As corporate earnings are again clouded by uncertainty over when the economy can fully reopen, we expect investors to flock to defensive plays. We would remain selective as the race back to normal is not equal.

The PSE index (PSEi) is currently trading at 17.8x 2021 Price-to-Earnings (P/E) ratio. At the next price support levels of 6,200 and 6,000, the PSEi will trade at a lower P/E of 17.0x and 16.5x.

Worst-case, with the ECQ continuing to be extended beyond April 4, the PSEi may go back to 5,700 which is also the same level in early August 2020 when MECQ was re-implemented.

Defensive Plays

Here are our five (5) pandemic Defensive Plays focusing on sectors/companies that we believe are still materially cheap and can go back to over 70% of 2019 earnings this year.

1. PGOLD (Target Price: P50.00) – PGOLD will benefit from “panic buying” while S&R segment is less affected by higher inflation due to higher-end target market. Trading at 15.6x 2021E P/E vs. its 10-year mean of 20x.

2. CNPF (Target Price: P20.00) – increased demand for CNPF’s canned goods to sustain robust earnings growth this year.

3. CNVRG (Target Price: P21.40) – pure play in the broadband segment, the key growth driver of the telco sector. Expansion story in VisMin region to sustain double-digit growth in subscriber base.

4. FGEN (Target Price: P32.50) – >90% of cashflows is contracted. Potential increase in capacity by 4Q 2021 if EDC’s revival of the Mahanagdong Geothermal wells (~180 MW) will be successful. Trading at 7x 2021E P/E.

5. LTG (Target Price: P15.55) – 75% of earnings from resilient tobacco segment, while PNB expects monetization of assets within the year. Potential special dividends again if PNB asset sale pushes through. Trading at 5x 2021E P/E.

Another possible candidate for bottom-fishing:

PIZZA (Target Price: P8.70) – less affected by closure of restaurants as products are mainly for in-home consumption and delivery (70% of sales). Would look to pick up if price falls below P6.00/share.

Other Value Plays, although risks could rise if the ECQ lockdown continues to be extended:

Property – we prefer residential and office plays ALI (Target Price: P42.00) and RLC (Target Price: P23.00)

Banks – pre-emptive loan loss provisions last year takes into account 4-5% non-performing loans (NPL) ratio scenario. We prefer BDO (Target Price: P125.00) and MBT (Target Price: P53.00).


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