Stock Market Weekly: August US inflation print to influence market this week 

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%).