I Philippine Equity Research Weekly Notes

Monday, 24 February 2025

MARKET COMMENTARY: April Tan, CFA

Chief Equity Strategist

Preparing to rally?
Indices
The market moved sideways last week, with the PSEi index up 0.6% w/w Close Points % YTD%
PSEi 6,098.04 36.71 0.6% -6.6%
to 6,098.04.
All Shares 3,660.28 31.00 0.9% -2.4%
Financials 2,266.63 13.81 0.6% 5.1%
Average daily value turnover remained thin, falling to Php5.5 Bil from Php5.7 Holding Firms 5,109.19 -29.54 -0.6% -9.4%
Bil, while foreign investors continued to be net sellers for the second week Industrial 8,825.21 169.07 2.0% -5.2%
Mining & Oil 8,278.74 534.04 6.9% 5.7%
in a row, liquidating Php2.7 Bil worth of stocks.
Property 2,233.22 19.99 0.9% -6.1%
Services 1,981.30 5.81 0.3% -4.8%
On the good side, market breadth was positive, with index gainers
outnumbering losers 19 to 9. Dow Jones 43,428.02 -1,118.06 -2.5% 2.1%
S&P 500 6,013.13 -101.50 -1.7% 2.2%
Nasdaq 19,524.01 -502.76 -2.5% 1.1%
The top five index gainers were JGS (+20.3%), URC (+18.3%), PGOLD
(+6.6%), AEV (+4.7%), SCC (+3.8%). PHP:USD 57.94 0.11 0.2% 0.2%
Dollar Index 106.61 -0.10 -0.1% -1.7%
Oil ($) 70.40 -0.34 -0.5% -1.8%
JGS and URC rallied sharply despite the official announcement that they Gold ($) 2936.05 53.52 1.9% 11.9%
would be removed from the MSCI Philippine index effective end February.
BPS BPS
This as numerous investors already sold the two stocks on speculation that Close W/W YTD
they would be removed from the widely followed index. Prior to last week, PH 10-Yr Yield (%) 6.13 0.13 -4.38
JGS and URC were down by 25.4% and 20.3% respectively for the year-to- US 10-Yr Yield (%) 4.43 -4.49 -13.77

date period.
Index Gainers
Ticker Company Price %
Meanwhile, the top five index losers were AGI (-6.6%), CNVRG (-6.0%), SM JGS JG Summit Holdings Inc 18.42 20.2%
(-4.9%), AREIT (-1.9%) and BPI (-1.5%). URC Universal Robina Corp 74.45 18.3%
PGOLD Puregold Price Club Inc 27.40 6.6%
AEV Aboitiz Equity Ventures Inc 33.50 4.7%
We remain hopeful that a more durable rally will materialize soon. Last Friday, SCC Semirara Mining & Power Corp 37.90 3.8%
the BSP made a surprise announcement that it would cut banks’ reserve
requirement ratio by another 200 basis points effective end of March. This Index Losers
is expected to lead to lower interest rates, benefiting the economy and the Ticker Company Price %
stock market. AGI Alliance Global Group Inc 6.98 -6.6%
CNVRG Converge Information and Commu 16.70 -6.0%
SM SM Investments Corp 780.00 -4.9%
Meanwhile, the U.S. 10-year bond rate fell by another 4.5 basis points to AREIT AREIT Inc 39.05 -1.9%
4.43% while the U.S. dollar weakened slightly by 0.1% to 106.61. Historically, BPI Bank of the Philippine Islands 128.10 -1.5%

lower U.S. bond rates and a weaker dollar have been good for the Philippine
Top 5 Most Active Stocks
market.
Ticker Company Turnover
ALI Ayala Land Inc 2,378.19
The major threat to the Philippine market’s performance in the next few ICT International Container Termin 2,281.18

weeks is a possible correction in the U.S. market. Last week, the S&P 500 BPI Bank of the Philippine Islands 1,552.05
SMPH SM Prime Holdings Inc 1,395.75
fell by 1.7% while the tech heavy Nasdaq index dropped 2.5%. If the U.S. BDO BDO Unibank Inc 1,334.83
market continues to weaken, it could hurt the performance of the local
(as of February 17-21, 2025)
market.

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Weekly Notes I Philippine Equity Research Monday, 24 February 2025

NOTABLE HEADLINES:

Economy: BSP’s RRR cut a positive surprise

In a surprise move, the BSP announced a 200-basis point cut in universal

and commercial banks’ reserve requirement ratio (RRR) effective March 28,
2025. This was despite deciding not to cut benchmark interest rates last
week. Nevertheless, the RRR cut is expected to release around Php400 Bil
into the financial system which will indirectly result to lower interest rates.
With more liquidity, banks will have more funds to lend. This will hopefully
lead to more investments, which are badly needed given the country’s
weak economic growth.

The resulting drop in interest rates is also expected to be positive for the
stock market, especially for interest rate sensitive stocks such as property
stocks, REITs and other high dividend yield stocks.

