-related activities such as MICE events and tourism boosting the 1st half 2023 performance of AGI’s subsidiaries, we think that the loosening of travel restrictions will further benefit AGI in the next quarters.

Accumulating AGI at current levels is advisable. Take profit at around PHP 14.40/ PHP 14.50. Set stop limit orders below PHP 11.50.

KEY DATA RELEASES

1.) US S&P Global Manufacturing Purchasing Mangers’ Index (PMI) for August 2023 on Wednesday, August 23, 2023 (July 2023: 49.0)

2.) US Initial Jobless Claims as of August 19, 2023, on Thursday, August 24, 2023 (July 2023: USD 239k)

3.) PH Budget Balance for July 2023 on Friday, August 25, 2023 (June 2023: 225.4 billion)

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange (PSEi) dropped by -0.70% week-on-week (w-o-w) to close at 6,405.91 (-44.93 points), marking its third straight week of decline. The benchmark index mostly traded in the red as investors remained cautious amid the lower-than-expected 2nd quarter 2023 Philippine GDP at 4.6% (consensus estimate: 6.0%), foreign direct investments (FDI) dropping to USD 488 million (-34% y-o-y), and unemployment rate rising to 4.5% (May: 4.3%).

Investors recalibrated portfolios following the results of the August 2023 MSCI Index Review, with the Philippines’ marginal downweight of 1.6 basis points (bps), effective on the close of August 31, 2023. On the international front, investors digested the lower-than-expected US July inflation at 3.2% (consensus estimate: 3.3%; June: 3.0%).

WHAT TO EXPECT THIS WEEK

This week, we expect the market to bounce on bargain hunting as investors await major earnings and data releases. The market will closely monitor the tail-end of the earnings season, cash remittances reports, and the interest rate decision of the Bangko Sentral ng Pilipinas (BSP).

The BSP is expected to extend its rate pause amid cooling inflation and slower economic growth in the 2nd quarter of 2023. However, gains may be capped as the market anticipates the fifth consecutive week of fuel price hikes by as much as PHP 1.70 to PHP 1.90/liter on gasoline and PHP 1.40 to PHP 1.60/liter on diesel. On the foreign front, investors will also be on the lookout for the Federal Open Market Committee (FOMC) meeting minutes which will provide guidance on the interest rate direction of the US Fed.

Resistance: 6,600/6,750

Support: 6,000/6,200

ANALYSIS

Last week, the PSEi continued to drop and is currently hovering around the 6,400 key support level. Furthermore, the market traded below key moving averages (50-day, 100-day, and 200-day) with the technical indicator moving average convergence/divergence (MACD) falling below the signal line.

We believe that should the PSEi continue its descent, it can retrace towards the next support levels at around 6,000 to 6,200. Otherwise, should the PSEi bounce back, it can retest the next resistance levels at 6,600 to 6,750, hence negating the current bearish sentiment in the market.

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

Ayala Land, Inc. (ALI)/ BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 37.17

Ayala Land, Inc. (ALI) posted a 2nd quarter 2023 net income of PHP 6.9 billion (+52% q-o-q), bringing its 1st half 2023 net income to PHP 11.4 billion (+41% y-o-y), in line with consensus estimates on the back of sustained resilience of the property market as well as consumer activity.

As for price action, ALI is currently trading above key moving averages (50-day, 100- day, and 200-day), forming higher highs and higher lows with its MACD reflecting a bullish trend for the counter as well. However, ALI is at near overbought levels with the technical indicator relative strength index (RSI) at 67.2, thus, the counter is likely to correct and retrace its next support level at PHP 26.00. Accumulating once ALI pulls back to PHP 26.00 is advisable. Set stop limit orders at PHP 23.92 and take profits at around PHP 29.90/ PHP 30.16.

Aboitiz Equity Ventures, Inc./ BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 53.87

AEV, together with Coca-Cola Europacific Partners PLC, disclosed that they have entered into a nonbinding bid to acquire 100% of Coca-Cola Beverage Philippines, Inc. (CCBPI) for an enterprise value of USD 1.8 billion. In line with its portfolio diversification strategy, AEV said that the acquisition of the iconic and profitable global brand will be value accretive to AEV’s shareholders.

As for technical analysis, AEV has exhibited a symmetrical triangle pattern formed by two converging trend lines with a wide base at the beginning and narrows down over time. The pattern has been developing since late-2022 and is currently on a tightening consolidation. As the trading range contracts, the counter is poised to breakout or breakdown. Accumulating once AEV breaks above PHP 56.00 on strong volume is advisable. Set stop limit orders below PHP 51.50. Take profits at around PHP 64.40.

