Stock Market Weekly: We see sideways trading with a downward bias 

WHAT HAPPENED LAST WEEK

Last week, the Philippine Stock Exchange index (PSEi) ended +2.81% higher week-on-week (w-o-w), closing at 6,686.09 (+182.5 points). The benchmark index mostly traded in positive territory early in the week, only to pause on Thursday ahead of the announcement of US GDP data and amid news of USD 247 million worth of hot money outflows for 2023 (from 2022’s USD 887.7 million of net inflows), according to data from the Bangko Sentral ng Pilipinas (BSP).

The local bourse managed to recover on Friday, buoyed by better-than-expected US 4th quarter 2023 GDP of 3.3% (estimates: 1.9%; 3Q23: 4.9%). In addition, sentiment improved as investors digested news that the government is planning reforms to boost the local capital market.

Presidential Investment Adviser Frederick Go announced that the government is working on reducing sales tax, harmonizing withholding tax, and reducing brokers’ commissions, among other measures.

WHAT TO EXPECT THIS WEEK

This week, we expect the market to trade sideways with a downward bias, given: (i) portfolio realignment of index tracking funds ahead of the PSEi rebalancing effective on February 5; and (ii) the anticipated oil price hike by as much as PHP 1.95 – PHP 2.10/liter on gasoline and PHP 0.65-PHP 0.85/liter on diesel.

Investors will also be monitoring the upcoming PH GDP y-o-y report for full year 2023 on Wednesday, January 31, 2024, which is projected to come in lower at 5.60% (2022: 7.20%). Moreover, profit taking might cap gains as the local bourse approaches its key resistance level at 6,700. On the foreign front, investors will be on the lookout for the interest rate decision of the US Fed that is forecasted to remain unchanged at 5.50%.

Resistance: 6,700/6,800

Support: 6,600/6,400

ANALYSIS

The PSEi surged by +2.81% w-o-w to end the week at 6,686.09. The benchmark index bounced back after hitting the 6,600-support level. The market is trading above key moving averages (50-day, 100-day, and 200-day) and is poised to revisit the 6,700-resistance level.

If the PSEi sustains its rally, it can retest the next resistance levels at 6,700 and 6,800. Otherwise, it can retrace the next support levels at 6,600 to 6,400.

STOCK CALLS FOR THE WEEK

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

Maya’s depositor growth is a welcome development on the fintech front as it solidifies TEL’s foothold in the digital finance industry. In terms of valuations, we continue to like TEL given that at current levels, the counter is trading at an undemanding EV/EBITDA of 5.3x/5.2x and a hard-to-ignore dividend yield of 7.4%/7.6% for FY24F/25F.

As for price action, after hitting a three-year low at PHP 1,094 last September 2023, TEL rallied by around 20%. TEL has formed an upward channel and is currently trading above key moving averages (50-day, 100-day, and 200-day MA).

For a more favorable risk-reward ratio take advantage of TEL’s short-term price weakness. Accumulate once TEL pulls back and bounces off its support around PHP 1,260 to 50-day MA. Set a stop loss limit around PHP 1,159.2 and take profits around PHP 1,449. For long-term investors, our fundamental target price for TEL is PHP 1,430 (+11.02% upside from the latest close).

Bank of the Philippine Islands* | BUY ON PULLBACKS | FMSEC TARGET PRICE: PHP 123

As highlighted in our previous company update titled, “Exciting times ahead for the bank,” we are positive with the BPI-RBank merger as it will provide strong synergistic potential.

We acknowledge that the merger will strengthen both companies’ positions across the financial and retailing industries. This is on the back of: (i) BPI’s growing asset, deposit, and client base; (ii) RBank’s above-industry loans and deposit; and (iii) synergies between BPI and the Gokongwei Group’s products and services platform.

On the ground, we have already seen this synergy take off with BPI clients able to open a savings account, apply for credit cards, loans, and various insurance products in retailers owned by the Gokongwei Group. Accumulate once BPI pulls back around PHP 100.00. Set stop limit orders below PHP 92.00 and take profits around PHP 115.00. For long-term investors, we have a target price of PHP 123 (+19.07% from the recent close).

Universal Robina Corp.* | BUY ON PULLBACKS | CONSENSUS TARGET PRICE: PHP 4.00

Universal Robina Corp. (URC) recently registered a 52-week low at PHP 108.10 amid concerning consumer data, further dragged down by an overall sluggish market. Despite 3Q23 national gross domestic product (GDP) growth beating consensus estimates (4.8%) at 5.9% driven by normalized fiscal spending, household consumption remains pale, slowing down from 5.5% in 2Q23 to 5.0% in 3Q23.

Fundamentally speaking, URC’s revenues grew by 9.0% y-o-y to PHP 117.6 billion in 9M23 (3Q23: +6.1%). By segment, Branded Consumer Foods (BCF) Philippines, BCF International, and Agro-Industrial & Commodities (AIC) grew by 4%, 2%, and 27% y-o-y to PHP 56.2 billion, PHP 24.9 billion, and PHP 35.6 billion, respectively.

Blended gross (+20bps) and EBIT (+70bps) margins also managed to expand from higher selling prices and profit recovery initiatives, thus resulting in EBIT growth of 17% y-o-y in 9M23. Accumulating URC once it breaks above the neckline resistance on strong volume at around PHP 121.0 is advisable. Set stop limit orders below PHP 111.0 and take profits at around PHP 139.0. For long-term investors, First Metro Securities has a fundamental target price of PHP 155.0.

KEY DATA RELEASES

1. Philippine GDP YoY for full year 2023 on Wednesday, January 31, 2024 (estimates: 5.6%)

2. Philippine Money Supply M3 SRF y-o-y for December 2023 on Wednesday, January 31, 2024 (December 2023: 7.0%)

3. Philippine Bank Lending y-o-y for December 2023 on Wednesday, January 31, 2024 (December 2023: 8.3%)

4. Philippine Bank Lending net of RRPs y-o-y for December 2023 on Wednesday, January 31, 2024 (December 2023: 7.0%)

5. US Federal Open Market Committee (FOMC) interest rate decision on Thursday, February 1, 2024 (forecast: no change in rates)

6. Philippine S&P Global Manufacturing PMI for January 2024 on Thursday, February 1, 2024 (December 2023: 51.5)

7. US Initial Jobless Claims as of January 27, 2024, on Thursday, February 1, 2024 (prior: 214k)

8. US S&P Global Manufacturing PMI Final for January 2024 on Tuesday, February 1, 2024 (prior: 50.3)

9. US Unemployment Rate for January on Friday, February 2, 2024 (December 2023: 3.7%; estimates: 3.7%).