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Market Outlook. 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.

Drivers. Higher-than-expected inflation data will likely weaken the market and hold off any near term bounce as the odds of a BSP rate hike grows. The Bangko Sentral ng Pilipinas expects inflation to hover within the 4-4.8% range while the Department of Finance expects a 4.1% reading.

Review. Despite the regional downtrend, the PSEi held its ground, ending the week flat to 8,458.57 from the previous week’s 8,467.56, slightly lower by 0.11%. Most of the international markets ended in the red with the Dow Jones losing 3.05% and S&P down 2.04%. Asian markets were also lower with Tokyo losing the most, down -3.20%. The PSEi was the second best, following Thailand’s 0.20% gain. Main drivers the past week were:

  • The hawk in Fed, signalling more than three rate hikes this year, US inflation acceleration and higher US fiscal.
  • US trade protectionism with Pres. Trump’s tariff hike plan of 10% on aluminium and 25% on steel imports on national security grounds. Both metals are critical ingredients of US military defense hardware manufacturing industry.
    China – the main cause of a global steel glut – won’t be affected, accounting for only 2% of total US steel imports.
  • Foreigners were net sellers, Php3.9bn for the week. Most sold stocks were ALI (Php1.9bn), SM (Php631mn), SMPH (Php439mn), JGS (Php393mn) and BDO (Php184mn). The most bought stocks were JFC (Php363.78mn), AGI (Php75.25mn), MBT (Php71.08mn), MER (Php61.44mn) and URC (Php51.20mn) for a total amount of Php622.8mn.


The BSP had a wide February inflation guidance; 4% – 4.8% while full-year 2018 is 4.3% as partly an effect of the tax reform law, but a moderation 2-4% target range is seen in 2019. No changes in expectation despite the rebasing last week which showed a lower reading of 3.9% for the same period

Bank lending slightly slowed down in January, 19.1% growth year-on-year (y-o-y) versus 19.4% (revised from 19.0%) in December 2017. On a month-on-month seasonally-adjusted basis, commercial bank loans were up 1.3%. Main drivers of credit growth were:

  • The 18.1% increase in loans for production activities which comprised 88.4% of total loan portfolio was 50bps slower than the 18.6% recorded in December 2017. All of the five sectors below which comprised 64.1% of total loan portfolio for January 2018 had slower growth rates compared to December 2017.
  • Real estate (17.5% of total loans) grew 18.0%, slightly slower than 19.6% in December.
  • Wholesale & Retail Trade, Repair of Motor Vehicles and Motorcycles (13.6% of total) slowed to 13.2% growth from 21.0% the previous month.
  • Loans to manufacturing sector which comprised of 13.1% also grew less than the previous month at 11.9% versus 12.2%
  • Electricity, Gas, Steam & Airconditioning Supply related loans grew by 24.8% rom 25.4% while loans to Financial and Insurance Activities also slowed to 15.0% from 16.8%
  • Meanwhile, the fastest growing sectors were from Information and Communication (+52.6%) and mining and quarying (+56.2%).

Corporate News

Metro Pacific Investments’ FY17 core income was up 17.0% y-o-y to Php14.1bn. Drivers were: 30% increase in profit of its power segments which accounted for 52% of its operating income (Note that MPI hiked its ownership in Meralco and Global Business Power Corporation during the first half of 2017); 11% growth in toll road, share of 22% to total operating income; 16% in hospitals, share of 4% of operating income.

SM Investments recorded Php33bn in net income, a 6% growth from reported net income of Php31.2bn in 2016. Excluding non-recurring items from 2016, core income was up 9%. SM Retail business reported Php10.4bn in net income which was 2% lower than the previous year. Despite the revenue growth of 7% to Php297bn, huge tax charges at SM Dept which was equal to 4 years of taxes dragged SM Retail’s bottomline. SM Retail same stores sales growth, however, was up 2.4% for 2017, higher than the 2.2% seen in 9M17.

Read full article here.

First Metro Weekly Equities and Economic Outlook 2018 March 02

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