Weekly Equities Summary and Outlook : April 09 – 13, 2018
Market Outlook. We expect the market to continue trading lower amidst overheating concerns by the World Bank (WB). But University of Asia and the Pacific Economist Dr. Victor Abola noted that the country’s current account deficit to GDP ratio is far from crisis threshold of 5% equal to $15.67bn.
Market Review. Last week, the market bucked regional trend, slipping -0.57% week-on-week (w-o-w) to 7,899.98 as investors remained on a wait-and-see stance amid rising geopolitical risks in the Middle East.
Overseas Filipinos’ cash remittances was up 4.5% year-on-year (y-o-y) to $2.3bn in February 2018, below consensus estimate of 10% growth. This brought y-t-d remittance level to $4.6bn, up by 7.1% versus January-February 2017’s value of $4.3bn. Remittances from Americas, Asia and Europe regions accounting for 73% of total grew 11% y-o-y collectively but was offset by the -10% y-o-y decline in Middle East which contributed 24% to total. Majority of remittances in February came from the United States (33% of total, +4% growth) followed by United Arab Emirates (9%,+15%), Saudi Arabia (8%, -18%), Singapore (7%, +7%), Japan (6%, +10%), United Kingdom (5%, 0%), Qatar (4%, -4%), Germany (3%, +42%), Hong Kong (3%, +4%) and Canada (3%, +36%). For full-year 2018, the BSP expects remittances to reach above $29bn or a growth of 4% from 2017’s $28.06bn (+4.3% higher than 2016). Meanwhile, budget deficit widened to Php61.7bn in February 2018, up by +160.2% from last February 2017’s deficit of Php23.7bn. Expenses grew +36.9% to Php240.3bn which, according to Budget Secretary Benjamin Diokno, was due to the Build Build Build program, the Armed Forces of the Philippines modernization program and salary increases for government personnel under the Salary Standardization Law. Cumulatively, these “productive spending” amounted to Php204.1bn, up by +34.9% y-o-y from last year’s Php151.3bn. Meanwhile, interest payments amounted to Php36.2bn, up +49.2% y-o-y from Php24.2bn in February last year. On the other hand, revenues increased by +17.6% y-o-y to Php178.5bn driven by an increase in collections from implementation of Tax Reform for Acceleration and Inclusion (TRAIN) law. As a result, y-t-d deficit reached Php51.5bn, up by +139.7% y-o-y from Php21.5bn last year. The government aims a 3% budget deficit to GDP or Php523.6bn (+49% y-o-y) in 2018.
Puregold (PGOLD) reported a +6% y-o-y increase in net profit to Php5.8bn, behind consensus estimates of Php6.0bn. The slight miss was due to higher operating expenses (+13.2%) from higher labor costs (manpower agency services +35%, salaries and wages, +12.7%), joint-venture losses from Lawson (Php138mn) and declining margins in S&R (S&R EBITDA margin dropped 104bps). For 2018, the company lowered its guidance for sales growth from 8-10% to 6-8%. Management also expects S&R margins to further decline: gross profit margin at 20-21% in 2018 versus 21.7% in FY17.
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