Stock Market Weekly: Market to trade sideways with a downward bias amid key data releases 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) dropped by -1.81% week-on-week to close at 6,290.27 (-115.64 points), a nine-month low. The market fell on account of China’s economic woes — especially with news of real estate giant Evergrande filing for bankruptcy — and more hawkish comments from the US Fed. Amid these news, investors lightened positions ahead of the long weekend in observance of the Ninoy Aquino Day holiday on August 21, 2023.

Investors also considered the lower-than-expected Philippine overseas cash remittances growth, which came in at 2.1% y-o-y (consensus estimate: 2.9%) to USD 2.81 billionfor the month of June 2023. In addition, the Bangko Sentral ng Pilipinas’ (BSP) decided to maintain its key policy rate steady at 6.25%, as widely anticipated.

The BSP’s inflation forecasts, however, were adjusted higher to 5.6% (from 5.5%) and 3.3% (from 2.8%) for 2023 and 2024, respectively, on account of higher global oil prices. For 2025, the forecast is 3.4%.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade sideways with a downward bias as investors monitor key data releases such as the US Purchasing Mangers’ Index (PMI) and initial jobless claims for August 2023.

Investors are also monitoring the upcoming Jackson Hole Economic Policy Symposium from August 24-26, 2023, to get guidance from US Fed Chair Powell’s speech on the rate outlook. On the local front, the market will price in the sixth consecutive week of fuel price hikes, with diesel expected to rise by PHP 0.20 per liter, gasoline by PHP 1.10 per liter, and kerosene by PHP 0.70 per liter.

Resistance : 6,600/6,750

Support: 6,000/6,200

ANALYSIS

Last week, the PSEi fell for the fourth straight week, breaking below the 6,400 support level. Furthermore, the market traded below key moving averages (50-day, 100-day, and 200-day) with the technical indicator moving average convergence/divergence (MACD) falling below the signal line.

We believe that should the PSEi continue its descent, it could retrace towards the next support levels at around 6,000 to 6,200. Otherwise, should the PSEi bounce back, it could retest the next resistance levels at 6,600 to 6,750, hence negating the current bearish sentiment in the market.

Lighten up if the PSEi bounces but fails to break above 6,750. Add to position once the market decisively breaks above 6,750.

STOCK CALLS FOR THE WEEK

AC Energy Philippines, Inc. | BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 6.65

ACEN Corp. (ACEN) reported consolidated revenues of PHP 20.5 billion (+28% y-o-y) mainly attributable to the boost in net generation due to the stronger wind regime throughout the period and higher operating capacity with testing and commissioning of new projects, allowing ACEN to achieve a net selling merchant position at the Wholesale Electricity Spot Market (WESM).

After dropping by as much as 40% year-to-date, ACEN has found a near-term bottom around the PHP 5 level. In terms of management guidance, ACEN currently has 4.3 GW of capacity, both operational and under construction, of which 1.6 GW is in the Philippines, 1.0 GW in Australia, 0.9 GW in Vietnam and Lao People’s Democratic Republic, 0.5 GW in India, and 0.3 GW across Indonesia and other markets.

Accumulating once ACEN breaks above PHP 5.90 on strong volume is advisable. Set stop limit orders below PHP 5.43. Take profits at around PHP 6.79.

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). While the pre-provision operating profit (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.

Post-adjustments, we upgraded our net interest income forecast by 5.1%/4.7% for 2023 and 2024, respectively. We also lowered our credit cost assumptions in line with the bank’s current provisioning. As such, we have raised our net earnings forecast for BDO by 10%/11% in 2023 and 2024, respectively.

Our new target price (TP) implies 1.7x/1.5x price-to-book (PB) ratio for 2023 and 2024, respectively. We think this is justified as the return on equity (ROE) should be sustained at the mid-teens in the next 12 to 24 months (about 2 years). We see this to be driven by: (i) robust core operations – with solid loans growth, Current Account Savings Account (CASA) generation, and volume driven businesses driving revenues; (ii) improved cost-to-income ratio to < 60% vs pre-COVID; (iii) scope for lower provisioning – as asset quality risks remain benign; and (iv) the generally improving macro outlook and broadening economic drivers.

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 (+19.39% from the last closing price).

Alliance Global Group, Inc. BUY | CONSENSUS TARGET PRICE: PHP 17.11

Alliance Global Group, Inc. (AGI) will benefit from a surge in tourism with subsidiaries in travel-related sectors. With townships in different regions, Megaworld Corp. (MEG) recorded a 31% y-o-y growth in net income as local tourism and meeting, incentive, convention, and exhibition (MICE) events increased room and occupancy rates and revenues from hotels and resorts to PHP 1.7 billion (+58% yo-y) in the 1st half of 2023.

Travellers International Hotel Group, Newport World Resorts (formerly Resorts World Manila) operator and owner, recorded overall core revenues growth of 28% y-o-y in the 1st half of 23 as MICE events and improved hotel occupancy rates drove up non-gaming core revenues from hotels, food, beverage, and others to PHP 3.3 billion (+42% y-o-y).

Net gaming revenues from casinos also grew to PHP 11.9 billion (+29% y-o-y) from foot traffic surpassing pre-pandemic levels. These resulted in AGI’s consolidated revenues surging to PHP 48.8 billion (+8% y-o-y) with attributable profit at PHP 4.6 billion (+5% y-o-y).

With travel-related activities such as MICE events and tourism boosting the 1st half 2023 performance of AGI’s subsidiaries, we think that the loosening of travel restrictions will further benefit AGI in the next quarters.

Accumulating AGI at current levels is advisable. Take profit at around PHP 14.40/ PHP 14.50. Set stop limit orders below PHP 11.50.

KEY DATA RELEASES

1.) US S&P Global Manufacturing Purchasing Mangers’ Index (PMI) for August 2023 on Wednesday, August 23, 2023 (July 2023: 49.0)

2.) US Initial Jobless Claims as of August 19, 2023, on Thursday, August 24, 2023 (July 2023: USD 239k)

3.) PH Budget Balance for July 2023 on Friday, August 25, 2023 (June 2023: 225.4 billion)