Stock Market Weekly: First week of 2024 gets tepid welcome 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange (PSEi) dropped by -0.78% w-o-w to close at 6,450.04 (-50.96 points). The local bourse declined ahead of the long weekend as investors took profit amid concerns of an economic slowdown in 2024.

In addition, the market saw muted trading volumes given the shortened trading week and holiday festivities. On data, investors digested the Bangko Sentral ng Pilipinas’ (BSP) headline inflation forecast of 3.6% to 4.4% y-o-y (Nov 2023: 4.1%). The BSP expects upward pressure on inflation to come from higher prices of rice and meat, offset by lower prices of vegetables, fruits, electricity, and petroleum.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade sideways with an upward bias in the opening week of 2024. This is as investors anticipate a slew of data releases, such as the monthly inflation print (PH), manufacturing Purchasing Managers’ Index (both PH and US), employment data (PH), and initial jobless claims (US).

In addition, the market will also digest meeting minutes of the Federal Open Market Committee (FOMC), which will provide guidance on the interest rate direction of the US Fed. Finally, investors anticipate a marginal rollback in pump prices this week, with diesel expected to decline by PHP 0.40 to PHP 0.50/liter and gasoline by PHP 0.10 to PHP 0.20/liter.

Resistance: 6,600/6,750

Support: 6,200/6,400

ANALYSIS

The PSEi pulled back by -0.78% w-o-w after hovering near overbought conditions. Nevertheless, the benchmark index remained trading above the 6,400 support and key moving averages (50-day, 100-day, and 200-day). If the PSEi pulls back further, it can retrace towards the next support levels around 6,400 and 6,200. If the PSEi bounces back, it can revisit the next resistance levels at 6,600 to 6,750.

STOCK CALLS FOR THE WEEK

RL Commercial REIT, Inc.* | BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 5.70

In our latest company report titled, “Yields are attractive,” we reiterate our BUY call on RL Commercial REIT, Inc. (RCR), with our target price (TP) cut to PHP 5.70 amid the ongoing weakness in the Philippine office space. Our new TP implies a dividend yield of 7.0%/7.2% on FY24/FY25 payout. In addition, looking at the 3rd quarter 2023 occupancy rates, RCR fell to 94% from 97% in the 1st quarter of 2023.

However, we see the company’s resilient rental dynamics to offset pressure from recorded lower occupancy rates. For those looking to accumulate, entering once the stock breaks above its 100-day MA of ~PHP 4.92 on strong volume is advisable. Set stop limit orders below PHP 4.53 and take profits around PHP 5.66. For long-term investors, we have a fundamental target price of PHP 5.70 (+17.28% upside from recent close).

Robinsons Land Corporation* | BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 22.50

In our recent company report entitled, “Unwarranted valuation discount,” we reinstated coverage on Robinsons Land Corp. (RLC) with a BUY, target price at PHP 22.50. We highlight RLC’s favorable revenue mix in our full year 2024 forecast (FY24F) at 35%/27%/30% contribution among its commercial (malls), residential, and office segments which will allow RLC to be resilient despite the economic slowdown and grow faster during the recovery.

We believe RLC is grossly undervalued as it is currently trading at a huge discount to peers and historical trend, at 5.8x price-earnings (P/E) on FY24F earnings. We argue that among the property companies, RLC has similar, if not better, asset quality and growth potential.

Since 1Q23, RLC has been trading sideways within the PHP 13.30 to PHP 15.30 range. RLC has broken out of this range and is poised to sustain its rally. Nevertheless, it is currently trading at an overbought condition, with the technical indicator RSI at 70.9, thus a short-term correction may ensue.

For a more favorable risk-reward ratio, it is advisable to buy on pullbacks around PHP 15.30. Set stop limit orders below PHP 14.00 and take profits around PHP 15.60. For long-term investors, our target price for RLC is PHP 22.50 (+44.23% from the recent close).

PLDT Inc. | BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 1,430

In our latest company report entitled, “Strong beat with solid revenues and lower OPEX,” we reiterate our BUY call on PLDT Inc. (TEL) with target price (TP) maintained at PHP 1,430.00. We continue to like TEL as it remains well positioned in both core telco operations (mobile and fixed line). Furthermore, in FY24, we anticipate TEL to benefit from the easing monetary policy of the US Fed and BSP.

With the dovish pivot of major central banks, we foresee the upward pressure on bond yields to recede, which we believe should lead to the outperformance of yield-sensitive stocks. At current levels, our TP implies a yield of 6.5%/6.7% on FY24F/25F dividends, presenting an attractive entry point amid potential rate cuts next year.

In terms of technicals, after forming a gap-down pattern in mid-August, TEL continued its descent, dropping to reach a multi-year low at PHP 1,094.00. Following this, TEL rebounded and is currently hovering above key moving averages (20-day, 50-day, 100-day, and 200-day) with the technical indicator MACD poised to cross above the signal line while trading above zero — indicating bullish momentum for the stock.

Investors can take position once TEL fills the gap and breaks above the PHP 1,315.00 resistance. Set stop limit orders at PHP 1,209.00 and take profits at PHP 1,512.25. For long-term investors, we have a target price for TEL at PHP 1,430.00 (+11.28% upside from recent close).

KEY DATA RELEASES

1.) PH S&P manufacturing PMI for December 2023 on Tuesday, January 2, 2024 (Nov 2023: 52.7)

2.) US S&P manufacturing PMI for December on Tuesday, January 2, 2024 (Nov 2023: 48.2)

3.) PH inflation for December 2023 on Thursday, January 4, 2024 (BSP estimate: 3.6%-4.4%; Nov 2023: 4.1%)

4.) FOMC Meeting Minutes for December 2023 on Thursday, January 4, 2024

5.) PH unemployment rate for November 2023 on Friday, January 5, 2024 (Oct 2023: 4.2%)

6.) US initial jobless claims as of December 30, 2023, on Thursday, January 4, 2024.