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This week in the stock market
Chart of the week as of August 3, 2023

Liquidity remains a challenge in PSEi

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For the month of July, the Philippine Stock Exchange index (PSEi) managed to post a gain of 1.91% led by Ayala Land Inc. (ALI) as the low inflationary environment boded well for the property sector, while Universal Robina Corporation (URC) was the worst-performing stock due to lingering concerns on junk food tax and rising commodity prices.

Earnings seem to be upbeat thus far with three ahead, two in-line, and three behind consensus. With the eight names, second quarter earnings are up by 25% year-on-year. Banks form around 25% of PSEi earnings and figures have been upbeat thus far. We also look out on holding firms as they form around 40% of earnings.

Banks show promise amid faster lending growth

At this time, we have a strong preference for banks such as Metrobank, BDO, and Bank of the Philippine Islands (BPI). In the first half of 2022, lending growth has accelerated, and loan book quality has improved as well.

We upgraded our view on the consumer sector to neutral as mobility restrictions ease and face-to-face classes return. Companies offering staples such as Universal Robina Corporation (URC) and quick-service restaurants such as Jollibee Foods Corporation (JFC) both showed strong volume and profit margins.

Likewise, we have turned neutral on holding firms since they are back on expansion mode and subsidiary portfolios have right sized. We are relatively neutral on mining companies such as Semirara Mining (SCC) and DMCI Holdings (DMC) versus our more ESG-leaning (environmental, social, and governance) stance on the sector as elevated commodity prices bode well for free cashflow for the year.

As for the property sector, we have downgraded our views as performance is wildly mixed. However, we maintain core positions in the bigger developers such as SM Prime Holdings Inc. (SMPH) and Ayala Land (ALI).

All this reflects our reopening theme for the Philippine Stock Market and as we upgrade our stance from underweight to neutral and load up on quality, large capital firms.

Key Picks Sector Earning Growth (YoY) Driver Q4
Metropolitan Bank and Trust Company (MBT)
BDO Unibank Inc. (BDO)
Bank of the Philippine Islands) (BPI)
Financials 25% Loans Recovery Cost Control Overweight
Universal Robina Corporation (URC)
Jollibee Foods Corp. (JFC)
Monde Nissin Corporation (MONDE)

AC Energy (ACEN)
Manila Electric Company (MER)
Aboitiz Power Corporation (AP)
Industrial 11% Strong sales/revenues as COVID restrictions ease Neutral
Ayala Corporation (AC)
SM Investments Corporation (SM)
Holding Firms 9% Property and banks Neutral
International Container Terminal Services Inc. (ICT)
Globe Telecom (GLO)
Services 21% Telcos: Tower State, segment performance

ICT: Volume and yield improvement
Semirara Mining and Power Corporation (SCC)
DMCI Holdings Inc. (DMC)
Mining and Oil 300% Elevated coal prices Neutral
SM Prime Holdings Inc. (SMPH)
Ayala Land Inc. (ALI)
Property 16% Retail's strong recovery, steady office, but minimal residential Underweight
Overall 27% Neutral
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As shown in the table above, corporate earnings in the first half of 2022 have validated our views, with most downtrodden sectors posting above-average growth.

Share prices were quick to reflect better optimism as revenues trek back to pre-pandemic levels and bottom line earnings ultimately grow by 27% for the first half. The Philippine Stock Exchange index (PSEi) returned 4.2% in August as earnings were coming out.

Strong global headwinds (sustained heightened inflation, hawkish global monetary policy, weakening peso) has capped any further moves higher, as the market trades 7.8% lower for the year and especially in US dollar terms.

Nonetheless, we think that the underlying fundamentals for Philippine companies have shown resilience and warrants more constructive positioning in client portfolios.

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