Jollibee Foods Corp. (JFC)*/ BUY ON PULLBACK | FMSEC TARGET PRICE: PHP 275

Jollibee Foods Corp. (JFC) announced that it entered into a joint venture with Food Collective, Pte. Ltd. (FCPL) on August 4, 2023, to own and operate Tiong Bahru Bakery and Common Man Coffee Roasters in the Philippines. In addition, the counter recently reached a new multi-year high on August 1, 2023.

As for price action, JFC is currently trading on an uptrend above key moving averages (50-day, 100-day, and 200-day), forming higher highs and higher lows since May. The counter is currently retesting the PHP 260.00 resistance level, reaching a multi-year high of PHP 261.00 on August 1, 2023. We think that the counter can retain its current uptrend once it breaks above the PHP 260.00 resistance, hence, accumulating at current levels is advisable.

We recommend accumulating JFC at current levels. Set stop limit orders at PHP 232.75 and take profits at around PHP 290.95/PHP 293.50. For long-term investors, our target price for JFC is PHP 275.00 (+8.70% from the last closing price).

KEY DATA RELEASES

1) OF cash remittances YoY for Jun 2023 from Monday-Friday, August 14-18, 2023 (consensus estimate: 2.9%; May 2023: 2.8%)

2) BSP interest rate decision on Thursday, August 17, 2023 (consensus estimate: no change in rates)

3) US initial jobless claims as of August 12, 2023, on Thursday, August 17, 2023

4) Overall Balance of Payments (BOP) for Jul 2023 from Friday-Tuesday, August 18-22, 2023 (June 2023: USD 606 million).

WHAT HAPPENED LAST WEEK

Defensiveness was the overall theme last week for the peso government securities (GS) market as players mostly stayed on the back of higher global yields. On Tuesday, the Bureau of the Treasury (BTr) partially awarded the reissuance of 4.6-year Fixed Rate Treasury Note (FXTN) 10-63 at an average of 6.337% or just in-line with market expectations.

As the BTr capped the high of awarded levels at 6.35%, it was able to raise PHP 26.61 billion out of the PHP 30 billion offered. Had it been fully awarded, the high would have been at 6.375%.

Following the US credit rating downgrade, selling activity was seen in the local bond space as yields of medium- to long-term bonds rose by as much as 19 basis points (bps). Prices of peso GS, however, remained wide and volume turnover thin.

On Friday, despite July inflation printing at 4.7%, which was better than the Bloomberg consensus of 4.9% and June inflation of 5.4%, offshore participants were seen selling Treasury bills (T-bills) and short-term bonds as they trimmed positions on the volatile movement of the USD/PHP exchange rate. Meanwhile, the 7-year FXTN 7-70 rose 12.5 bps day-on-day where it was last traded at 6.45%.

Market Levels (week-on-week)

WHAT WE CAN EXPECT

We expect players to remain at the sidelines ahead of key risk events for the week: 6-year FXTN 7-68 auction today (August 8), second quarter Philippines GDP due Thursday (August 10), and US July consumer price index (CPI) on Friday (August 11).

Investors who are looking for short-term investments may consider deploying their excess cash in Retail Treasury Bond (RTB) 3-11 (7 months to maturity) and short-tenored T-bills, as their yields have significantly adjusted higher in the recent sell-offs.

See our updated top picks below:

GERALDINE WAMBANGCO is a Financial Markets Analyst at the Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She provides research and investment insights to high-net-worth clients. She is also a recent graduate of the bank’s Financial Markets Sector Training Program (FMSTP). She holds a Master’s in Industrial Economics (cum laude) from the University of Asia and the Pacific (UA&P). She takes a liking to history, astronomy, and Korean pop music.

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange Index (PSEi) shed a hefty 174.42 points to close at 6,450.84 (-2.63% week-on-week). This is on the back of the spillover of negative sentiment from the unexpected US Fitch Ratings downgrade from AAA to AA+.

In addition, PSEi rebalancing trades, effective on Monday (August 7, 2023), further pulled down the local bourse on Friday’s close. The market fell last week despite the improvement in the local Manufacturing Purchasing Managers’ Index (PMI) to 51.9 in July from June’s 50.9 as well as the better-than-expected local July inflation print at 4.7% vs. the consensus estimate of 4.9%.

