Macro-Economy Analysis

Last week, the PSEi dropped 0.40% week-on-week to close at 6,991.01 (-28.17 points) as profit-taking ensued amidst a cautious investor sentiment. The wait for the Bangko Sentral ng Pilipinas (BSP) policy decision released on Thursday likely contributed to the volatile market activity.

Market outlook for this week

This week we expect the market to trade upwards as investors price in the BSP’s pause in rate cuts last week. Moreover, the downward trend in COVID-19 cases in the Philippines, as well as the possible reopening of cinemas and other public spaces, should help lift sentiment further. In the international front, the record rate of vaccination in the U.S. and the possible passing of the pandemic relief bill in the U.S. Congress should likewise bolster optimism among foreign investors.

Stock Picks

1. Manila Water Company Inc. (MWC)

Recommendation: BUY

1-Year Target Price: PHP 18.36

Analysis: Department of Justice (DOJ) Secretary Menardo Guevarra disclosed that Manila Water Co., Inc. (MWC) has begun its talks regarding a new concession contract with the government. Sec. Guevarra said that much progress has been achieved so far. He also said that the negotiation with Maynilad Water Services will start once talks with MWC are done. We think the news flow is likely to lift overhang on the counter, ensuing from the government’s initial plan in Dec-19 to revoke the extension of MWC’s concession agreement – effectively shortening its operations to only until end-2022.

We have a buy recommendation on MWC after it broke above P14.80. Set cut loss below P13.75 and profit taking levels at P17.80.

2. Metro Pacific Investments Corp. (MPI)

Recommendation: BUY

1-Year Target Price: PHP 4.93

Analysis: Department of Justice (DOJ) Secretary Menardo Guevarra disclosed that Manila Water Co., Inc. (MWC) has begun its talks regarding a new concession contract with the government. Sec. Guevarra said that much progress has been achieved so far. He also said that the negotiation with Maynilad Water Services will start once talks with MWC are done. We think the news flow is likely to lift overhang on the counter, ensuing from the government’s initial plan in Dec-19 to revoke the extension of MWC’s concession agreement – effectively shortening its operations to only until end-2022.

Note that MPI has a 53% ownership interest.in Maynilad. We have a buy recommendation on MPI once the stock breaks out above P4.40. Set cut loss below P4.10. Take profits at around P5.00 to P5.10.

3. Filinvest Land, Inc. (FLI)

Recommendation: BUY

1-Year Target Price: PHP 1.34

Analysis: Year-to-date, Filinvest Land Inc.’s (FLI) share price has risen by 8.0%, outperforming its peers’ share price performance during the period. We attribute this to the announcement that its wholly-owned subsidiary, Cyberzone Properties Inc. (CPI), will be transformed into a Real Estate Investment Trust (REIT) company. The recent rally also brought FLI to retest its key resistance level of P1.24.

Price action is picking up for FLI with volume steadily increasing as the stock looks to break above its resistance level of P1.24. Once FLI breaks above the said level, the stock will likely retest the P1.40 levels. As for fundamentals, FLI’s planned REIT listing should free up capital and provide better financial flexibility for the company. The listing is also positive for FLI since it will allow it to unlock the value of its office assets especially with the company currently being undervalued by the market. FLI is trading at only 0.37x F12 P/BV and 5.45X F12 P/E, below peer averages of 0.91x F12 P/BV and 8.8X F12 P/E.

We have a buy recommendation on FLI once the stock breaks above P1.24. Set cut loss below P1.15.Take profit at around P1.40/P1.55.

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