I Philippine Equity Research Weekly Notes

Monday, 20 January 2025

MARKET COMMENTARY: April Tan, CFA

Chief Equity Strategist

Foreign selling intensifies as bond rates and dollar

jump Indices
Close Points % YTD%
PSEi 6,265.52 -246.05 -3.8% -4.0%
The market ended lower for the second consecutive week in January, with All Shares 3,675.78 -81.51 -2.2% -1.9%
the PSEi index down by 3.8% to 6,265.52. Market breadth was also negative Financials 2,113.85 -77.25 -3.6% -2.0%
Holding Firms 5,270.83 -306.39 -5.4% -6.5%
as there were 120 losers and only 97 gainers. Average daily value turnover
Industrial 8,916.97 -322.67 -3.5% -4.2%
increased to Php5.2 Bil from Php4.1 Bil the previous week. Mining & Oil 7,886.01 95.28 1.2% 0.7%
Property 2,331.66 -19.88 -0.8% -1.9%
Services 2,089.12 -29.43 -1.4% 0.4%
Stocks fell as the U.S. 10-year bond jumped to as high as 4.79% and the
dollar strengthened to a peak of 109.96 largely due to the stronger than Dow Jones 43,153.13 517.93 1.2% 1.4%
expected jobs numbers. Note that the U.S. non-farm payrolls for December S&P 500 5,937.34 19.09 0.3% 0.9%
Nasdaq 19,338.29 -140.59 -0.7% 0.1%
reached 256k, much higher than the 156k consensus estimate, causing
investors to worry about the stickiness of inflation. PHP:USD 58.59 0.10 0.2% 1.3%
Dollar Index 108.96 -0.22 -0.2% 0.4%
Oil ($) 78.68 4.76 6.6% 9.7%
Although the bond rate and the dollar fell back down later during the week Gold ($) 2714.31 47.06 1.8% 3.4%
due to the lower-than-expected core inflation, weaker-than-expected retail
BPS BPS
sales, and the higher-than-expected initial jobless claims, foreign investors Close W/W YTD
remained cautious, as they ramped up their selling activity. Note that net PH 10-Yr Yield (%) 6.33 18.83 15.10
US 10-Yr Yield (%) 4.61 -7.68 4.35
foreign selling more than doubled to Php3.3 Bil during the week in review
from Php1.4 Bil during the previous week. Index Gainers
Ticker Company Price %
The top five index losers were mostly consumer companies namely URC CNVRG Converge Info and Communications 17.00 5.1%
LTG LT Group Inc 10.82 3.0%
(-14.1%), MONDE (-9.5%), WLCON (-8.7%), JFC (-8.3%), and BLOOM (-8.1%). SCC Semirara Mining & Power Corp 35.40 1.7%
GLO Globe Telecom Inc 2290.00 1.3%
DMC DMCI Holdings Inc 11.04 0.5%
On the other hand, the top five index gainers were CNVRG (+5.1%), LTG
(+3.1%), SCC (+1.7%), GLO (+1.3%), and DMC (+0.6%). Note that three out Index Losers
of the five top gainers have double digit dividend yields namely LTG (11.4%), Ticker Company Price %
SCC (16.8%), and DMC (10.9%). URC Universal Robina Corp 68.00 -14.1%
MONDE Monde Nissin Corp 7.15 -9.5%
WLCON Wilcon Depot Inc 10.06 -8.7%
JFC Jollibee Foods Corp 242.60 -8.3%
BLOOM Bloomberry Resorts Corp 4.00 -8.0%

Top 5 Most Active Stocks

Ticker Company Turnover
ICT Int'l Container Terminal Services Inc 1,796.19
BDO BDO Unibank Inc 1,694.74
ALI Ayala Land Inc 1,601.64
SMPH SM Prime Holdings Inc 1,293.13
SM SM Investments Corp 1,208.12

(as of January 10-16 2024)

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed
outside of the COL Financial website as these may be subject to tampering or unauthorized alterations.
Weekly Notes I Philippine Equity Research Monday, 20 January 2025

NOTABLE HEADLINES:

Economy: BSP chief says another rate cut possible

Despite the series of rate cuts it delivered last year, the Bangko Sentral ng
Pilipinas (BSP) said monetary policy remains restrictive, leaving room for
more easing this year. According to BSP Governor Eli Remolona, the central
bank’s target is a neatral or “Goldilocks” rate where the key policy rate is
neither too high nor too low. He said at the current level, monetary policy is
still in restrictive territory, implying that there is still space for further rate
cuts down the line. The BSP’s first policy review of the year will take place
on February 20. (Source: Philstar)

The BSP’s benchmark rate remains restrictive as it is 275 basis

points higher than the 2025 consensus forecast for inflation rate of
3.0%. During the past 10 years, the average spread was only around
50 basis points. If inflation continues to go down, the BSP can still
afford to cut rates this year. Previously, Governor Remolona said
that the BSP could cut rates by a total of 75 basis points in 2025.

