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Century Pacific Food, Inc. (CNPF): Riding the Commodities Cycle

Century Pacific Food, Inc. (CNPF): Riding the commodities cycle

April 11, 2018

 

Century Pacific Food Inc. (CNPF) is on recovery mode this year. But this year’s earnings picture won’t be quite impressive as growth is guided at just 5% (consensus at 7%). The stock is a cheap brand leader at 21x PE versus other strong brands like JFC’s 39x, URC’s 27.35x and DNL’s 24x and that’s a reflection of the bad news pretty much priced in: the profit drop of 4% last year to Php2.55bn. It was caused by margin erosion (due to higher tuna prices) at various levels - gross profit, EBITDA and net profit - ranging from 5 percentage points (pps) to 2 pps.

Awaiting Catalyst

Awaiting catalyst

April 6, 2018

 

We expect the PSEi to consolidate between 7,900-8,000 due to lack of catalyst. Despite strong macroeconomic fundamentals, the spectre of accelerating inflation, widening trade deficit, and weak PHP will continue to weigh on the market.

Rising Yield Curve

Rising yield curve

April 6, 2018

 

We expect the PSEi to consolidate between 7,900-8,000 due to lack of catalyst. Despite strong macroeconomic fundamentals, the spectre of accelerating inflation, widening trade deficit, and weak PHP will continue to weigh on the market.

Cement Industry: Tough Year

Cement Industry: Tough year

April 3, 2018

 

In spite of the backdrop of the government’s strong infrastructure spending and 6.7% GDP growth, 2017 proved to be another tough year for the cement sector dragged by sustained influx of cheaper cement imports and surging energy cost due to rising global oil prices. Major cement companies saw their FY 2017 net earnings dropped by double-digit led by CHP (-71% y-o-y), HLCM (-61%) and AEV’s Republic (contribution to AEV down 58%), while low-cost producer Eagle slowed to just low single-digit earnings growth (+4% from +12% in the previous year).

Taking Cue from CPI

Taking Cue from CPI

March 30, 2018

 

We expect the market to trade sideways to lower should the March inflation reading on Thursday proved upward to the consensus estimate of 4.7%, higher than 4.5% in February and the central bank’s estimate of 3.8% to 4.6%.

Inflation, TRAIN-2 Put Upward Pressure on Yields

Inflation, TRAIN-2 Put Upward Pressure on Yields

March 30, 2018

 

We expect upward pressure on bond yields to persist, especially given (1) Bangko Sentral’s (BSP) recent release of its March inflation expectation of 3.8%-4.6% (based on 2012 index), markedly higher than February’s 3.9%; and (2) news that the Lower House’s version of the second tax reform package is revenue-eroding, at least for the next two years as the House Bill proposes that reduction of fiscal incentives begin only 2 years after the bill is implemented. This may lead to more borrowing than initially expected to fund the government’s infrastructure program. Bond issuances are already starting to ramp up, with borrowing in the second quarter expected to grow by 35% quarter-on-quarter (QoQ) to Php325bn ($6.2bn), pressuring up interest rates. The debt auctions will also be more frequent, from fortnightly to weekly.

Robinsons Retail Holdings Inc (RRHI): Into big league retailing

Robinsons Retail Holdings Inc (RRHI): Into big league retailing

March 28, 2018

 

Businessman Gokongwei has teamed up with Dairy Farm through Robinsons Retail Holdings Inc.’s (RRHI) acquisition of Dairy Farm’s loss-making Rustans Supercenter Inc. (RSI) which owns a chain of supermarkets in the Philippines under the ff brands: Rustan’s Supermarket, Marketplace by Rustan’s, Shopwise, Shopwise Express, and Wellcome. Dairy Farm International Holdings Ltd, which has not been making money on its investments in RSI that posted negative earnings(at the EBIT level), will end up owning 18.25% of RRHI in exchange for Gokongwei’s 6.10% and RRHI’s newly issued shares of 12.15% of RRHI’s expanded capital in a no-cash out share swap deal. Gokongwei group retains its controlling stake of 51% in RRHI (no disclosure of Gokongwei’s and the public’s dilution at this point since the number of new RRHI shares remains unknown).

