Weekly Equities Summary and Outlook : March 05 – 09, 2018

EQUITIES OUTLOOK

Market Outlook. We expect the market to trade between 8,300-8,600. Healthy fourth quarter/full year (FY) 2017 earnings to support the domestic market. Out of 18 companies that have released their FY 2017 earnings -- seven were in-line, two outperformed, while nine underperformed. Key data to watch out for this week are US CPI and retails sales for Feb. on March 13 and 14 (US time), respectively, and OFW remittances for Jan. on March 15.

Drivers. Slower month-on-month (m-o-m) Feb. US inflation (as market expects), following sluggish US wage growth (+0.1% from 0.3% in Jan.) in Feb. despite strong hiring (+313K) could further ease inflationary fears, but optimism may wane as investors further digest trade war rhetorics from Pres. Trump.

Market Review. PSEi lost 33.9 points (-0.4% from previous closing) today to close at 8,419.57. Yesterday, it gained 81 points (+1% from previous closing) to end at 8,453.5, tracking the Wall Street and Asian markets rally after Feb. US jobs report showed moderated wage gains amid sustained US growth. Last week, PSEi dropped 86 points (-1% week-on-week, w-o-w) to close on Friday at 8,372.5 due to lack of catalysts. It was the 3rd straight week of decline for the PSEi, driven by net foreign outflows totaling P2.6bn last week. YTD, PSEi was down 1.6%.

• YTD net foreign outflows totaled P17.6bn (as of March 9). It was net foreign selling in 31 of the past 32 consecutive sessions.
• Asian markets were mixed last week. Top gainers were Korea (+2.4% w-o-w), Taiwan (+1.6%) and China (+1.6%). Top decliners were Indonesia (-2.3%), India (-2.2%) and Thailand (-2%).
• PHP closed today at P52.04/$. Last week, it weakened by 0.3%. PHP was still the 2nd worst performing EM currency (-4.1%), next only to Argentine peso (-7.8%).
• Most bought stocks by foreign investors last week were PGOLD, MBT, JFC, ICT and FGEN for an aggregate amount of P740mn. Most sold stocks were ALI, AC, BPI, SCC and BDO for a total of P2.3bn.

ECONOMIC NEWS

Philippines’ net FDI hit a record high of $10bn in FY 2017 (+21.4% y-o-y) from $8.3bn (revised) in 2016, exceeding BSP’s forecast of $8bn for the year.

• Growth was led by net availment of debt instruments (consisting mainly of intercompany borrowings/lending between foreign direct investors and their subsidiaries/affiliates in the PH), up 20.7% y-o-y to $6bn.
• Net equity capital investments also grew double-digit (+25.9% y-o-y) to $3.3bn. Key sources of equity capital were Netherlands ($1.6bn), Singapore ($683mn) and the US ($470mn). Net FDI were mostly invested in gas, steam and airconditioning supply ($1.4bn) and manufacturing ($1.1bn).
• Reinvestment of earnings rose by 9.3% y-o-y to $776mn during the year.
• In Dec., net FDI was down 9% to $699mn due mainly to the 19.1% drop in net investments in debt instruments to $335mn.

PH exports started 2018 at a slower pace, gaining 0.5% y-o-y to $5.2bn from 10.2% growth in Dec. 2017 due to slowdown in exports from the US (-12.2% y-o-y) and Japan (0.7%). Receipts were pulled down by lower manufactured goods (except Electronics) and agro-based (-11.2%) exports. Meanwhile, imports for Jan. accelerated to 11.4% y-o-y to $8.5bn from 10.4% growth in the previous month. It was boosted by robust capital goods (+16.9%) and raw materials & intermediate goods (+14.9%) imports, which could reflect robust economic activity for first quarter. Collectively, these accounted for 70% of total imports receipts.

• Trade deficit for Jan. narrowed to $3.3bn from $3.8bn in the previous month, albeit higher than Jan. 2017’s deficit of $2.5bn.
• Despite slower growth in Jan., we (house view) maintain our full year forecast of 10-15% expansion in exports, supported by sustained growth of the PH’s key trading partners. Likewise, we estimate imports to expand by 10-14% this year due to higher capital investments.

Corporate News

Aboitiz Equity Ventures (AEV) reported FY 2017 core income of P23.9bn (+5% y-o-y), ahead of consensus of P22bn. Income was boosted by strong performance of AP (+13%) and AboitizLand (+286%). Consolidated EBITDA rose 18% y-o-y to P57bn. AEV share prices closed on Tuesday at P76/share, +2.7% YTD. Philippine Long Distance Telephone Co. (TEL) reported FY 2017 recurring core income of P22.3bn (+11% y-o-y), in line with the company’s guidance of P22bn. TEL’s income was boosted by double-digit growth of its Home (+13% y-o-y) and Enterprise (+11% y-o-y) business amidst weak Individual business (-11% y-o-y). EBITDA rose 11% y-o-y to P67.8bn (excluding manpower reduction expenses), with EBITDA margin improving to 45% from 39% in 2016. TEL’s share prices closed today at P1,567/share, +5.9% YTD.

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