It was a good first quarter for the benchmark Philippine Stock Exchange index (PSEi), whose stellar rise to dizzyingly new heights—fueled by ample global liquidity—has led some observers to revise forecasts even higher while others called for increased caution.
The Philippine Stock Exchange Index closed the last trading day of the quarter higher by 0.52 percent to 7,940.49.
Putting this in perspective, this is the 23rd all-time high for the PSEi since the start of 2015. And while still short of the 8,000-level record breached just a day before on March 30, the market has so far gained 9.8 percent over the three-month period, adding to its roughly 23 percent increase for the whole of 2014.
“The market is expensive, very expensive,” Jose Mari Lacson, head of research at stock brokerage firm Campos Lanuza and Co., said in an interview.
“But the conditions for further appreciation are there,” he added, while citing major economies easing back on monetary policy, helping global capital flows find their way to Philippine shores and other emerging economies.
Bolstering the market was the rush of foreign buying, amounting to about $983.4-million for the quarter, due to “upbeat economic forecast coupled with the continued weakness in oil prices,” Manuel P. Cruz, strategist at Asiasec Equities Inc., said in an e-mail.
“Local equities were the third best performer for Q1 behind the Chinese and Japanese equities,” he said.
As in the past, a stable consumer economy, partly backed by the steady flow of billions of dollars in remittances from Filipino workers overseas, continued to provide a huge boost to the economy.
“The key theme that will drive sharp price performance in 2015 will continue to be consumption—whether direct or indirect. Companies that play well into themes related to aspirational luxury, mass affluence, Asean integration and brand portability will continue to do well,” Mike Oyson, CEO of BPI Securities, said in an e-mail.
“More than a third of our economy continues to be driven by consumption. Access to consumers in Asean will continue to provide revenue upside to local consumer companies,” he added.
Expensive at it is, the PSEi still has potential to move higher in the next three months, Manuel Lisbona, deputy head of PNB Securities Inc., said in an e-mail. He noted that the PSEi was trading above 21 times earnings, a relatively high level.
One major obstacle to future rallies, though, would be the volatility that arises from any rate increase by the powerful United States Federal Reserve, said Jonathan Carlyle, a director at I.B. Gimenez Securities Inc.
“Should this happen in the next three months, I would expect a [PSEi] pullback to 7,400,” he said in an
e-mail.
It is during this time of rich opportunity and risk that the Inquirer reintroduces its quarterly stock market report.
We assume that the average “newbie” investor, the main target of this section, would be willing to wager an initial P500,000 on a portfolio of three stocks chosen by veteran analysts and market observers. Their choices, with accompanying quotes slightly edited for brevity, are listed in the section below. All listed target prices are for the standard 12-month period.
Mike Oyson
Chief executive officer
BPI Securities:
Universal Robina Corp.: URC, best known for its Jack ’n Jill-branded snacks and C2 bottled iced tea, is part of the Gokongwei group. According to Oyson, “URC has portable brands and is a play on the Asean consumer thematic.”
Megaworld: MEG is an undervalued property company especially taking into account its huge land bank, brand equity and success in the development of large-scale, mixed-use township development.
DMCI Holdings: “DMCI is a laggard play and is undervalued relative to its power generation capacity through subsidiary Semirara Mining Corp.,” Oyson said. DMCI is also involved in construction, mining, property development and, to a smaller extent, water services through a stake in Maynilad Water Services, the concessionaire for Metro Manila’s West Zone.
Jose Mari Lacson
Head of research
Campos Lanuza and Co.
SSI Group Inc. and Robinsons Retail Holdings Inc.: Both SSI and Robinsons Retail have good portfolios of businesses tapping into consumer durable products, which typically refer to apparel, furniture and appliances. While favoring consumer players, the backbone of the Philippine economy, products classified as consumer durable stand to gain the most in terms of rising affluence—and the buying that inevitably follows.
This is where we think the growth will be.
For SSI, the target price is P16.50 per share while for Robinsons Retail, it is P97 per share.
Belle Corp./Premium Leisure Corp. : They are the Filipino firms behind the recently-opened City of Dreams Manila casino project along Manila Bay, which is operated by a unit of Macau’s Melco Crown Entertainment.
The price of gaming stocks have fallen to really make them attractive. City of Dreams started operations only recently—suggesting a huge upside in terms of financial performance. Anything that they do is going to be 100 percent in terms of growth.
The target prices were P7.20 for Belle and P1.72 per share for PLC.
Manuel Lisbona
Deputy head
PNB Securities Inc.
Belle Corp.: Belle, as owner of a 79-percent stake in Premium Leisure, is expected to benefit from the City of Dreams Manila project. Also a strong point of Belle is its vast land bank in Tagaytay, a popular vacation spot where it has already developed leisure communities.
Belle is seen to post P2.76 billion in revenue this year, or a gain of 472 percent, on the back of its share of gaming earnings. Profit margins are seen at 97 percent. Belle’s net income is forecast to hit P2.67 billion this year, up by a third. The company also has minimal debt and high levels of cash receivables.
The target price for Belle is P9.84 per share.
Metro Pacific Investments Corp. (MPIC): A diversified holding firm with stakes in Manila Electric Co., the country’s biggest power retailer, Maynilad Water Services Inc., Metro Pacific Tollways Corp. (which operates North Luzon Expressway and Manila Cavite Expressway), and hospitals across the Philippines including Makati Medical Center.