Petron Corp (PCOR PM): Toppish Earnings

Petron Corp (PCOR PM): Toppish earnings

March 27, 2018

 

Last year, PCOR invested in a 140MW power plant that would serve the needs of its Bataan refinery, leading to savings of around Php3bn annually. PCOR also recently refinanced $500mn worth of undated subordinated capital securities (USCS) last January by issuing perpetual securities, with a rate of 4.6%, 290bps lower than the USCS’s 7.5%, saving $21mn (~Php1bn) annually. Without any major capital expenditure this year other than service station expansion, management indicated that cashflow generated near-term will be used to delever. PCOR’s outstanding dollar-denominated debt as of end-2017 was $546bn, which management says is fully-hedged.

Markets still expect BSP hike

Markets still expect BSP hike

March 23, 2018

 

We expect bond trading to be sidelined amid the shortened work-week. The Bangko Sentral ng Pilipinas (BSP) decided to stand pat last week, as expected, but programmed borrowing in the second quarter is expected to grow by 35% quarter-on-quarter (QoQ) to Php325bn ($6.2bn), pressuring up interest rates. The debt auctions will also be more frequent, from fortnightly to weekly. The BSP also revised its inflation outlook this year from 3.8% to 3.9% but sees it slowing to 3.0% in 2019 from 3.1%, using the 2012-based index. Both forecasts are still within the target range of 2%-4%. That being the view, the BSP opted to keep its benchmark steady. Still, the market is skittish, fearing a rate hike catch-up by the BSP going forward.

Trade War Fears Intensify

Trade war fears intensify

March 23, 2018

 

We expect PSEi to trade between 7,800-8,000 as worries that the US-China tariff threats could lead to a full-blown trade war weigh on the market in the near-term.

D&L Industries: Turning Positive but Still a Wait and See

D&L Industries: Turning positive but still a wait and see

March 20, 2018

 

D & L Industries reported a 10.6% increase in net income to Php2.9bn, in line. (Note that DNL lowered its full-year guidance to single-digit after earnings ended flat in the first half last year but upgraded to 10% after a strong third quarter). Fourth quarter net income managed to end at 12% growth year-on-year (yoy) to Php786mn as revenues increased by 25% driven by a 10.5% increase in high-margin products sales volumes and pick up in commodity margins from 3.9% in Q3 to 4.8% in Q4.

MVP on TEL: May Liwanag ang Buhay

MVP on TEL: May Liwanag and Buhay

March 20, 2018

 

“Parang Meralco yan, may liwanag ang buhay.” This is how PLDT chair MVP described TEL’s earnings outlook this year during their 4Q/FY 2017 analysts’ briefing at the Makati Shangri-La Hotel, guiding 2018 recurring core profits to a higher Php24bn from last year’s Php22.3bn, which grew 11% versus yearago and in line with its own guidance of Php22bn and consensus estimates. Much of the earnings rise will be from topline growth of 4% from a drop of 3% in 2017, inspired by what looked like a bottoming out of last year’s quarterly wireless revenue drops to its lowest of Php400m in 4Q17 from Php3bn in 1Q17 and market gain share of 200,000 new subscribers overall.

 Cautious ahead of policy meetings  

Cautious ahead of policy meetings

March 12, 2018

 

We expect the market to trade lower as investors remain on a sell down position ahead of the Bangko Sentral ng Pilipinas (BSP) and US Federal reserve policy meetings. The Federal Open Market Committee (FOMC) will discuss its monetary policy today and tomorrow while the BSP Monetary Board will hold its meeting on Thursday, March 22. Consensus expects the BSP to keep the current policy rates unchanged while the Fed is expected to increase rates by 25 basis points.

Firm US CPI Abate Fears of Aggressive Fed Hike

Firm US CPI abate fears of aggressive Fed hike

March 16, 2018

 

The bond market will keep its eyes on the Bangko Sentral’s monetary board meeting this Thursday (March 22) and the Fed’s meeting this Wednesday-Thursday. While while several officials from the BSP have insisted that inflation is still manageable and the policy rate is still appropriate, there are some analysts who expect a preemptive hike from the bank. Thus, we expect bond trading to be sidelined, although there is downward pressure stemming from the recent weaker-than-expected retail sales and modest February inflation of 2.2%.

