Listed firms seen to reap benefits of better 2019

MANILA, Philippines — Listed consumer companies that were affected by inflationary pressures in the first half of 2018 are likely to reap the benefits of a better 2019, according to a report by BDO Nomura on Philippine equities. 

In a report, BDO Nomura said that some consumer companies including Jollibee Foods Corp. (JFC), San Miguel Food and Beverage (FB) and Robinsons Retail Holdings Inc. (RRHI) have generally exceeded expectations in the third quarter of 2018 after disappointing first and second quarter results. 

“JFC, FB, and RRHI in particular demonstrated margin resiliency in an elevated inflation environment,” it said.

Election related spending in 2019 because of the May elections will also be favorable for consumer stocks, BDO Nomura said.

“Our favored stocks are JFC and FB. It is worth pointing out that 2019 is an election year, and election spending could be a further positive catalyst for the consumer sector. Since its 1993 initial public offering, for example, JFC has outperformed the Philippine Composite Index by an average of 27 percent during election years versus outperformance of just four during non-election years,” it said.

JFC grew its net income to P2 billion in the third quarter of 2018, up 25.9 percent. FB’s income rose to P4.5 billion during the third quarter, from P4 billion a year ago. 

RRHI’s third quarter net income was flat at P1.2 billion. 

Inflation soared to 6.4 percent in August and then to 6.7 percent in September and October before easing to six percent in November.

“We believe companies with pricing power and extensive supply chain networks could surprise on the upside especially if inflation stabilizes,” BDO Nomura said.

It noted that inflation in 2019 will likely trend lower.

“For 2019, we believe inflation concerns (particularly if crude oil prices continue to trend lower) take a backseat to intensifying competition and execution bottlenecks,” it said.

As for conglomerates, BDO Nomura said they have the potential to recover from oversold levels assuming overall risk aversion eases.

DMCI Holdings Inc. and Aboitiz Equity Ventures, for instance have new projects and potential mergers and acquisitions in the pipeline. 

For Ayala Corp., LT Group and GT Capital, BDO Nomura said these stocks provide potential for healthy organic growth.

“Share prices of consumer-oriented conglomerates LT Group and GT Capital have actually outperformed the index over the past month, as investors may see these companies as undervalued proxies for a consumer sector facing fewer headwinds in 2019,” it said.