MONDE: Profitability of branded business remains strong, Monde Nissin Corporation

but meat alternative business remains challenged Ticker: MONDE

Rating: BUY

Based on MONDE’s preliminary earnings results, consolidated core net FV: Php13.30

income in FY24 grew by 25% y/y to ~Php9.5Bil, broadly in line with forecast.

MONDE’s APAC BFB business continued to perform well in the fourth

quarter, with sales growth accelerating to 8.0% y/y (vs. +4.3% in 9M24).
The noodle business also continued to see market share improve by 140
bps q/q to 68.7% in the fourth quarter. Partly offsetting the strong revenue
growth is lower margins. The gross margin of APAC BFB unit softened to
~35.1% from 37.6% in 9M24 likely due to unfavorable FX movements.

Meanwhile, MONDE’s meat alternative business (MAB) continued to

face challenges as revenues fell by mid-teens level in the fourth quarter.
Consequently, MONDE booked another impairment charge in FY24 for MAB
estimated at GBP80-100Mil (Php5.8-7.3Bil). This brought total impairment
losses booked during the last two years to GBP225-245Mil (Php16.4-
17.9Bil), which is already close to the top up limit of its principal’s financial
support (represented by ~12% of MONDE’s outstanding stock valued at
Php17.1Bil).

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Weekly Notes I Philippine Equity Research Monday, 24 February 2025

On the positive side, management expects MAB to record positive EBITDA

in the fourth quarter, most likely due to cost cutting initiatives. Moreover,
management said that it has sufficient retained earnings to declare
dividends, subject to board approval.

MBT: Profits would have been better if not for the trading and Metropolitan Bank & Trust
forex losses; cash dividends remain very attractive Ticker: MBT
Rating: BUY
MBT reported Php12.4Bil in earnings for the final quarter of 2024, FV: Php92.60
bringing full-year profits to Php48.1Bil, higher by 14.0% y/y and in line with
expectations.

Although headline profits were strong, there were good and bad points
about MBT’s earnings performance.

On the positive side, loan growth was robust as the bank’s portfolio Jollibee Foods Corporation
expanded by 16.6% y/y to Php1.8Tril. Growth was broad-based as the Ticker: JFC
bank reported increases in both its commercial (+17.7% y/y) and consumer Rating: BUY
lending portfolios (+14.4% y/y). FV: Php319.00

However, funding costs increased during the fourth quarter, pulling down
net interest margin (NIM) by 32bps y/y and 27bps q/q to 3.44%.

Non-interest income also fell by 8.3% to Php5.9 Bil in the fourth quarter as
MBT booked trading and forex losses amounting to Php53 Mil.

Management explained that funding costs rose as it raised more funds

to increase its bond exposure so that it could lock in to higher rates in
anticipation of the BSP’s rate-cutting cycle. Although the BSP did cut rates,
bond yields went up instead, causing the bank to incur trading losses.
Nevertheless, management said it expects NIMs and trading and forex
gains to improve in 2025

Another good news is the board’s approval of cash dividends amounting

to Php5.0/sh (regular dividend of Php3.0/sh plus special cash dividend of
Php2.0/sh). This translates to a dividend yield of ~7% based on the stock’s
current price. The ex-date for the first tranche of cash dividends amounting
to Php3.50/sh is March 5, 2025.

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Weekly Notes I Philippine Equity Research Monday, 24 February 2025

EW: Earnings beat estimates on strong revenue generation East West Banking Corporation
Ticker: EW

EW’s net income grew by 46.3% y/y to Php1.8Bil in the final quarter of Rating: BUY

2024. This brought full year earnings to a record Php7.6Bil (+24.9% y/y), FV: Php12.30

surpassing expectations as the bank booked higher-than-expected net

interest income and non-interest income.

During the fourth quarter, net interest income grew by 8.4% y/y to Php8.4Bil
as its consumer lending portfolio increased by 16% y/y and now accounts
for 82% of total loans.

Meanwhile, non-interest income fell by 25.8% y/y to Php1.6Bil. Nevertheless,

the full year total still grew by 22.2%, reaching 128% of our full year estimate.

CNPF: Recall of select tuna products in Canada to have limited Century Pacific Food Inc.
impact Ticker: CNPF
Rating: HOLD
According to news reports, the Canadian Food Inspection Agency (CFIA) FV: Php34.40
on January 28 issued a recall notice for three Hot & Spicy variants of CNPF’s
tuna flakes products. This was due to undeclared wheat on the label, which
may cause serious health issues for individuals with celiac disease or other
gluten-related disorders.

Nevertheless, we don’t expect the recall to have a significant impact on

CNPF’s revenues. The recall was due to a labelling issue rather than the
use of prohibited ingredients. Moreover, revenue contribution of Canada is
very small at less than 1%. Management also communicated that products
are back on the shelves.