20180312 bdo

BDO: Strong results concealed by high provisioning

March 12, 2018

 

Banco de Oro (BDO) is getting an extra kick out of premium income from its newly consolidated BDO Life insurance, almost Php2bn higher to Php10bn last year and about 8% of its Php129bn gross operating income. This year the outlook for the insurance business, majority of which is still traditional products, is a robust growth of 20%. It has become a big source of non-interest income.

Trade war fears tapers

Trade war fears tapers

March 9, 2018

 

We expect bond trading to be sidelined this week ahead of the Bangko Sentral’s (BSP) monetary board meeting next week (March 22). Expectations of a BSP hike this March continue to mount amid upward pressure on yields upon the release of rising inflation. BSP Governor Espenilla noted that the spike in inflation is transitory and that inflation remains manageable. However, a preemptive hike is not completely off the table.

Trade War Worries Persist

Trade war worries persist

March 9, 2018

 

We expect the market to trade between 8,300-8,600. Healthy fourth quarter/full year (FY) 2017 earnings to support the domestic market. Out of 18 companies that have released their FY 2017 earnings -- seven were in-line, two outperformed, while nine underperformed. Key data to watch out for this week are US CPI and retails sales for Feb. on March 13 and 14 (US time), respectively, and OFW remittances for Jan. on March 15.

PH inflation

PH inflation speeds up to 4.5% in February

March 9, 2018

 

Philippine inflation surged in February to 4.5% y-o-y, its fastest level since August 2014. It beat consensus of 4.2% but within BSP’s guidance of 4-4.8%. Core inflation, which excludes volatile food and oil items, also rose to 4.4% y-o-y from 3.9% in January.

Metro Pacific Investments (MPI PM): Buying Opportunity

Metro Pacific Investments: Buying opportunity

March 7, 2018

 

Metro Pacific Investments (MPI) posted core income of Php14.1bn in 2017, up by 17% year-on-year (YoY), ahead of management’s guidance of Php13.8bn and consensus expectation of Php13.4bn. Increased ownership in Meralco (MER, TP: Php337/sh), Global Business Power Corp. (GBPC), and Beacon drove the power segment’s income contribution by 30% to Php9.4bn. Strong organic growth came from the tollroads business, which saw its income contribution grow by 11% (after fair value adjustments) to Php3.9bn driven by better-than-expected traffic growth on all roads and a favorable vehicle type mix. Hospital segment contribution also grew by a robust 16% to Php685mn, while the water and rail businesses’ contributions were rather flat, up by 5% and 4%, respectively, to Php3.7bn and Php283mn. In 4Q17 alone, MPI’s core income rose by 12% YoY to Php3.3bn.

Lower on inflation

Weekly Equities Summary & Outlook: February 26-March 2, 2018

March 2, 2018

 

We expect the market to continue consolidating as investors remain on the sidelines, given higher inflation reading for February at 4.5%. The good news enabling market to hold was last week’s MPI announcement of a 17% increase in core net income to Php14.1bn (outperform) while SM reported a 9% increase in recurring net income to Php32.9bn, the latter in line with consensus estimates.

20180302 WFI

Weekly Fixed Income Summary & Outlook: February 26-March 2, 2018

March 2, 2018

 

Upward pressure on yields on the release of rising inflation. February inflation clocked in at 4.5%, a 3-yr high and higher than the Department of Finance’s (DoF) 4.1% estimate, January’s 4.0%, but in line with both the Bangko Sentral’s (BSP) estiamte of 4.0%-4.8% and consensus expectation of at least 4.5%, driven by the food and non-alcoholic beverages index at 4.8% and the double-digit growth in alcoholic beverages and tobacco index at 16.9%. Local inflation has now breached the BSP’s target band of 2%-4% in 2 consecutive months. BSP Governor Espenilla noted that the spike in inflation is just transitory and that inflation remains manageable. However, Deputy Governor Guinigundo also noted that this does not mean that a hike is not completely off the table either.

