Stock Market Weekly: Investors to stay on the sidelines

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) inched up by +0.87% week-on-week (w-o-w) to close at 6,881.97 (+59.65 points). The benchmark index rose as the US Fed kept interest rates steady at 5.25% to 5.50% and estimated three quarter-percentage point cuts by end-2024.

On the local front, positive sentiment was driven by the January 2024 remittance data, which grew by 2.7% y-o-y (December 2023: 3.8%), and comments from Bangko Sentral ng Pilipinas (BSP) Gov. Eli Remolona Jr. signaling that the further reduction of the reserve requirement ratio (RRR) is on the table.

However, gains were capped as the BSP projected March 2024 inflation to accelerate to 3.9%, driven by the impact of El Niño on food prices. In addition, the statement from President Ferdinand Marcos Jr., who indicated that interest rate cuts may be held off as the government focuses on taming inflation, also dampened sentiment.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade with a downward bias as investors stay on the sidelines amid the shortened trading week. Investors will digest the anticipated big-time oil price hike by as much as PHP 2.20 to PHP 2.40/liter of gasoline and PHP 1.45 to PHP 1.75/liter of diesel.

On the international front, the market will closely monitor the US Fed’s preferred inflation gauge, the core personal expenditure (PCE) price index, which will determine the Fed’s next course of action.

Resistance: 7,000/6,900

Support: 6,400/6,700

ANALYSIS

The PSEi picked up by +0.87 w-o-w to close at 6,881.97. The benchmark index attempted to break above 6,900 and the 20-day moving average (MA), but this was not sustained at the end of the week. The index is still trading near the 6,900 to 7,000 key resistance levels, which may indicate a period of indecision for the market.

Nevertheless, positive momentum is still intact as the PSEi continued to trade above key moving averages (50-day, 100-day, and 200-day). If the bulls continue to dominate, the PSEi could once again retest the next resistance levels around 6,900 and 7,000. Otherwise, if the bears take over, it can retrace the next support levels at 6,700 to 6,400.

STOCK CALLS FOR THE WEEK

BDO Unibank, Inc. | BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 170.00

As stated in our latest company report, “Maintaining peak ROE,” we maintain our BUY call on BDO with our target price raised to PHP 170.00 (previous: PHP 165.00). This is as BDO achieved a Return on Equity (ROE) of 15.3% as of end-2023, meeting management’s expectations.

Moreover, our forecasts assume that BDO can deliver 14%/7% earnings growth in FY24F/25F. BDO has been trading on an upward channel since June 2020 and has recently reached its all-time high price of PHP 157.80 last February 2024. At current levels, BDO is trading above all key moving averages (MA) (50-day, 100-day, and 200-day) with its RSI, a technical indicator which measures the momentum of trading, at stable levels.

Following the trend, the counter presents an opportunity to accumulate close to the identified support at PHP 145.00, near the 50-day MA. This provides a sufficient upside of 17% from our fundamental target price of PHP 170.00.

D&L Industries, Inc. | TRAILING STOPS | CONSENSUS TARGET PRICE: PHP 8.49

D&L Industries, Inc. (DNL) logged a 31% y-o-y decline in its full-year 2023 net income to PHP 2.3 billion from PHP 3.32 billion in full-year 2022 attributable to high interest and depreciation expenses associated with the company’s new Batangas manufacturing plant, as well as other macroeconomic factors, including the lingering effects of high inflation during the period.

Moreover, full-year 2023 sales fell by 23% y-o-y to PHP 33.5 billion versus PHP 43.49 billion from the previous year. Recently, the stock also formed a head and shoulders top pattern, signifying that the stock has reached its peak price, marking the start of a bearish reversal.

Moreover, the counter is approaching oversold territory, signifying weakening interest from investors. Despite this, DNL’s management expressed optimism in their operational performance for full-year 2024 as they believe that the year would be better for the company on lower inflation and interest rate prospects.

AyalaLand Logistics Holdings Corp. | BUY ON PULLBACKS | NO CONSENSUS TARGET PRICE

In recent developments, the Cold Chain Association of the Philippines (CCAP) has projected a notable 8%-10% per annum expansion in the local cold storage capacity, poised to reach approximately 750,000 metric tons by 2024.

CCAP attributes this expansion to increased demand for food storage, driven by anticipated improvements in agricultural production. CCAP anticipates sustained growth for the industry, with several projects scheduled to be launched in 2024. ALLHC formed a rounding bottom chart pattern beginning August 2023.

Notably, the stock has recently surpassed all key moving averages (50-day, 100-day, and 200-day), although the RSI indicates overbought conditions, hinting at possible retracements in the near term. Should ALLHC sustain its current trajectory and replicate its price action from 2021, we anticipate a viable recovery in its share prices.

KEY DATA RELEASES

1.) US Initial Jobless Claims as of March 23, 2024, on Thursday, March 28, 2024, (prior: 210k)

2.) US Core PCE Index m-o-m for February on Friday, March 29, 2023 (estimates: 0.3%)