Consumer Sector: Consumer companies set for a stronger

year ahead

Sustained disinflation, more accommodative policy, and election spending

could spur growth in private consumption in 2025. While household
consumption final expenditure (HCFE) spending only grew by an average
rate of 4.8% in the first three quarters last year, this is expected to pick
up to 5.6% between 2025 to 2026, according to projections by the World
Bank.

The country’s full-year inflation rate is expected to drop further to 2.9%

this year, below the midpoint of the government’s 2-4% target band and
the average 3.2% rate logged in 2024. Rice inflation, which has been a key
driver of headline inflation in previous months, appears to have peaked.

Meanwhile, the BSP has cut rates by a cumulative 75 bps so far last year,
and economists are expecting the central bank to further trim rates by
75 bps in 2025. Historically, lower interest rates have been beneficial for
household spending, as evidenced by a moderate negative correlation
between interest rates and HCFE growth between 2001 to 2019.

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Weekly Notes I Philippine Equity Research Monday, 20 January 2025

Mid-term elections are also expected to provide an uplift to consumer

spending in early 2025. This is evidenced by the faster growth in consumer
companies’ revenues (+10.0% median rate) compared to non-election years
(+9.1%), second to periods with presidential elections (+13.9%) in the last
twelve years.

Our top picks for the consumer sector this year are JFC, MONDE, and
RRHI. We believe JFC has a compelling bottom-up story, given its multi-
pronged strategy of scaling its global presence through franchising and
focusing on high-margin segments such as coffee and tea. We also remain
optimistic on MONDE as we expect its core branded business driving top-
line and earnings growth in 2025. Lastly, we view RRHI as a value play
with a potential turnaround in earnings stemming from private consumption
recovery.

Banking Sector: Bank lending grows 11.1% y/y, NPL eases m/m
in November

According to the BSP, the total loans of universal and commercial banks
in the country rose by 11.1% y/y in November, accelerating from the 10.6%
increase seen in October. On a m/m basis, loans were up by 1%. During
the month, loans for production activities increased by 9.8% y/y (vs 9.1% in
October). Meanwhile, loans to consumers grew by 23.3% y/y in November
from 24% in October, with growth led by cards and auto loans.

The banking system’s gross NPL ratio eased in November to 3.54% from
3.6% the previous month, though higher than 3.41% in the same month
last year. According to preliminary data from the BSP, bad loans dipped
by 0.7% m/m but were up 14.6% y/y to Php520.53Bil as of end-November.
The banks’ past due ratio amounted to 4.32% in November from 4.4% in
October and 4.22% a year ago, while the ratio of restructured loans to total
loans was 2%, similar to October’s 2% but lower than last year’s 2.29%. The
banks ended November with a loan loss reserves ratio of 3.3% and NPL
coverage ratio of 93.2%. (Source: BSP, BusinessWorld)

The banking sector remains healthy as the November data shows

a continuous increase in demand for loans while NPLs (although
up) remain benign. Demand for loans should continue to go up in
2025 as interest rates go down and economic growth accelerates.
NPLs should also remain under control given the better economic
backdrop.

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Weekly Notes I Philippine Equity Research Monday, 20 January 2025

SMPH: Biggest PH mall REIT IPO unlikely in 2025, listing SM Prime Holdings Inc.

plans on hold indefinitely Ticker: SMPH

Rating: BUY

SMPH Chairman Hans Sy said that SMPH could hold off on its REIT IPO FV: Php44.30

plans this year, citing the property developer’s strong cash flows and viable
debt alternatives. Mr. Sy also expressed that the IPO may never materialize
unless a compelling reason emerges, further noting that an offering could
reduce SMPH’s portfolio by transferring recurring income-generating
properties and listing these under a separate entity. (Source: InsiderPH)

Plans to no longer spin off its mall asset to a REIT may help boost
sentiment for SMPH as investors would no longer have an alternative
to capitalizing on the strong and resilient performance of its malls
aside from buying SMPH’s common shares.

DMCI Holdings Inc.

DMC, GTCAP: Maynilad in talks with banks for IPO
Ticker: DMC
Rating: BUY
Maynilad said it is in talks with banks for its upcoming IPO in 2025 or 2026.
FV: Php14.59
Maynilad previously said that it was planning to file its IPO application by
1Q25 and was eyeing a potential listing by April or July of this year.
GT Capital Holdings, Inc.
Ticker: GTCAP

It remains to be seen whether Maynilad’s IPO will push through as Rating: BUY

it will most likely depend on market conditions. DMC owns 25% FV: Php1,000

of Maynilad while Metro Pacific (an investment of GTCAP) is the

majority owner, with a 53% stake.

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Weekly Notes I Philippine Equity Research Monday, 20 January 2025

FEATURED STOCKS:

Bleak outlook of residential segment and downward

pressure on office lease rates hurt sentiment for property
stocks

The general outlook for the property sector for 2025 is marred by the bleak
outlook of the residential segment and the high vacancy rate for office
properties. This is hurting the sentiment for property stocks, making it
difficult for their share prices to go up despite their cheap valuations.