20180228 MER

Meralco FY2017 Review: San Buenaventura takes off in 2019

February 28, 2018

 

Meralco (MER) is commissioning its Php60bn coal-fired 51%-owned 455MW San Buenaventura power plant in the second half of next year. It is a partnership with Electricity Generation Co. Ltd (EGCO) of Thailand and a fifth of Meralco’s 1,630MW foray into power generation in the next five years. We estimate Php1.7bn earnings from an existing off-take. But the lack of clarity about distribution tariff reset in the fifth regulatory period (July 1, 2019-June 30, 2024) skews earnings to flat as lower discount rate - a rate rebasing metric - likely softens tariffs to around Php1.11 - Php1.15/kwh. MER has a pending capital expenditure application of Php18.8bn for RY2018 (July 2018-June 2019).

Semirara (SCC) FY2017 Review: Headwinds

Semirara (SCC) FY2017 Review: Headwinds

February 27, 2018

 

Semirara’s (SCC) core net income for 2017 came in at Php14.5bn, up 21% year-on-year (YoY), missing consensus expectation of Php15.7bn and our own estimate of Php15.2bn, but still a robust growth driven by better coal sales volume and average selling prices and better availability and capacity factor by both power segments. Reported net income after one-off transactions came in at Php14.1bn, up 18% YoY. Implied earnings during the fourth quarter rose by 3% YoY but fell by 31% quarter-on-quarter (QoQ), partly due to starkly higher government royalties paid during the fourth quarter (Php1.5bn) from just Php65mn in the same quarter in 2016. Royalties paid for the entire year jumped by 63% YoY despite revenues growing by just 23% due to better gross profit margins in 2017 (at 49% vs 46% in 2016) stemming from mine development costs incurred in 2016 that are deductible from the government share calculation.

20180226 smph

SMPH: Boost from strong resi sales

February 26, 2018

 

Net income grew 16% to Php27.6bn, in line with consensus estimates. Revenue grew 14% to Php 90.9bn, boosted by strong residential segment which grew 18% and contributed Php30bn to total revenue. Other business segments saw 32% revenue growth to Php7.9bn, driven by Hotels & Convention center which posted 49% growth year-on-year (yoy). Mall revenues were stable and delivered 9% growth to Php53.2bn.

20180223 WFI

Weekly Fixed Income Summary & Outlook: February 19-23, 2018

February 23, 2018

 

Upward pressure on interest rates still present, but the liquidity released by the recent reserve requirement cut estimated to be worth Php90bn has tempered the rate rise in the belly to the 10-yr; last week the liquid 10-yr (10-61) fell by 79bps week-on-week to 5.86%. Still, the yield curve is projected to grow even steeper ahead of the BSP 25-bp hike likely next month.

20180223 WES

Weekly Equities Summary & Outlook: February 19-23, 2018

February 23, 2018

 

We expect PSEi to trade between 8,400-8,600 as the market awaits Fed chair Powell’s testimony before Congress on Feb. 27 (US time). Locally, investors continue to digest latest earnings results -- MER, +3% to P20.2bn (outperformed), and BDO, +14% to P28.4bn (in-line with consensus). Earnings are supportive of potential market recovery. Of the 14 companies that have released their 4Q17/FY2017 earnings, six were in line and two outperformed consensus. MPI will release its earnings on March 1.

20180216 WES

Weekly Equities Summary & Outlook: February 12-16, 2018

February 16, 2018

 

We expect the market to trade within 8,500-8,700 amidst the lack of catalysts. Investors remain on the sidelines ahead of more full-year 2017 earnings and US gross domestic product (GDP) next week. Last week, Jollibee Food Corp. and Ayala Land released their FY2017 net income, up by +15% and +17%, respectively, both in line with estimates.

20180216 WFI

Weekly Fixed Income Summary & Outlook: February 12-16, 2018

February 16, 2018

 

Interest rate pressures rising but the reserve requirement is acting like a sort of damper. Banks have not actually hiked their mortgage rate, although auto rates have inched up a bit. The Bureau of Treasury has been doing partial awards, also to temper the rate rise.

20180215 ALI

ALI: Accelerating resi, stable leasing

February 15, 2018

 

ALI’s core net income was 24.5bn, up 17%, in line with consensus estimate, on track with their Php40bn 2020 net income target. Strong pre-sales and record launches brought revenue growth to Php84.5bn, up 23%. Pre-sales were up 13% to Php122bn while project launches were up 44% which hit Php88.8bn. Fourth quarter saw pre-sales growth of 17% as the company launched Php35bn worth of project on the said period.

