Weekly Equities Summary and Outlook : July 15 – July 19, 2019

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Equities Outlook

Outlook. Expect the market to consolidate in the 8,100 – 8,300 level this week as investors remain on the sidelines ahead of 1H19 results. We expect SM to post steady growth as BDO is poised to sustain strong growth it showed last quarter and SMPH already announced it grew 16% in 2Q. For the other index names, we keep our eye on indications for possible recovery from the poor 1Q19 results. ALI is anticipated to recover its industry-leading growth which slowed down in 1Q due to timing of revenue recognition of its property sales. We might even have better visibility on ALI’s REIT offering by the next briefing which is expected to support the current price level. AC, however, will remain dragged by its non-listed subsidiaries. The recognition of RLC’s Chengdu project is not expected until the second half but URC’s recovery remains intact, given low inflation and aggressive marketing. This will help JGS income which may still be dragged by petrochem. MPI’s toll rate adjustment in NLEx and SCTEx serves as a positive catalyst for the company and to some extent even to GTCAP which has already been seeing rebound in car sales.

Valuation-wise, the market still has room to advance as it currently trades at 17.8x 2019 P/E ratio vs. the 5-yr mean of 18.6x. Based on technical, RSI is still not overbought at 60 but MACD is showing weakness and may see some pullback in the short term, keeping the market from rallying past the 8,400 resistance. We maintain our recommendation to hold off buying for now and wait for pullbacks before adding position.

Market Review. The main bourse briefly touched our PSEi target of 8,400 after hitting intra-day high of 8,419 last Wednesday. We ended the week slightly below that at 8,270, still up 1.6% for the week. The financial sector led the charge as BPI, MBT, and SECB ended the week as part of top gainers posting growth of 14.7%, 7.0%, and 4.5%. BDO actually started the week strong, charting new 52-week high at Php154/sh before succumbing to profit taking. Other top gainers were SCC and its holding company DMC which jumped 6.7% and 4.6% respectively after the Department of Energy (DoE) puts SCC coal’s trading suspension order on hold. DMC is the index’s weakest stock year-to-date, down 17.4% for the period. The rally was supported by Php3.9bn in net foreign buying. Top index name bought by foreign investors were BPI, AC, and MBT, while consumer names URC and JFC saw the largest outflows.

Regional Markets. US markets closed lower week on week as investors tempered expectations of an aggressive rate hike in July FOMC meeting and saw the current levels to be attractive for profit taking. Also, concerns on higher oil prices tempered optimism as Iran seized oil vessels in the Strait of Hormuz. Dow Jones was down 0.7% while S&P 500 was down 1.2% but these indices are still up 16.4% and 18.7%, respectively year-to-date. All major stock markets were down for the week with the exception of Hang Seng which was able to hold on to gains, ending the week 1% higher.

Currencies. The peso posted 0.2% gain week on week to Php51.05, on lower inflation expectation for the rest of 2019. The Development Budget Coordination Committee has slashed domestic inflation forecast to 2.7% - 3.5% from the initial 3% - 4%. The peso-dollar exchange rate assumption was adjusted upward to Php51 to Php53 from the initial Php52 – Php55, driven largely by the slower import growth which was lowered to 7% from the initial 9%.

Economic News

The BSP reported that the Balance of Payments (BoP) deficit shrunk to US$404mn in June from US$1.18 billion reported in the same period last year. First half BoP remains a surplus at US$4.8bn, a reversal from US$3.26bn deficit in the first half of 2018. The BSP attributed this to the strong remittances in the first five months of the year which came in at US$12.3bn or 4.5% higher year-on-year. Another contributor to the surplus was the US$2.9bn FDI, albeit lower year-on-year. Lastly, BoP surplus was helped by lower trade deficit which continued to shrink because of weaker imports. This is expected to recover as the government commits to its infrastructure push in the second half, after experiencing some delays at the start of the year.

Corporate News

SCC disclosed that DoE granted SCC’s request to put on hold a cease and desist order and suspension of SCC’s Coal Trader Accreditation issued in June. This allowed SPMC to continue its coal trading activities, although limited only to existing coal supply contracts/agreements.

AllHome plans to list in the Philippine Stock Exchange by September 2019. Based on the prospectus, the company is looking at an IPO price and sell almost 1.3bn shares comprised of 750million primary shares and 375million secondary shares, and 168,750,000 over allotment shares to be offered by way of secondary offer. Public float will be 34.5% with overallotment and 30% without. All in all, the company targets to raise Php12bn new capital from the primary share offering at an offer price of Php16/sh. At this price, the AllHome is looking at Php60bn valuation for the company. Read full article here.