A major headwind for the residential segment is the inventory glut, especially
in the middle-income segment, more particularly the middle-income
condominium segment. This segment has seen an increase in ready-for-
occupancy units last year as weaker demand due to high interest rates was
exacerbated by the POGO ban. Recall that take-up sales for developers
under our coverage declined 11.6% during the first nine months of 2024.

According to data released by Leechiu Property Consultants (LPC), the

oversupply of condominium units has shot up to an equivalent of 34 months
as of November last year.

Colliers is even more pessimistic as it said that it will take nearly six years
(5.8 years) to fully sell out the remaining residential inventory in Metro
Manila.

Although lower rates will help boost sales of residential properties, the
industry will most likely remain in an oversupply situation in 2025.

Meanwhile, the office segment is expected to continue seeing high

vacancy rates in 2025 primarily due to the spaces vacated by POGOs and
continuous influx of new supply. Based on LPC estimates, office vacancy
rate stood at 18% last year and will stay at that level up to 2026. This will
pressure average lease rates to go down.

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Weekly Notes I Philippine Equity Research Monday, 20 January 2025

Only the retail leasing segment or malls is expected to perform strongly this
year, supported by steadily growing OFW remittances and lower inflation.
However, among the listed property companies that we cover, only SMPH
is largely exposed to the retail leasing segment (68% of operating profits).
The rest are more largely exposed to residential and office leasing, with
combined operating profits of the two segments accounting for 50% to
80% of their total operating profits. Moreover, the growth of mall revenues
is expected to slow to an average of 6% in 2025 from an average of 8.4%
during the first nine months of 2024.

Given the poor outlook of the residential segment, the downward pressure
on office lease rates, and property companies’ large exposure to those two
segments, sentiment for property stocks will most likely stay negative in
2025. Although property companies are very cheap in terms of valuation,
negative sentiment will make it difficult for property stocks to go up
sustainably in the short term.

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Weekly Notes I Philippine Equity Research Monday, 20 January 2025

January 2025
Monday Tuesday Wednesday Thursday Friday Saturday Sunday

30 31 1 2 3 4 5
PH - PMI (Dec) PH - CPI (Dec)

6 7 8 9 10 11 12
PH - Foreign Reserves PH - Trade Balance
(Nov) (Nov)

13 14 15 16 17 18 19
PH - Overseas Cash
Remittances (Nov)

20 21 22 23 24 25 26
PH - BoP (Dec)

27 28 29 30 31 1 2
PH - GDP (2024) PH - Bank Lending (Dec)

3 4 5 6 7 8 9

Legend December '24 February '25

CD - Cash Ex-Date LD - Listing Date EOS - ETF Offer Start PH - Philippines M T W T F S S M T W T F S S
STD - Stock Ex-Date SRD - SRO Ex-Date EOE - ETF Offer End US - United States of America 1 1 2
PD - Property Ex-Date SRS - SRO Start WED - Warrant Exp Date 2 3 4 5 6 7 8 3 4 5 6 7 8 9
ABD - Analysts' Briefing SRE - SRO End 9 10 11 12 13 14 15 10 11 12 13 14 15 16
SMD - Stockholders' Meeting SRL - SRO Listing 16 17 18 19 20 21 22 17 18 19 20 21 22 23
OFS - Offer Start EDD - ETF Dividend 23 24 25 26 27 28 29 24 25 26 27 28
OFE - Offer End Ex-Date 30 31

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Weekly Notes I Philippine Equity Research Monday, 20 January 2025

Important Rating Definitions COL Research Team

BUY April Lynn Tan, CFA

First Vice President & Chief Equity Strategist
Stocks that have a BUY rating have attractive fundamentals and valuations based on our [email protected]
analysis. We expect the share price to outperform the market in the next six to 12 months.
Charles William Ang, CFA
AVP & Head of Research
HOLD
[email protected]

Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive
George Ching
valuations 2) attractive valuations but near-term earnings outlook might be poor or vulnerable Senior Research Manager
to numerous risks. Given the said factors, the share price of the stock may perform merely in [email protected]
line or underperform in the market in the next six to twelve months.
Richard Laneda, CFA
SELL Senior Research Manager
[email protected]
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the
share price to underperform in the next six to12 months. Denise Joaquin
Research Analyst
[email protected]

COL Financial Group Inc. Charmaine Co

Research Analyst
24/F East Tower, Tektite Towers, Exchange Road, [email protected]
San Antonio, Pasig City, Philippines 1605

+632 8636-5411 Paolo Miguel Manansala

Research Analyst
www.colfinancial.com [email protected]

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Weekly Notes I Philippine Equity Research Monday, 20 January 2025

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Weekly Notes I Philippine Equity Research Monday, 20 January 2025

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