Weekly Equities Summary and Outlook : May 14 – 18, 2018

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Equities Outlook

Outlook. We expect the PSEi to consolidate around 7,500-7,800 due to lack of catalysts. Foreign outflows may persist in the near-term as passive funds flow to China with the inclusion of China A shares in the MSCI Emerging Markets (EM) index beginning June 1. First quarter earnings results of 9% growth was behind full year consensus of 13% due to rising input cost and inflation and weaker PHP. Results were mixed -- 3 outperformed, 15 in-line and 12 underperformed.

Market Review. PSEi fell 80.8 points (-1% week-on-week, w/w) to close on Friday at 7,672.3. The local bellwether started the week strong, up 133.9 points on Tuesday. However, concerns over rising US 10-year Treasury yields at 7-year high, coupled by heightened trade and geopolitical tensions resulted in three consecutive trading sessions of decline.

• PSEi was the underperformer in the region, -10.4% year-to-date (YTD), followed by Indonesia (-9%) and China (-3.4%). Most of the Asian markets were up ytd led by Hong Kong (+3.8%), Singapore (+3.7%) and Malaysia (+3.2%).
• Net foreign selling persisted for 16th consecutive weeks totaling P52.8bn. YTD, net foreign outflows amounted to P48.3bn.
• PHP weakened by 0.3% w/w to close on Friday at P52.35/$. YTD, it fell 4.6% only, behind Indian rupee’s drop of 6.1%.
• Among PSEi component stocks, foreign investors bought SMPH, ALI, MEG, SMC and RLC last week for net inflows of P866mn and sold SM, MPI, MBT, SCC and AC for net outflows of P1.5bn.
• YTD, MER, TEL, PGOLD and SMC were the only stocks with net inflows amounting to P2.1bn. More than half of the total net foreign outflows (P26.4bn) came from SM, BDO, ALI, AC and SMPH.

Economic News

Bangko Sentral ng Pilipinas (BSP) reported a balance of payments (BOP) deficit in April amounting to $270mn, a reversal of the BOP surplus of $917mn in the same period last year. This resulted in a ytd BOP deficit of $1.5bn, significantly higher than the $78mn deficit recorded from Jan-April 2017 and exceeding BSP’s full year target of $1bn for 2018.

• BSP attributed the wider BOP deficit to higher merchandise trade deficit for the period. Q1 2018 trade deficit totaled $8.7bn vs $6.1bn in Q1 2017.
• BOP deficit widened in spite of strong FDI and portfolio inflows for the period -- the former up 53% year-on-year (y/y) from Jan-Feb to $1.5bn while latter’s net inflows from Jan-April totaled $1bn, a reversal of the net outflows of $516mn in the same period last year.
• GIR dropped by $900mn to $79.6bn in April, the first time it fell below the $80bn level since Dec. 2014. This is equivalent to 7.8 month’s worth of imports and payments of services and primary income and 5.4x of the PH’s short-term external debt.

Net foreign portfolio registered a net inflow in April to $279mn, lower than previous month’s net inflows of $1.1bn. Around 82% of the gross inflows ($1.4bn) were directed in PSE listed stocks, while the remaining were invested in peso GS. Seventy seven percent (77%) of the investments came from the UK, US, Hong Kong, Singapore and Luxembourg. Meanwhile, 74.5% of the gross outflows of $1.1bn were repatriated to the US. YTD, net portfolio inflows totaled $1bn vs $516mn net outflows last year.

Corporate News

Megawide Construction Corporation’s (MWIDE) net income (before minorities and payments of preferreds) grew 16% y/y to P635.8mn, ahead of the consensus income of P1.9bn. Earnings were boosted by the solid performance of its airport business (accounted for 16% of revenues and 62% of earnings). Airport revenues jumped 13% y/y to P646.1mn, EBITDA by 23% y/y to P480.5mn and net income by 37% y/y to P369.7mn. Its construction revenues dropped by 11% y/y. MWIDE share prices closed today at P21.85/share, +21.4% YTD.

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