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Weekly Notes I Philippine Equity Research Monday, 24 February 2025

FEATURED STOCKS:

ALI, SMPH: Negatives priced in, short term rally possible

Last week, ALI and SMPH disclosed their full year earnings results which
contained both good and bad points.

On the positive side, both companies disclosed strong double-digit

earnings growth. For the full-year, ALI’s net income grew 15.2% Y/Y to
Php28.2 Bil while SMPH’s profits rose 14% Y/Y to Php45.6 Bil. In fact,
SMPH’s performance was better than expected as full year earnings were
around 4% higher than our forecast.

On the negative side, both ALI and SMPH suffered from weaker residential
take-up sales.

SMPH’s reservation sales for FY24 reached Php60 Bil, down 41.2% from
Php102 Bil in 2023.

Meanwhile, although ALI’s full year take-up sales increased by 12% to

Php127.1 Bil, its fourth quarter take-up sales were down 5% Y/Y. In fact,
take-up sales have been down sequentially for two straight quarters and
are now at their lowest level in the past 10 quarters.

We recognize that the near-term outlook for property companies is not good
very given the huge glut in office space and condominium developments in
Metro Manila. This is why both stocks have not been performing well lately,
with ALI and SMPH down by 39.8% and 28.9% from their September peak
levels respectively.

Nevertheless, we believe that the negatives are already priced in.

For example, both stocks are trading at very depressed P/E multiples that
are way below their 10-year historical averages. ALI is currently trading at
10.5X P/E vs its 10-year historical average of 20.4X, while SMPH is trading
at 14.2X P/E vs its 10-year historical average of 27.2X.

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Weekly Notes I Philippine Equity Research Monday, 24 February 2025

Moreover, the two stocks are already trading very close to their pandemic
lows of Php22.95 for ALI and Php24.70 for SMPH. Note that the said levels
were hit in March of 2020 when investors nervously sold property stocks
due to uncertainty on how the lockdowns would impact their profits.
However, we don’t think ALI and SMPH deserve to trade at their pandemic
lows given that ALI’s 2024 profits are already 225% higher compared to
2020, while that of SMPH is up 153%.

Finally, although concerns about the value of SMPH’s reclamation project

and landbank are valid given the huge glut in the Manila Bay area, the
stock’s current market capitalization only reflects the cap rate value of its
malls, offices, and hotels which are still performing well. Note that SMPH
is still predominantly a mall operator, with malls accounting for 68% of its
total profits.

Because the negatives are already priced in, we think there is a possibility
that we could see an oversold rally in the short term. In fact, the BSP’s
surprise announcement of a 200-basis points cut in banks’ reserve
requirement ratio last Friday could act as a catalyst for the two stocks to
go up as the said development is expected to lead to higher liquidity and
lower lending rates, benefiting property companies and their stocks.

The caveat though is that any rally might be limited in magnitude, at least in
the short term. This as a lot of investors would most likely still be cautious
towards property stocks given expectations that the property companies’
office leasing and condominium sales businesses would stay under pressure
in 2025 given the huge oversupply prevailing. Consequently, those who
only have a short-term investment time horizon should be prepared to sell
on rallies as both stocks would most likely stay volatile in the near future.

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Weekly Notes I Philippine Equity Research Monday, 24 February 2025

February 2025
Monday Tuesday Wednesday Thursday Friday Saturday Sunday

27 28 29 30 31 1 2

3 4 5 6 7 8 9
PSEi Rebalancing PH - CPI (Jan) PH - Unemployment PH - Foreign Reserves
Effective Date (Dec) (Jan)
PH - PMI (Jan) US - Unemployment
US - PMI (Jan) (Jan)
ABD - CIC ABD - GLO

10 11 12 13 14 15 16
PH - Bank Lending US - CPI (Jan) PH - BSP Rate Decision
(Dec)

17 18 19 20 21 22 23
PH - Overseas Cash PH - BoP (Jan) US - FOMC Meeting
Remittances (Dec) Minutes

24 25 26 27 28 1 2
PH - Budget Balance PH - Bank Lending (Jan)
(Dec) CD - PCOR (PRF3B)
PH - Trade Balance
(Jan)
US - GDP (4Q)
US - Core PCE (4Q)

3 4 5 6 7 8 9

Legend January '25 March '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 2 3 4 5 1 2
PD - Property Ex-Date SRS - SRO Start WED - Warrant Exp Date 6 7 8 9 10 11 12 3 4 5 6 7 8 9
ABD - Analysts' Briefing SRE - SRO End 13 14 15 16 17 18 19 10 11 12 13 14 15 16
SMD - Stockholders' Meeting SRL - SRO Listing 20 21 22 23 24 25 26 17 18 19 20 21 22 23
OFS - Offer Start EDD - ETF Dividend 27 28 29 30 31 24 25 26 27 28 29 30
OFE - Offer End Ex-Date 31

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Weekly Notes I Philippine Equity Research Monday, 24 February 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, 24 February 2025

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Weekly Notes I Philippine Equity Research Monday, 24 February 2025

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