20180209 WFI

Weekly Fixed Income Summary and Outlook: February 5-9, 2018

February 9, 2018

 

Bond yields to remain elevated. The short-end rose, reflected in higher T-bill rates in the latest auction. Government had to reject to temper it.

20180209 WES

Weekly Equities Summary & Outlook: February 5-9, 2018

February 9, 2018

 

We expect the market to stay volatile with PSEi likely to trade within the range of 8,300-8,700 amid lingering concerns about the outlook for interest rates, after BSP raised its inflation outlook for 2018 to 4.3% from 3.4% and Pres. Trump’s spending bill to raise US federal deficit to more than $1trn in the coming years from 2017’s $666bn (3.5% of GDP).

20180208 Globe

Globe Telecom disappoints

February 8, 2018

 

Globe sustained its revenue growth in 2017 at 6% y-o-y to P127bn, driven by double-digit data revenue growth (+16% vs 27% in 2016) and slower decline in mobile SMS/voice revenues (-3% vs -10% in 2016). It sustained strength in mobile data (+23% from +25% in 2016), amid softness in home broadband (+7% vs 28% in 2016) and corporate data (+4% vs 28% in 2016).

20180202 WFI

Weekly Fixed Income Summary & Outlook: January 29 - February 2, 2018

February 2, 2018

 

There’s continuing upward pressure on local bond yields this week due to higher-than-expected inflation of 4.0% in January, a big surprise given consensus expectation of 3.3% and the BSP likely doing a preemptive rate hike come Thursday.

20180202 WES

Weekly Equities Summary & Outlook: January 29 - February 2, 2018

February 2, 2018

 

We expect the market to continue its correction after a sell-off in Dow Jones amidst rising bond yields. Investors remain cautious ahead of the inflation reading, the Bangko Sentral ng Pilipinas’ (BSP) overnight borrowing rate and full-year 2017 earnings. Metrobank (MBT) released its FY 2017 core net income, up 10% to Php19.9bn.

20180202 PH Banking Sector

PH Banking Sector: Raining Rights

February 2, 2018

 

Who’s next in the roster of SRO? Based on 3Q2017 common equity tier 1 (CET1) ratios, East West (EW) is most likely to join the bigger banks in stock rights offering (SRO) given its 3Q2017 CET1 of 10.60% (consolidated, 10.38% solo). This is just above the 10.2% 2018 requirement for domestic systematically important banks (D-SIB) and 11% in 2019.

20180131 Bear Bond

Bear Bond Worries

January 31, 2018

 

Ten-year US Treasuries (UST) touching 2.73% of late was enough to bring down Asian equities, including the Philippines’ main market index, down by -146.47 (-1.64%) to 8,764.01 by yesterday’s (January 31) close. The Fed’s meeting this week, though expected to hold rate steady, and Trump’s earlier talk in Davos about his preference for a strong dollar all worked to weaken the rally of gold, strengthen the US dollar (currently languishing at a two-year low) and prompt “bear bond market” worries.

20180126 WFI

Weekly Fixed Income Summary & Outlook: January 22-26, 2018

January 26, 2018

 

Local bond yields rising. This due to higher US Treasuries touching a two year high of 2.72%. Locally, the short-end (T-bills) moved up. See below. The five year retraced 4.75% from a low of 4.6%.

20180126 WES

Weekly Equities Summary & Outlook: January 22-26, 2018

January 26, 2018

 

We see 9,000 as the emerging support for PSEi if 4Q17 earnings don’t disappoint. Sor far, UBP has released its FY 2017 income up 30.4% y-o-y to P8.2bn, in line with consensus.

20180125 PH Banking Sector

PH Banking Sector: 'Tis the Season for Rights

January 25, 2018

 

Two big local banks competing for capital. Metrobank (MBT) and Bank of the Philippine Islands (BPI) are raising a total of Php110bn in capital. Php60bn for MBT and Php50bn for BPI.

20180124 Shell

SHLPH: Bet in oil and gas

January 24, 2018

 

Reiterating our BUY recommendation on Shell which we did last January 12. It is up 5.4% in a little more than a week to close of Php66.50 yesterday (January 23). This is the stock that foreign investors have been buying since the year’s start; the top recommendation by JP Morgan in the oil and gas space. JP Morgan forecasts Brent oil to average higher to $66/bbl this year on robust global demand.

