Alerts

   Justin Richmond Cheng, CFA

Maintain BUY rating. We are maintaining our BUY rating on RRHI with FV estimate of Php102/sh. We continue to like RRHI given its well-diversified portfolio of retail formats. This puts the company at the forefront in benefiting from the favorable growth opportunities in the retail sector. In addition, RRHI has made good progress in integrating and rationalizing Rustan’s. Going forward, RRHI is still expected to unlock more efficiencies from realigning the operations of Rustan’s, and this bodes well for RRHI’s growth prospects for the years to come.

   Justin Richmond Cheng, CFA

Risks remain despite improving outlook; maintain HOLD rating. Fundamentally, we continue to like DNL because of its successful move to grow the share of its high margin products and its resilience to rising input costs and exchange rate volatility. Furthermore, the domestic economy is already showing signs of a recovery which bodes well for bulk of its business. However, global economic outlook remains weak, and exports account for 19% of total revenues and a bigger share of profits. The coronavirus outbreak in China also presents an additional risk to DNL as logistics costs could increase. Hence, we are maintaining our HOLD rating on DNL with a FV estimate of Php9.2/sh.

   George Ching

Reiterate HOLD rating on MER. We have a HOLD rating on MER with a FV estimate of Php342.7/sh. We remain positive on MER’s long term outlook as it will be the main beneficiary of rising power demand in the country brought about by faster GDP growth. Although capital appreciation potential based on MER’s market price of Php279/sh is already attractive at 22.8%, investor sentiment will most likely remain subdued in the near term due to numerous risks. The biggest risk facing MER is the looming distribution tariff cut in the next regulatory period. The SC’s decision in 2019 further increases the likelihood that the distribution tariff cut will be significantly more than our base case assumption.

   John Martin Luciano, CFA

The country’s overall balance of payments position in January 2020 reached a deficit of US$1.36Bil, a reversal from the US$2.7Bil surplus recorded in the same month last year. The deficit was mainly attributable to the National Government’s foreign currency withdrawals, which were used to pay foreign currency debt obligations, as well as net outflows in foreign portfolio investments. The outflows were partly offset by inflows representing the BSP’s net foreign exchange operations and income from its investments abroad. Moreover, the BOP position reflects the final gross international reserves (GIR) level of US$86.87Bil as of end-January 2020. This GIR level represents enough liquidity buffer for 7.6 months’ worth of imports of goods and payments of services and primary income.

   John Martin Luciano, CFA

BSP reported that foreign portfolio investment transactions for January 2020 registered net outflows of US$486Mil, higher than the US$321Mil net outflows recorded in the previous month. Registered foreign portfolio investments for the month grew 10.9% to US$1.2Bil, while outflows grew 20.0% to US$1.7Bil. Investments for the month were mostly in PSE-listed securities with 65.9% share of the total, while the remaining 34.1% balance went to investments in Peso GS. Meanwhile, top investing countries were the United Kingdom (UK), the United States (US), Singapore, Luxembourg and Hong Kong with combined share of 79.0% of total investments. In contrast, the US continued to be the main destination of outflows, receiving 62.1% of total remittances.

   John Martin Luciano, CFA

Credit watcher S&P lowered its projected Philippines GDP growth to 6.1% from the initial 6.2% as the corona virus epidemic continues to hit economies. S&P also cut the GDP growth forecast for Asia Pacific by 50bps to 4.3% for 2020. Even though the Philippines is the least affected from the outbreak, S&P’s GDP growth forecast of 6.1% is still much lower than the economic managers’ target of 6.5% to 7.5%. The debt watcher is maintaining its 2021 GDP growth projection at 6.4% as they expect to see more policy rate cuts and fiscal easing on affected sectors.

   John Martin Luciano, CFA

The House of Representatives has approved its measure that will amend the 84-year-old Public Service Act to allow full foreign ownership in the public service sector. The House approved on its second reading HB 78, which delineated public service from public utility, which is covered by the 40% limit on foreign ownership set by the 1987 Constitution. Hence, transportation, communication, and power industries can now be fully owned by foreign companies. This measure is being pursued to promote competition and foreign investment in public service companies.

   John Martin Luciano, CFA

Data from the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and Truck Manufacturers Association (TMA) showed that auto sales of member companies decreased by 12% to 23,723 units in January, from 26,888 units sold in the same month in 2019. Broken down, passenger car sales dropped 23% to 6,543 units, while commercial vehicles fell 6.6% to 17,180 units. Toyota Motor Philippines took the biggest market share with 37.47%, followed by Mitsubishi Motors Philippines Corp. with 21.12%, and Nissan Philippines, Inc. with 11.91%. CAMPI President Rommel Gutierrez said that the lower y/y sales performance was anticipated as majority of plants and dealerships located in South Luzon were hit by ashfall. Nevertheless, the group remains optimistic that the industry could get back on track in the coming months

   John Martin Luciano, CFA

We are upgrading our recommendation on SECB from HOLD to BUY following the recent selloff in the stock.

   Adrian Alexander Yu

We are currently reviewing estimates on IMI in light of the poor 2019 performance and the impact of the delays in IMI manufacturing capabilities in China. Note that we previously had a HOLD rating on IMI with a FV estimate of Php9.40/sh.