WHAT TO EXPECT THIS WEEK

This week, we expect a volatile market with a slight upward bias amid the potential bargain hunting from last Friday’s market-on-close trades. During the course of the week, there will be a slew of PSEi earnings announcements as well as the results of the MSCI Quarterly Index Review.

Furthermore, investors will be on the lookout for major economic data releases, such as the highly anticipated 2nd quarter 2023 local GDP results. The latter is estimated at 6.0%, the lower end of the 6.0-7.0% target of the government. Investors will price in the fifth consecutive week of fuel price hikes, with diesel expected to rise by PHP 3.70 – PHP 4.00 per liter.

On the international front, the market is expecting a faster US inflation print for July at 3.3% (Jun 2023: 3.0%) and will assess the direction of policy rate decisions moving forward.

Resistance: 6,600/6,750

Support: 6,200/6,400

ANALYSIS

Last week, the PSEi continued to drop, breaking below the previous support at 6,600. Furthermore, the market traded below key moving averages (50-day, 100-day, and 200-day) with the technical indicator moving average convergence-divergence (MACD) falling below the signal line.

We believe that should the PSEi continue its descent, it can retest the support levels next at around 6,400 to 6,200. Otherwise, should the PSEi bounce back and sustain its previous rally, it can retest the next resistance levels at 6,600 to 6,750, hence negating the current bearish sentiment in the market.

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

STOCK CALLS FOR THE WEEK

Aboitiz Power Corp/ BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 41.88

Aboitiz Power Corp. (AP) reported 1st half 2023 net income of PHP 17.8 billion (+79% y-o-y) and core net income of PHP 17.8 billion (+95% y-o-y) — ahead of consensus estimates — driven by fresh contributions from GNPower Dinginin Ltd. Co. (GNPD) and higher availability across AP’s portfolio.

In terms of operational performance, AP’s generation and retail electricity supply (RES) business increased capacity to 4,718 megawatts (MW) (+25% y-o-y). Meanwhile, AP’s distribution business recorded an increase in energy sales by 7% y-o-y driven by residential and commercial segments amid the recovery of demand in areas affected by Typhoon Odette in 2022.

As for management guidance, energy sales from AP’s hydro plants declined by 13%/5% y-o-y in 2Q23/1H23 due to lower water inflow amid the onset of El Niño –- in line with our view from the last report.

However, we expect AP’s increased exposure to the spot market as well as the growth in contracted capacity to mitigate the impact of El Niño. Furthermore, AP has approximately 270 MW of projects expected to come online in the 2nd half of 2023 which can add fresh contributions to the company’s earnings.

Accumulate once AP breaks above PHP 36.50. Set stop limit orders below PHP 33.80 and take profit at PHP 42.00/PHP 44.00.

Bank of the Philippine Islands/ BUY ON PULLBACKS | FMSEC Target Price: PHP 123.00

As mentioned in our report (“Another stellar quarter”), BPI’s year-to-date revenues reached PHP 65.6bn (+13.8% y-o -y) as net interest income (+27.4% y-o-y to PHP 50.1 billion) grew on the back of a 9.2% expansion in average asset base and a 56-bp expansion in net interest margin (NIM) to 4.03%.

This offset lower Net Order Imbalance Indicator (NoII) (-15.4% y-o-y to PHP 15.5 billion) due to one-off gains last year. Excluding the latter, NoII would be PHP 2.2 billion (+16.3% y -o-y), led by an increase in fees from credit cards, various service charges, and securities trading.

Despite operating expenditure cost pressures (+21.4% y-o-y to PHP 31.4 billion), pre-provisioning operating profit (PPOP) grew 7.6% y-o -y to PHP 34.2 billion – in line with our estimates. The bank booked provisions of PHP 2.0 billion (-60.0% y-o-y) – behind our PHP 4.8-billion forecast for the full year.

Non-performing loan (NPL) ratio was at 1.88% (2Q22: 1.99%), with the NPL coverage ratio at 167.44% (2Q22: 170.7%). The bank’s aggregate loan book rose 10.5% y-o-y to PHP 1.7 trillion, on loan growth in the corporate, credit card, and auto portfolios of 8.0%, 42.7%, and 20.4%, respectively. Deposits increased 7.6% y-o-y to PHP 2.1 trillion.

Accumulating once BPI pulls back to PHP 110.00 is advisable. Set stop limit orders below PHP 101.20 and take profit at around PHP 126.50. For long-term investors, our fundamental target price for BPI is PHP 123.00 (+8.37% upside from latest close).