20180119 WFI

Weekly Fixed Income Summary & Outlook: January 15-19, 2018

January 19, 2018

 

Local bond yields will be rangebound this week. The Philippines’ 4Q17 GDP numbers came in at 6.6%, a tad lower than the 6.7% median expectation but still one of the fastest in the region.This brought 2017’s average growth to 6.7%, the third fastest growing pace in Asia behind China’s 6.9% and Vietnam’s 6.8%.

20180119 WES

Weekly Equities Summary & Outlook: January 15-19, 2018

January 19, 2018

 

PSEi likely to trade within the 8,800-8,950. Watch out for the full-year 2017 gross domestic product (GDP) today.

20180112 WFI

Weekly Fixed Income Summary & Outlook: January 8-12, 2017

January 12, 2018

 

We expect local bond yield curve to remain steep this week as demand is still seen more on the short-end of the curve due to investor caution and as the Bureau of the Treasury (BTr) floats $2bn dollar-denominated government bonds in the following days. The dollar bond issuance is in line with the government’s plan to raise the foreign borrowing portion this year to an 80-20 local-foreign split, half of which will be for liability management while the other half will be new money which will be used mostly for the administration’s infrastructure projects. Recall that the same amount was raised last year, but the amount of fresh money was just half at $500mn while the rest was used for liability management. Finance Secretary Dominguez noted that this year is an opportune time to borrow foreign debt before the Fed hikes its rates again. Recall that the Fed is expected to hike rates thrice this year. We expect cautiousness to continue with charter change debate ongoing.

20180112 WES

Weekly Equities Summary & Outlook: January 8-12, 2018

January 12, 2018

 

The market might continue to trade between 8,800-8,900 on the back of solid economic backdrop and bullish corporate earnings outlook. 4Q17 earnings season will begin in February while PH’s 4Q17 GDP will be reported on Jan. 25 with the government projecting better than 3Q17’s 6.9% growth vis a vis consensus of 6.7%. Key risk factor is China’s 4Q17 GDP figure (to be released on Jan. 18) where the market expects to slow to 6.5% y-o-y from previous quarter’s 6.8% as cyclical slowdown unfolds. The market might also digest the slowdown in OFW remittances in Nov. to 2% y-o-y from previous month’s 8.4%, albeit YTD figure of 4% is aligned with BSP’s target for 2017.

Weekly Fixed Income

Weekly Fixed Income Summary & Outlook: January 1-5, 2018

January 5, 2018

 

We expect local bond yield curve to retain its steepness this week as investors await the initial impact of the tax reform program (TRAIN). Moreover, Governor Espenilla said that the Bangko Sentral (BSP) is ready to adjust monetary policy to maintain its inflation target of 2%-4% as price pressures increase from rising oil prices and the tax reform program that took effect this month. Officials estimate the new tax law will raise inflation by 0.4-0.7% during the first year, with the impact tapering off over time. Demand is still more prevalent in the front-end, but the belly and the tail may track downwards as investors reposition their portfolios. Cautious sentiment will continue to loom over the bond market as investors await the succeeding package 1B due to Congressional deliberations in the first quarter which will include higher road user taxes, easing the bank secrecy law, and tax amnesty program.

20180105 wes

Weekly Equities Summary & Outlook: January 1-5, 2018

January 5, 2018

 

We expect the market to correct towards the weekend as profit taking becomes increasingly tempting given PSEi’s three consecutive record highs. Despite the shortened trading week, the market hit a new intra-day record high of 8,858.07 by mid-Friday, but closed lower at 8,770 as investors started taking profits. Since January 3, the market had been trading at overbought levels of 70 to 72 signalling that the market is ripe for a correction. The absence of new catalysts will also keep investors on the sides. In the near-term, key economic data which could provide upside are the November data on the country’s trade balance and Overseas Filipino Workers’ remittances to be announced today and on the fifteenth. In the United States (US), initial jobless claims and consumer price index for December are expected on Wednesday and Thursday (US time).

Plateau or Correction

Plateau or Correction?

