Macro-Economy Analysis

Last week, the PSEi fell 0.92% week-on-week to close at 6,926.41 (-64.6 points) as investor sentiment was dampened after the vaccine czar announced the expected delivery of 117,000 Pfizer-BioNTech vaccine doses had been delayed due to the need to finalize indemnification agreements. The delivery of 600,000 Sinovac Biotech vaccine doses due to arrive on 23 Feb 2021 may also be postponed as it has not yet been granted an Emergency Use Authorization (EUA). In addition, investors mulled over elevated bond yields and disappointing US jobs data.

Market outlook for this week

This week, we expect the market to post moderate gains as most Metro Manila mayors, as well as several businessmen and economists have expressed their support for the National Economic and Development Authority’s (NEDA) recommendation of placing the entire country under Modified General Community Quarantine (MGCQ). With that, investors eagerly await President Duterte’s decision on the matter which will be announced later this week. Meanwhile, this week’s earnings releases of index heavyweights, such as SM, BDO, and ALI, will likely influence investor sentiment and market direction.

Stock Picks

1. SM Prime Holdings, Inc. (SMPH)

Recommendation: BUY

1-Year Target Price: PHP 45.00

Analysis: MSCI announced last 10 Feb 2021 the results of its Feb 2021 QIR. SM Prime Holdings, Inc. (SMPH) had one of the top weight decreases. All changes will be made available as of the close of 26 Feb 2021 (effective 01 Mar 2021).

We think the recent drop provides investors a chance to take advantage of the pullback for SMPH. We are of the view that the successful rollout of COVID19 vaccines should see a recovery in SMPH’s Malls segment (which accounted for at least 60% of pre-COVID income) and higher Residential sales take -up (supported by the resumption of project launch- es and healthy demand). Furthermore, we think current valuations with SMPH (as an index glamour name) largely benefitting from the inflow of foreign funds.

We have a buy recommendation at current prices and on pullbacks until P35.00. Set cut loss below and P35.00 and take profits at around P42.00

2. Bank of the Philippine Islands (BPI)

Recommendation: BUY

1-Year Target Price: PHP 99.00

Analysis: BPI generated net earnings of P4.2 billion (-37.4% y-o-y) in 4Q 2020, bringing full year income to P21.4 billion (-25.7% y- o-y). The lower earnings came on the back of P28 billion in preemptive provisions, which were 5x higher than the P5.6 billion logged in the prior year. Pre-provisions, BPI’s operating income for 2020 grew by 22.4% to P53.8 billion – in line with our expectations. Moreover, management noted that NPLs peaked in October at 3.8% but has since come down to 2.68% in Dec-2020.

With pre-provision profit going in line with our expectations, we reiterate our BUY call for BPI on account of a more bullish outlook from management, especially given the following: (i) their improved outlook on NPLs for 2021, (ii) healthy mortgage credit demand, (iii) increase in auto loans (vs industry sales), among others. The bank’s merger with its subsidiary BPI Family Savings Bank (BFSB) should also benefit the bank as this should allow for branch rationalisation and elimination of redundancies within its network.

For long-term investors, we recommend a BUY for BPI with target price of P99.00. For short term traders, we have a buy recommendation for BPI once the stock breaks out above its resistance at P89.00, with profit-taking levels at P99.00. Set cut loss below P76.00.

3. Nickel Asia Corp. (NIKL)

Recommendation: BUY

1-Year Target Price: No Consensus Target Price

Analysis: According to the Philippine Nickel Industry Association, the country’s nickel industry will have a strong year in 2021 on account of high nickel demand from foreign markets. Moving forward, nickel prices should remain stable supported by expectations of higher demand for nickel-manganese-cobalt (NMC) batteries and amid stronger macroeconomic footing (especially in China) as lockdown measures are eased. The favorable outlook of nickel prices coupled with recovery in demand should boost NIKL’s earnings prospects in the next quarters.

We think that the rising demand for nickel will be beneficial not only for the country but for the mining companies and their respective earnings performance. We look into entering on dips. Setting support levels at P5.40 / P4.80, and resistance at P6.00.

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