Equities Summary and Outlook
Market Outlook. 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.
Market Review. The PSEi traded sideways since yesterday to end today at 7,943.9. Last week, the bellwether moved in a narrow range of 7,950-8,050 (-0.4% week-on-week, w-o-w) to close on Friday at 7,945.7 amid the Philippines’ March inflation accelerating once again to 4.3% and intensified trade rhetoric from Pres. Trump’s call for tariffs on additional $100bn worth of imports against China.
- Year-to-date (YTD), PSEi underperformed the markets that we monitor, -7.2%. It was down 12.3% from the peak of 9,058 on Jan. 29.
- Top performing markets in Asia YTD were Malaysia (+2.2%), Taiwan (+1.7%) and China (+1.2%).
- Market sustained net foreign outflows for the ninth straight week (i.e. since the market’s peak), albeit the lowest at P1.5bn. YTD net foreign outflows totaled P35.5bn.
- PHP closed today at P51.95/$, down 3.9% YTD.
- Last week, foreign investors flocked to SM, AGI, MER, JFC and SMC for an aggregate net buying of P921mn, while top net selling for AC, SECB, BPI, BDO and LTG totaled P1.4bn.
Recent economic data point to an accelerating growth momentum for the Philippine economy. Foreign direct investments in Jan. surged by 56.7% y-o-y to $919mn, driven by robust net equity capital inflows (+717% to $473mn) mainly coming from Singapore ($226mn), China ($151mn), and Taiwan ($61mn). Main sector beneficiaries were manufacturing ($215mn) and financial and insurance activities ($213mn). The robust equity inflows offset the decline in net investments in debt instruments (-16.7% to $381mn) and reinvestment of earnings (-8.4% to $65mn).
Exports dropped in Feb., -1.8% y-o-y to $4.7bn from 3.5% (revised) growth in Jan. due to the declines in manufactured goods (except semiconductors and electronic data processing), -12.4% and agro-based products, -31%. Meanwhile, imports picked up pace, up 18.6% y-o-y to $7.7bn from 11.4% in the previous month driven by double-digit increase in capital goods (+24.5%), raw materials and intermediate goods (+19.2%) and consumer goods (+20.3%). YTD exports grew 1% to $10bn, while imports was up 14.7% to $16.3bn. The country’s top export markets YTD were Japan (16% share), US (15%) and Hong Kong (14%). Trade deficit in Feb. totaled $3.1bn, with YTD tally now at $6.2bn from $4.2bn in the same period last year. Most of the trade deficit were attributed to China ($2bn) and Korea ($1.3bn).
Corollary to this, PH manufacturing output picked up momentum again in Feb., gaining 24.8% y-o-y from 18.5% growth in Jan. Expansion was driven by food manufacturing (+32.6% from +11.6% in Jan.), beverages (+24.1% from +28.6%), printing (+108.1% from +120.5%), petroleum products (+23.4% from +16.3%), cement (+25.4% from +27.9%), electrical machinery (+30.3% from +13.3%) and miscellaneous manufactured (+20.5% from +19.3%).
These, coupled with robust government spending which in Feb. jumped 37% y-o-y to P240.3bn from a healthy 15.5% growth in Jan. and strong consumer spending from higher disposable income and PHP value of OFW remittances, will fire up growth in Q1. We expect Q1 2018 GDP growth to speed up to 7% y-o-y from 6.6% in Q4 2017.
Philippine headline inflation accelerated again in March to 4.3% y-o-y (using 2012 base year) from 3.8% (revised) clocked in Feb. and 3.1% in the same period last year. March inflation was slightly ahead of the consensus of 4.2%, but well within BSP’s forecast of 3.8-4.6% for the month. Upticks in consumer prices were mainly driven by higher prices of food and non-alcoholic beverages (+5.9% from +4.8% in Jan.) and alcoholic beverages and tobacco (+18.6% from +16.9% in Jan.), which collectively comprised 40% of the CPI basket. YTD inflation averaged 3.8%, well within the BSP’s target band of 2-4%. We expect inflation to remain elevated in the first half of the year due to TRAIN impact, but will start to decelerate thereafter as food and crude oil prices normalize.
Shakey’s Pizza Asia Ventures, Inc. (PIZZA) reported core income of P762mn in FY 2017, up 14% y-o-y. Earnings were driven by double-digit system-wide sales growth (+14% y-o-y to P8.3bn) and successful store expansion after it opened 24 new stores in 2017 bringing its total store network to 208. Despite higher input cost, PIZZA sustained double-digit gross profit margin (29%) and EBITDA margin (20%). The company announced that it will increase its store network by 20 in 2018. PIZZA closed today at P14.80/share, up 10% YTD.
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