Stock Market Weekly: Keep an eye on US Fed rate hike, major earnings and data releases 

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) rose 1.6% (105.04 points) week-on-week to close at 6,625.08. The market was fueled by the strength of the banking sector’s 1st quarter 2023 earnings results and positive comments from the International Monetary Fund on Philippine banks’ resilience.

Investors also welcomed the BSP’s lower April year-on-year inflation forecast of 6.3% to 7.1% (actual for March 2023: 7.6%). The market pulled back mid-week amid renewed concerns over a US banking crisis and comments from BSP Governor Felipe Medalla suggesting a potential slower pace of easing.

Towards the end of the week, the market bounced back, fueled by stronger Asian peers, bargain hunting, and a positive sentiment in global markets.

As for notable corporate actions, a consortium consisting of Metro Pacific Holdings, Inc., GT Capital Holdings, Inc. (GTCAP), Mit-Pacific Infrastructure Holdings, Inc., and MIG Holdings Incorporated intends to make a tender offer on all outstanding common shares of Metro Pacific Investments Corp. (MPI) with a view to taking MPI private through a voluntary delisting process. Based on the Tender Offer Notice, the bidders will offer to acquire the Tender Offer Shares at PHP 4.63 per share.

Top index performers were Metro Pacific Investments Corp. (MPI) (+14.8%), Alliance Global Group Inc. (AGI) (+14.1%), and BDO Unibank (BDO) (+6.7%), while index laggards were DMCI Holdings Inc. (DMC) (-8.2%), PLDT (TEL) (-5.1%), and Converge (CNVRG) (-4.8%). The index breadth was positive with 19 gainers versus 11 losers. The average daily turnover value was PHP 5.0 billion. Foreigners were net buyers by PHP 919.6 million.

WHAT TO EXPECT THIS WEEK

We expect the market to trade sideways with an upward bias amid the expected possible US Fed rate hike announcement on Thursday, and major earnings and data releases.

The Fed is anticipated to raise its benchmark lending rate by 25 basis points during the upcoming Federal Open Market Committee (FOMC) meeting on May 4, 2023, marking the 10th and potentially final increase. Investors will also be closely monitoring the release of US Bureau of Labor Statistics’ data on nonfarm payrolls, and the latest unemployment numbers.

On the domestic front, the market will be on the lookout for the release of the April 2023 Philippine Consumer Price Index (CPI) (consensus estimate: 7% y-o-y). However, investors are closely watching Metro Manila’s weekly COVID positivity rate, which rose to 14.3%, and the possibility of reintroducing mandatory face mask use in the Philippines, as mentioned by Pres. Ferdinand “Bongbong” Marcos Jr.

STOCK CALLS FOR THE WEEK

Bloomberry Resorts Corp. (BLOOM) — BUY ON PULLBACKS

BLOOM may benefit from MPI’s plan to voluntary delist. Based on our estimates, we see a high likelihood for BLOOM to potentially replace MPI in the PSEi. Currently, BLOOM is trading at overbought conditions after shooting past PHP 9.00, PHP 10.0, and PHP 11.0 over the last four months. Accumulating on pullbacks for a more favorable risk-to-reward trade would be a better entry strategy. Those looking to accumulate can buy BLOOM once the stock pulls back to PHP 10.00. Set stop limit orders below PHP 9.20 and take profits at around PHP 11.50/PHP 12.00.

Shakey’s Pizza Ventures, Inc. (PIZZA) — BUY ON BREAKOUT

PIZZA’s management sees growth momentum to be sustained this year given optimistic numbers and despite the elevated cost environment and its impact on consumer sentiment.

PIZZA’s 2022 net income surged to PHP 874.4 million, exceeding pre-pandemic levels, and up from PHP 122.98 million in 2021. In terms of revenues, PIZZA similarly booked an 85% y-o-y growth to PHP 10.14 billion amid the 37% same-store sales growth (SSSG) as well as the PHP 14.1 billion systemwide sales (SWS) on the back of the resurgence in dine-in sales, the company’s store network expansion, and the acquisition of Potato Corner (PC).

As for price action, a break above the PHP 8.70 resistance level will likely result in the stock sustaining its bullish price action. Accumulating PIZZA once it breaks above PHP 8.70 is advisable. Set stop limit orders below PHP 8.00. Take profit at around PHP 10.00/PHP 10.50.

Converge Solutions, Inc. (CNVRG) — BUY ON BREAKOUT

CNVRG’s price weakness may be close to bottoming out. Following the disappointing full-year 2022 earnings, Converge ICT Solutions, Inc.’s (CNVRG) price has fallen by 25.06% year-to-date, significantly underperforming the PSEI.

The stock continues to trade at oversold levels as foreigners continue to sell. That said, conservative investors can wait for a bullish reversal and a retracement to higher levels before accumulating.

From a fundamental standpoint, we think that the slowdown in subscriber growth in the broadband segment is likewise close to bottoming out, with average revenues per user (ARPU) expected to stabilize in the next 6-12 months.

Competition is expected to be pre-occupied with the mobile segment where CNVRG has no exposure. At our trimmed down PHP 13.8 target price, CNVRG now offers undemanding valuations relative to the normalizing growth delivered in recent quarters, in line with broader telco peers in the emerging markets. Accumulating CNVRG after it breaks above its 50-day moving average price (~PHP 14.0) is advisable. Set stop limit orders 8% below average cost. Take profit at around PHP 16 or higher.

PSEi TECHNICAL ANALYSIS

Resistance: 6,600 / 6,800

Support: 6,400

The PSEi sustained its rebound last week above its 200-day moving average price (~6,511) on higher value turnover and net foreign buying. The market managed to break above the 6,600-resistance level as well.

Meanwhile, the technical indicator MACD is showing signs of the bulls taking control. Nevertheless, we believe that only once the PSEi breaks above 6,800 will the reversal of the market’s short-term downtrend take hold.

TRADING PLAN

Gradually accumulate once the PSEi trades back above 6,800.

KEY DATA RELEASES

Tuesday, May 2, 2023
– Corporate earnings: Union Bank of the Philippines (UBP), Aboitiz Power (AP), Aboitiz Equity Ventures (AEV)

Wednesday, May 3, 2023
– Corporate earnings: Metro Pacific Investments Corpo. (MPI), Bank of the Philippine Islands (BPI)

Thursday, May 4, 2023
– US Federal Open Market Committee (FOMC) interest rate decision (consensus estimate: 25-bp rate increase)
– Corporate earnings: Semirara Mining and Power Corporation (SCC), AC Energy (ACEN), PLDT (TEL)

Frifay, May 5, 2023
– US change in nonfarm payrolls for April 2023 (consensus estimate: 175k; actual for March 2023: 236k)
– US unemployment rate for April 2023 (consensus estimate: 3.6%; actual for March 2023: 3.5%)
– Philippine Consumer Price Index (CPI) YoY for April 2023 (consensus estimate: 7%; actual for March 2023: 7.6%)
– Corporate earnings: Ayala Land Inc. (ALI)