Manila Electric Company/ BUY ON PULLBACKS |CONSENSUS TARGET PRICE: PHP 374.75

After consolidating within the PHP 278.00 and PHP 310.00 range, MER broke out and is currently trading on an uptrend channel. Furthermore, the counter is trading above key moving averages (50-day, 100-day, and 200- day), signaling that its uptrend may be sustained.

While MER is on an uptrend, there is a high probability that the counter will pull back before possibly resuming its ascent. This will allow traders or investors to accumulate at a more favorable risk-reward level. Moreover, MER’s strong performance in the 1st half of 2023 was mainly driven by the generation segment on account of robust growth from PacificLight and positive contribution from Global Business Power (GBP), MGreen, and San Buenaventura Power Ltd. (SBPL).

In addition, energy sales volume reached an all-time high amid higher demand from residential and commercial segments. Given these, MER is projecting its energy sales volume to grow by 4-5% y-o-y in the 2nd half of 2023, bringing full year 2023 to 4%.

Accumulate once MER pulls back to PHP 335.00. Set stop limit orders below PHP 308.00 and take profit at PHP 385.00.

KEY DATA RELEASES

The key data releases this week are:

1.) PH exports YoY for June 2023 on Tuesday, August 8, 2023 (consensus estimate: -8.8%; May 2023: 1.9%)

2.) PH imports YoY for June 2023 on Tuesday, August 8, 2023 (consensus estimate: -14.4%; May 2023: -8.8%)

3.) PH unemployment rate for June 2023 on Wednesday, August 9, 2023 (May 2023: 4.3%)

4.) PH GDP YoY for 2Q23 on Thursday, Augst 10, 2023 (consensus estimate: 6.0%; 1Q23: 6.4%)

5.) US Initial Jobless Claims as of August 5, 2023, on Thursday, August 10, 2023

6.) US CPI YoY for July 2023 on Thursday, August 10, 2023 (consensus estimate: 3.3%; June 2023: 3.0%)

7.) MSCI Quarterly Index Review on Friday, August 11, 2023

Metropolitan Bank & Trust Co.’s net income rose by 34.1% to PHP 20.9 billion in the first semester of 2023 from a year ago supported by the bank’s asset expansion, higher margins, and healthy fee income growth as it kept its asset quality stable. This translated to a 12.9% return on equity, higher than the 10.0% recorded in the same period last year.

In the second quarter alone, the Bank posted a 37.1% growth in earnings to PHP 10.4 billion from the same period last year.

“Our core businesses continued to grow and benefit from our strong balance sheet,” said Metrobank President Fabian S. Dee. “As the economy further expands, we see more market opportunities that will keep our upward momentum and sustain our efforts to better serve our customers,” he added.

The bank’s net interest income surged by 27.0% to PHP 50.6 billion, on the back of a 50-basis-point increase in net interest margin to 3.9%. Gross loans climbed by 8.6% year-on-year, driven by a 7.2% rise in commercial loans and 14.1% expansion in consumer loans. Net credit card receivables surged by 28.8% while auto loans grew by 17.5%, sustaining the growth momentum in the consumer segment.

Meanwhile, total deposits grew by 9.3% to PHP 2.3 trillion from a year ago, of which low-cost Current and Savings Accounts (CASA) accounted for 62.2%.

Trading and foreign exchange gains stood at PHP 3.1 billion, while fee income rose by 10.2% to PHP 8.1 billion.

Cost-to-income ratio continued to improve, declining to 51.8% from 53.8% last year. The solid 19.1% growth in revenues outpaced the 14.5% jump in operating expenses to PHP 33.7 billion, which was mainly driven by higher transaction-related taxes and technology-related costs.

As a result, pre-provision operating profit increased by 24.4% to PHP 31.8 billion.

Metrobank’s non-performing loans (NPLs) ratio further eased to 1.8% from 1.9% in the same period last year, reflecting the bank’s prudence in its lending business. NPL cover is at a high of 184.4% providing a substantial buffer against any risks to the portfolio.

Metrobank’s total consolidated assets stood at PHP 2.9 trillion, maintaining its status as the country’s second largest private universal bank.  Total equity reached PHP 329.8 billion.

The bank’s capital ratios are still among the highest in the industry, with capital adequacy ratio at 17.9% and Common Equity Tier 1 (CET1) ratio at 17.1%, all well-above the BSP’s minimum regulatory requirements. In addition, Metrobank’s Liquidity Coverage Ratio (LCR) is substantial at 243.4%.