Cautious trading as investors monitor Israel-Palestine conflict

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange Index (PSEi)1 dipped by -0.97% w-o-w to close at 6,259.95 (-61.29pts.). The market traded mostly in the red after Philippine September inflation print came in hotter-than-expected at 6.1% (est: 5.3%; August 2023: 5.3%).

The benchmark index retreated despite strong local jobs data and steep decline in global oil prices (West Texas Intermediate crude: USD 81.6/ barrel). Nickel Asia Corp. (NIKL) replaced Union Bank of the Philippines, Inc. (UBP) in the main gauge effective start of day of October 4, 2023. Furthermore, investors digested news on the much-awaited launch of securities borrowing and lending (SBL) and short-selling which will be effective on October 23, 2023.

The US labor market added 336,000 jobs in August 2023 (est. 165,000; August 2023: 227,000). The job gains came from leisure and hospitality (+96,000); government (+73,000); health care (+41,000); professional, scientific, and technical services (+29,000); and social assistance (+25,000). The unemployment rate stood at 3.8% (est. 3.7%; August 2023: 3.8%). Labor force participation rate came in at 62.8% (August 2023: 62.8%). Wage growth came in at 4.2% y-o-y (est. 4.3%; Aug 2023: 4.3%).

Top index performers were ACEN (+6.31%), WLCON (+4.55%), and TEL (+2.30%) while index laggards were JFC (-3.66%), AGI (-3.57%), and ALI (-3.40%). The index breadth was positive with 10 gainers versus 18 losers. Average Daily Turnover Value was PHP 4.4 billion. Foreigners were net sellers by PHP 2.6 billion.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade with a downward bias as investors closely monitor the developments in Israel-Palestine Conflict. Investors are expected to trade cautiously amid potential global oil price spike as violent incursions over the weekend between Israel and Palestine in Gaza raise further geopolitical tension and risks on trade.

The market will also await critical data releases such as US inflation and producer price index (PPI) and their implications on policy rates.

On the local front, fuel price rollbacks may provide some relief as diesel is expected to decline by PHP 2.60 to PHP 3.00 per liter and gasoline to decline by PHP 1.40 to PHP 1.70 per liter.

Resistance: 6,400/6,600

Support: 6,200/6,000

ANALYSIS

The PSEi retreated by -0.97% w-o-w to close at 6,259.95 (-61.29pts). The benchmark index was mostly in the red last week retesting the 6,200 support level. The market is still trading below its key moving averages (50-day, 100-day, and 200-day), indicating that sentiment remains to be bearish. If the PSEi pulls back further, it can retrace towards the next support levels around 6,200 and 6,000. Otherwise, should the market bounce back, it can retest next resistance levels at 6,400 to 6,600.

Continue to buy in tranches around identified support areas (6,000, 5,700, 5,400, 4,500) should the market revisit lower levels. Allocate some buying power to take advantage of offshoots in the market’s bearish stance.

STOCK CALLS FOR THE WEEK:

Universal Robina Corp. / BUY ON BREAKOUT | FMSEC Consensus Target Price: PHP 155.00

In our previous report URC: Buy on Breakout, we noted that the regulatory risk for URC is being overestimated, given: (i) single-use plastic tax has little to no impact to URC as the proposed House Bill refers to secondary level plastics, (ii) currently, there are no pending proposals for junk food and sugar-sweetened beverage taxes in Congress; and, (iii) there is scope for lower-than-expected impact as policymakers consider the concerns of affected groups. This has since materialized following opposition to the measures even if there are still no official proposals in Congress.

Accumulating once URC breaks above 50-day MA to PHP 121.60 on strong volume is advisable. Set Stop Limit orders below PHP 111.87 and take profit at around PHP 139.84. For long-term investors, our fundamental target price for URC is P155.00 (+29.17% upside from latest close).

Nickel Asia Corp./ TRAILING STOPS | CONSENSUS TARGET PRICE: PHP 8.14

Following the Philippine Stock Exchange, Inc.’s (PSE) announcement of NIKL’s inclusion in the main index, the stock formed a gap up pattern and has retested previous resistance levels. With the recent upsurge in NIKL’s share prices, the stock traded at an overbought region above key moving averages (50-day, 100-day, and 200-day), hence, a price correction is expected to ensue.

As for medium- to long-term growth prospects, the outlook for the nickel industry is positive as we expect greater adoption of renewable energy (RE) and electric vehicles (EVs) — two industries with high nickel demand. Moreover, NIKL’s foray into the RE generation business is a long-term catalyst amid the tight power supply in the Philippines. NIKL’s exposure in these high-demand industries positions itself as a key player in the mining and power value chains.

For those with profitable position, consider taking profits or implement trailing stops to secure profits. For those looking to buy, observe if the 100-day MA (~PHP 5.70) support level holds. Accumulate only once NIKL bounces off the said support level. Stop-loss limit at PHP 5.24 and take profits around PHP 6.56.

DITO CME Holdings Corp./ BUY ON PULLBACK |NO CONSENSUS TARGET PRICE

With the recent capital infusions, DITO may use the proceeds for CAPEX requirements to increase network coverage and settle financial obligations. As of September 24, 2023, DITO Telecommunity Corp. (Dito Tel), cornered 7.23% of the mobile market with 8.7 million registered subscribers. Based on its recent fourth annual technical audit, Dito Tel now has a nationwide coverage of 80.65% (third technical audit: 72.39%), surpassing its commitment of 80.01%. However, while management is targeting to meet EBITDA breakeven by 2025 and to make a profit by 2028, we think this could be a tall order in the absence of resources to execute aggressive advertising and promotions.

Having said that, we think the expected competition from a third player will require more time to materialize. We see this delay to allow the incumbents to strengthen their network and foster a stickier subscriber base in the near-to-medium term. We recommend accumulating once DITO pulls back and forms a base around its immediate support and 200-MA area at PHP 2.80/2.75. Take profits at around PHP 3.22 and set stop limit orders below PHP 2.57.

KEY DATA RELEASES:

Tuesday, October 10, 2023
– PH Exports y-o-y for September (August 2023: -1.2%);
– PH Imports y-o-y for September (August 2023: -15.3%);

Wednesday, October 11, 2023
– US PPI y-o-y for September (August 2023: 1.6%. est: 1.6%);

Thursday, October 12, 2023
– US CPI y-o-y for September (August 2023: 4.3%, est: 4.1%);
– US Initial Jobless Claims as of October 7, 2023 (prev: 207,000, est: 210,000)