Stock Market Weekly: Sideways trading amid oil price increases, earnings releases 

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) fell by 123.44 points or 1.97% week-on-week (w-o-w) to 6,142.90. Brent and WTI oil futures reached USD 92.38 and USD 89.37 per barrel, respectively, because of the ongoing Hamas-Israel conflict. In addition, the US 10-year bond yield breached 5% for the first time since July 2007, resulting in global risk-off sentiment in the past week.

WHAT TO EXPECT THIS WEEK

This week, we expect the index to trade sideways with a downward bias as investors price in the implications of rising oil prices to local pump adjustments. On Tuesday, oil companies are expected to raise diesel prices by PHP 1.30 to PHP 1.50 per liter and gasoline by PHP 0.90 to PHP 1.10 per liter. Furthermore, the market is also expected to trade cautiously ahead of more earnings releases and in preparation for the upcoming two-day trading week.

Resistance: 6,200/6,400

Support: 6,000/5,700

ANALYSIS

The PSEi dropped by -1.97% w-o-w to close at 6,142.90, breaking below the 6,200 support level. The benchmark index traded sideways below its key moving averages (100-day and 200-day), indicating that sentiment remains to be bearish. If the PSEi further pulls back, it can retrace towards the next support levels around 6,000 and 5,700. Otherwise, should the market rally, it can retest next the resistance levels at 6,200 to 6,400.

TRADING PLAN: Continue to buy in tranches around identified support areas (6,000, 5,700, 5,400, 4,500) should the market revisit lower levels. Allocate some buying power to take advantage of offshoots in the market’s bearish stance.

STOCK CALLS FOR THE WEEK

Manila Electric Co. / BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 382.91

Manila Electric Co. (MER) disclosed that its subsidiary, MGen Renewable Energy Inc. (MGreen), entered into an agreement with SP New Energy Corporation (SPNEC) and its parent, Solar Philippines Power Project Holdings, Inc. (SPPPHI), to invest PHP 15.9 billion to subscribe to 15.7 billion common shares and 19.4 billion redeemable preferred voting shares in SPNEC.

The fresh injection of capital by MGreen will fund the construction and expansion of SPNEC’s pipeline of projects. With MGreen’s acquisition of a controlling stake in SPNEC, this further expands its renewable energy (RE) generation portfolio.

This vertical integration provides growth prospects for MER. Those who bought from our buying level of PHP 335.00 should continue to hold and take advantage of the stock’s strength to lighten position. Meanwhile, those looking to accumulate can buy if MER pulls back around the lower trend line or 100-day MA. Set stop limit orders at 8% below average cost and take profits at 15% above average cost.

San Miguel Food and Beverage, Inc. / BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 70.00

The construction of its 12 state-of-the-art poultry mega-plants nationwide should provide ample capacity for SMF (San Miguel Foods), especially for quality chicken. This gives us confidence in the long-term horizon of the company and its ability to serve the growing demand for chicken and related products.

At the same time, the comeback of one of the most anticipated alcohol beverage events in the country should also lift beer volumes. Going into the festive months with the timely celebration of Oktoberfest, we expect the higher demand for beer to propel SMB’s 4Q23 performance. Accumulating FB once the stock pulls back to PHP 50.00 is advisable.

Set stop limit orders below PHP 46.00 and take profit at around PHP 57.50/ PHP 58.00. For long-term investors, our fundamental target price for FB is PHP 70.00 (+35.92% upside from latest close).

Robinsons Land Corp. / BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 23.67

Robinsons Land Corp. (RLC) has been consolidating within PHP 13.50 and PHP 15.50 for the past seven months amid a substantial appropriated buyback program of PHP 9.00 billion with total amount of shares purchased already at PHP 5.72 billion – communicating the management’s confidence in the outlook of RLC.

This is substantiated by the counter’s robust operating segments incurring year-on-year growth despite an unfavorable environment. RLC’s primary revenue drivers across its portfolio of malls, property developments, and hotels remain resilient, registering revenues of PHP 7.8 billion (+36% y-o-y), PHP 5.4 billion (+28% y-o-y), and PHP 2.0bn (+148% y-o-y), respectively.

We expect strong growth to continue particularly from its malls and hotel segments on the back of reliable consumer spending in malls and a continued resurgence in tourism. In addition, the counter will benefit from a stronger-than-expected BPO sector, with its majority holdings in RCR Commercial REIT, Inc. (RCR).

Lastly, as the rate hike cycle nears its end, we may see a lift in property valuations. Traders can accumulate once RLC breaks above PHP 15.30 on strong volume. Take profit at around PHP 17.60 and set stop limit orders below PHP 14.06.

KEY DATA RELEASES

1) US S&P Global Manufacturing Purchasing Mangers’ Index (PMI) for October on Tuesday, October 24, 2023 (September: 49.8; consensus estimates: 49.5)

2) PH Budget Balance for September on Wednesday, October 25, 2023 (August: PHP 133.0 billion)

3) US 3Q GDP on Thursday, October 26, 2023 (2Q: 2.1%; consensus estimates: 4.3%)

4) US Core PCE Index Q-o-Q for 3Q on Thursday, October 26, 2023 (consensus estimates: 3.7%)

5) US Initial Jobless Claims as of October 21 on Thursday, October 26, 2023 (October 14, 2023: 198,000)

6) Earnings release: Wilcon Depot, Inc. (WLCON) on Friday, October 27, 2023

7) Earnings release: Metropolitan Bank & Trust Company (MBT) on Friday, October 27, 2023