December 29, 2017

 

There might be some profit-taking this week on market strength following the PSEi rally to its historic high of 8,558.4 on Dec. 29. The market is closed today and will resume its operation tomorrow (Jan. 3). Latest Caixin China PMI shows manufacturing activity for the world’s 2nd largest economy was at a 4-month high in December to 51.5 from 50.8 in Nov. and outpacing consensus of 50.6 (a PMI of above 50 means expansion) which could reinforce positive market sentiment. On the local front, key economic indicator to be released this week is the December inflation (Jan. 5).

Local Yield Curve Ends 2017 Steeper

Local Yield Curve ends 2017 steeper

December 29, 2017

 

The local bond yields settled lower this week, somewhat tempering the growing steepness of the yield curve. The latter may track downwards next week on optimism about the economy and as investors reposition their portfolios. The market livens up from the holiday break with trading volume picking up gradually to Php13bn on daily average basis from Php9bn by year-end.

Thin Trading

Thin Trading

December 22, 2017

 

The local bond yields are expected to remain sideways this week due to lack of volume headed to the year-end. Risks remain, however, as markets digest the higher inflation expectation next year brought by the Tax Reform Bill and the continued fiscal expansion by the administration which is reflected by the higher issuance programmed. Market action will be largely end-user driven due to upcoming maturities and need to replace them. Supply overhang is expected to carry this week brought by the Php255.4bn RTB issuance at the start of the month coupled by inactivity in the market due to the holidays.

Sideways

Sideways

December 22, 2017

 

We expect the market to trade sideways this week between 8,300-8,400 as the holiday lull sets in and trading volume is likely to be light in view of the three-day trading week. The local bourse is closed today and will resume its operation tomorrow, Dec 27. Key economic data to be released this week are money supply and bank lending for November (Dec 29).

Yields Rise on Higher Taxes

Yields Rise on Higher Taxes

December 15, 2017

 

We expect the local bond yields to stabilize after the liquidity sopping up impact of the RTB issuance that sent rates higher.Thin market volumes will keep rates elevated. Going forward,the yield curve will factor in the inflationary impact of the first package of the tax reform bill (TRAIN) just signed into law by President Duterte today,(December 19), together with the 2018 budget. The final version is estimated to generate Php90bn in gross revenues, lower than the intial estimate of Php130bn and a steep decrease from the original version of Php160bn.

Profit-taking

Profit-taking

December 15, 2017

 

We expect the market to consolidate within the 8,250 to 8,350 range as investors sell on news about Pres. Duterte signing of the tax reform package and National Budget for 2018. Key economic data to monitor is the release of the United States (US) 3Q gross domestic product (GDP) on Thursday, estimated to be at 3.3%. Meanwhile, Pres. Duterte signs two laws today: Tax Reform for Acceleration and Inclusion (TRAIN) with Php90bn in tax revenues per the latest Dept of Finance (DOF), lower than the Php160bn target of the DOF, and the General Appropriations Act or National Budget of Php3.7trn, up 12% versus 2016. Bank lending statistics are also due to be out on December 29, 2017.

 Aboitiz Power (AP): Buy on New Capacity

Aboitiz Power (AP): Buy on New Capacity

December 13, 2017

 

Aboitiz Power (AP) held a special briefing last December 5 regarding its 8MW Aseagas biomass plant which was seen to work like the so-called “Ferrari of all biomass-fired power plants” in the Philippines but it later turned out to be what AP’s top management bravely called a “costly mistake.” That’s after a year and a half of trying to make a newly converted liquid methane gas producing operating model into an electricity producer work at acceptable efficiency levels. In the end, electricity generation by the biomass plant proved elusive at the 8MW full capacity as the utilization actualized at only 2.2MW with the plant having to be rebooted several times over at huge expense to AP. AP decided to permanently shut down the plant and write-off investments that may be as high as Php3.8bn.

