Fuel shock raises inflation risk
From AB Capital's The Opening Bell: Three Moves
Event
Domestic fuel prices could rise sharply on July 21, with diesel projected to increase by P9-P10/l and gasoline by P3.5-4.5/l. The Department of Energy (DOE) is considering tighter pricing measures, while the Land Transportation Franchising and Regulatory Board (LTFRB) is weighing either broader fuel subsidies or higher public transport fares.
View
We think the immediate concern is the second-round inflation impact. A large diesel adjustment would raise logistics, food distribution, and commuting costs, while any fare hike would broaden the pass-through to households. The burden will be heavier if elevated oil prices persist beyond one pricing cycle.
Catalyst
The key catalysts are the final pump-price adjustment, the government's subsidy or fare decision, and the duration of supply disruption near the Strait of Hormuz. A temporary spike would be manageable, while several weeks of elevated prices could pressure inflation expectations, the peso, and Bangko Sentral ng Pilipinas (BSP) policy flexibility.
Action
In our view, the development supports a defensive Philippine Stock Exchange index (PSEi) stance. We would favor Meralco (MER), Aboitiz Power (AP), and Puregold Price Club Inc. (PGOLD) for relatively resilient earnings, while remaining cautious on Cebu Air Inc. (CEB) and other fuel-sensitive cyclicals. For Petron Corp. (PCOR) and Pilipinas Shell Petroleum Corp. (SHLPH), higher prices may support revenue but also raise working-capital and volume risks.
Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.
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