While MPIC is hampered by delayed tariff increases that caused revenue to grow tepidly, its earnings continue to grow on the core strengths of its businesses. The company posted double-digit growth in profit margins and profit growth “is supported by equity in net earnings and other income.
MPI’s low leverage level is a distinct strength—it does not rely much on debt as a funding source despite the capital-intensive nature of its businesses.
The target price for Metro Pacific was set at P7.94 per share
San Miguel Pure Foods Co. Inc.: Purefoods is an established food and beverage player with a long history. It is expanding locally and regionally to improve growth.
The company is also seeking overseas expansion via acquisitions in Indonesia, Vietnam, Thailand and Malaysia for feeds and meat processing. In the Philippines, it acquired the La Pacita biscuit and flour-based snack foods business of Felicisimo Martinez & Co. Inc.
[Purefoods] has been generally free cash flow positive and low-leveraged. Its liquidity position is among the best in the coverage due to its high receivables and inventory levels.
The target price for Purefoods is P647.33 per share
Jonathan Carlyle
Director
I.B. Gimenez Securities
JG Summit Holdings: The holding company of the Gokongwei group, which is involved in airlines, property development, food and beverage as well as banking and petrochemicals, has a “great mix of companies.”
Cebu Air will gain massively from the 50-percent drop in oil prices, Carlyle said, noting that he sees “no issues” regarding talks of succession management at JG Summit.
JG Summit’s target price is P78 per share
SSI Group Inc.: SSI will continue to capture market share as it expands and demand for high end luxury goods continues to increase driven by higher income levels and higher OFW remittances.
The company is the most undervalued stock in the retail sector despite growing at a faster rate compared to its peers.
Target price for SSI is P14.20 per share
Global Estate Resorts Inc.:The leisure estate developer holds a significant land bank, that can be successfully developed in conjuction with owner MEG (Megaworld Corp.). Megaworld is the listed property arm of tycoon Andrew Tan.
The target price for Global Estate is P2.18 per share
Alfred Dy
Head of Philippine research
CLSA Ltd
Universal Robina Corp: It is a leading snack food play in the Philippines with an expanding profile in Southeast Asia. URC is dominant in low end and middle income market segment and now expanding in upper middle income market segment through the acquisition of Griffins in New Zealand and tie-ups with Calbee and Danone.
Target price of URC is P258 per share
Emperador Inc.: The company, owned by tycoon Andrew Tan’s Alliance Global Group Inc., is a leading liquor player in the Philippines with a keen eye on global expansion.
Its recent purchase of Whyte and Mackay presents huge growth opportunities in expanding the company’s product portfolio to go beyond its brandy business as well as allowing it to foray in other markets.
Target price for Emperador is P14.50 per share
International Container Terminal Services Inc. (ICTSI):Owned by tycoon Enrique Razon Jr., the company is a leading ports operator in the country apart from its significant presence outside the Philippines.
It has been acquiring ports globally to diversify out of the Philippines and this trend will continue in the coming years. We expect accelerating earnings growth and rising ROEs via combination of organic growth and acquisitions.
Target price for ICTSI is P143 per share
April Lee-Tan
Head of research
COL Financial Group Inc.
Cebu Air Inc. or Cebu Pacific: The airline, which already corners more than half of all domestic flights and has been gradually rolling out long-haul routes, would benefit from a sector facing low oil prices and industry consolidation. Cebu Pacific’s “valuations are also attractive.”
SM Prime Holdings Inc.: The property arm of Henry Sy’s SM Investments Corp. is considered a proxy for the consumer sector given that it is the biggest mall operator in the country.
Strong cash generating ability since a large part of income comes from rent.
Ayala Corp.: The country’s oldest conglomerate is involved in property, telecommunications, banking, and water services. More recently, it has been diversifying into power generation and transport infrastructure, winning bids for railway and toll road deals in Metro Manila.
Sentiment for the stock could improve given its active participation in PPPs while its investments in the energy sector start making contributions.
Manuel P. Cruz
Strategist
Asiasec Equities Inc.
Ayala Land Inc.: The property arm of Ayala Corp. should get a heavier allocation given expectations that it would gain from continued economic growth while maintaining its market lead.
Robust earnings per share growth will be the stock’s main driver as the company aims to post a steady 20 percent growth over the next five years. The company continues to post healthy results on both its residential and leasing businesses. Outlook remains solid, attributed to its robust take up sales.
Cebu Air Inc. or Cebu Pacific: The nosedive in oil prices have boosted CEB’s operations as it resulted in lower fuel expense and higher traffic. Its 2014 profit was shaved by hedging losses but the declining oil prices would now positively impact its bottom line starting 2015.
We have information that the [airline] has a strong start for the first two months of the year. Note that historically the industry enjoys peak revenue during the Q2 and Q4 of the year. He said CEB was trading at deep discount of 8.58 times for this year and 8.13 times for 2016 compared to the market average of 20.38 times.
Emperador Inc.: The company’s expansion goals include the acquisition of Scottish spirits firm Whyte & Mackay. Its introduction of the Philippines’ first local whisky brand is also seen to boost its revenue this year. In addition, EMP is also planning exporting its products to Europe and Africa this year. Given these recent developments, we anticipate renewed interest on the counter.
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