Rising Yield Curve

Rising Yield Curve

December 8, 2017

 

We expect the local bond trading to be elevated this week as the recent Retail Treasury Bond float has sopped up liquidity. Investors also anticipate passage of the first tax reform package. Some parts already approved by both the Senate and Congress were: 1) the Php250k personal tax exemption ceiling; 2)Php8mn threshold for the top taxable bracket; 3) VAT exemptions of leasing/condominium dues of up to Php15k; and 4) reduction of estate taxes from 20% to 6%. The most recent revenue estimate for the bill was Php160bn, much better and almost three times the Senate’s previous estimate of Php60bn. Approval of the bicameral version of TRAIN is by the end of the week and implementation is by the start of 2018. The peso weakness and higher fuel taxes from the tax reform fuel inflation expectations. A rate hike by the Bangko Sentral is in the horizon as early as the first quarter of 2018 and it could be as much as a 50-bp hike for the entire 2018. In the absence of a hike, the peso has dropped to an 11-year low this year and is the worst performing currency in Asia (lower in value by 1.80%, year-to-date) and might weaken further with the dollar rallying on the passage of the US’ own tax reform in the Senate. The spread between the 10-yr US Treasury (UST) and the 10-yr local benchmark widened further to 333bps from 320bps in the prior week as the rise in the yield of the 10-yr US Treasury (UST), up by 3bps to 2.37%, was outpaced by the 10-yr local benchmark, which rose by 16bps to 5.70% (bid; latest done rate 10-61: 5.01%). Strong US economic data (discussed in lower page) and improved prospects for tax cuts pushed Treasury yields higher. Yellen’s positive comments on her final speech at Capitol Hill further put upward pressure on yields. Yields of ROPs tracked USTs, with both 2bps higher on average week-on-week (WoW).

PSEi: Resilient Ahead of the Fed Meeting

PSEi: Resilient Ahead of the Fed Meeting

December 8, 2017

 

Despite the looming Fed rate hike on Thursday, the PSE index has remained resilient coming off from a level of 8,084 on Dec. 4 to close today at 8,334. We expect the PSEi to trade between 8,300-8,400 this week as the market digests the passage of the tax reform package which the bicameral conference committee (bicam) finalized yesterday and which is expected to be ratified by Congress today and signed into law by President Duterte on Dec. 19. Package 1 of the tax reform is set to be implemented starting January 1, 2018. On the external front, the market awaits the outcome of key central banks’ policy meetings this week: US FOMC meeting on Dec. 14 (PH time) which the market widely anticipates to hike policy rates by another 25 bps. ECB and Bank of England will also announce their respective monetary policies on Dec. 14 (PH time) which the market expects to hold rates steady.

CNPF & DNL: Improving Outlook?

CNPF & DNL: Improving Outlook?

December 7, 2017

 

Amid rising input costs and peso depreciation, consumer stocks Century Pacific (CNPF) and D&L Industries, Inc. (DNL) proved vulnerable. Both trimmed their 2017 net profits from double-digit to single-digit growth. During the third quarter earnings call, CNPF downgraded its net profit further to flat after a single-digit guidance announced in the first semester, (1H2017). Surprisingly, after touching a low of Php14.00 a day before the third quarter earnings on November 3, CNPF shares recovered to Php15.20 (Nov. 7, 2017) after the third quarter call on better-than-expected results and improved tuna price outlook (skipjack tuna). Meanwhile, D&L Industries (DNL) recovered to Php11.20 after trading around Php10 for four months after a 10% income growth guidance. Margins have bottomed out. Both stocks, however, underperformed the Philippine Stock Exchange Index. CNPF declined by 0.69% year-to-date (ytd) to Php16.00, while DNL gained by just 2.70%, year-to-date (ytd).

Philippine Telecom Sector: Duopoly’s End?

Philippine Telecom Sector: Duopoly’s End?

November 27, 2017

 

PLDT and Globe’s share prices has faltered since the government announced on Nov. 20 that President Duterte had offered China to operate the country’s 3rd telecom carrier during his bilateral meeting with Chinese premier Li Keqiang last ASEAN Summit. This came following the announcement on Nov. 15 that the Department of Information and Technology (DICT) has teamed up with a subsidiary of Facebook to build an ultra-high speed broadband backbone on Luzon which will provide a bandwith (two terabytes per second) that is said to rival the combined capacity of PLDT and Globe. The project, called the Luzon Bypass Infrastructure, will become online by 2019. Consequently, PLDT and Globe’s share prices dropped by 5.4% and 6% (as of Nov. 27), respectively, on negative sentiment closing at P1,570/share for PLDT and P1,800/share for Globe. Year-to-date (YTD) gains, likewise, were 15% for PLDT and 19% for Globe.