Macro-Economy Analysis

Last week, the PSEi rose by 6.15% week-on-week to 7,019.18 (+406.56 points) on bargain hunting and as fears over the speculative retail trading frenzy that swayed Wall Street the previous week continued to ease. In addition, the positive surprise in January’s Manufacturing Purchasing Managers’ Index (PMI) data, as well as traction in the government’s national vaccination plan and CREATE bill’s passage lifted investor sentiment. Faster-than-expected uptick in January inflation at 4.2% (est.: 3.5%) was meanwhile shrugged off after the Bangko Sentral ng Pilipinas (BSP) stated that recent trends should be temporary.

Market outlook for this week

This week, we expect the market to trade sideways with an upward bias as House Speaker Lord Allan Velasco filed a bill proposing Bayanihan 3, with a P420 billion fund to further aid the country’s recovery from the COVID-19 pandemic. Meanwhile, investors will keep watch of the results of the MSCI Quarterly Index Review on 10 Feb 2021 and BSP Monetary Board meeting on 11 Feb 2021. On the international front, House Speaker Nancy Pelosi said she and House Democrats are aiming to pass the American Rescue Plan package in the next two weeks, which could support positive sentiment for global markets.

Stock Picks

1. EEI Corp. (EEI)

Recommendation: BUY

1-Year Target Price: No Consensus Target Price

Analysis: The cutter head, the largest part of the first of six tunnel boring machines that will be used for the partial operability section of the Metro Manila subway from Valenzuela to North Avenue, has arrived in the country.

Recall that the joint venture of EEI Corp. (EEI), Shimizu Corp., Fujita Corp., and Takenaka Civil Engineering Co. Ltd. will be in charge of the design and construction of the subway’s partial operability section. This news might be welcoming for investors looking to accumulate companies that have a clear positive catalyst ahead. The physical arrival of the tunnel boring machines will help support the share price since it is the equipment used to drill through the ground to make way for the construction of the subway.

Moreover, as of end-Sept 2020, the unworked portion of the EEI’s existing contracts valued at P52 billion is expected to provide three years of revenues for the company. Those looking to accumulate can buy at current prices and on breakout above P8.20.

2. Philippine National Bank (PNB)

Recommendation: BUY

1-Year Target Price: PHP 32.54

Analysis: Despite the steep market sell-off in the last week of Jan-21, PNB managed to stay above its key support level around the P25.00 to P25.60 area. It is also worth noting that PNB is currently trading at RSI oversold levels for the first time since May-20. With PNB currently trading near the bottom end of the range, we think it is a good risk to reward trade at current levels.

In regards to the infusion of the prime assets, according to management, the transactions will be undertaken to realize the market value of the said properties and reduce PNB’s low-earning assets to strengthen its financial position. As for fundamentals, PNB is still trading well below its book value at 0.24x F12 P/BV and behind peer average of 0.68x F12 P/BV.

Take advantage of the pullback. Set cut loss below P25.00 and take profits at around P28.60 to P29.00.

3. ACE Enexor, Inc. (ACEX)

Recommendation: SELL

1-Year Target Price: No Consensus Target Price

Analysis: ACEX rallied by 39% last week after the company disclosed its plans to firm up its partnership and 2022 drilling plan for Service Contract (SC) 55 offshore West Palawan within the first half of the year. Management added that it aims to commence drilling of an appraisal well in 1H 2022.

After a strong run-up early last week, price action last Thursday and Friday suggest the rally is likely to pause in the next trading sessions given the red candles formed. As for fundamentals, significant development moving forward will be based on the drilling that will still happen next year.

That being said, current holders can take profit once the stock breaks below P18.00 since that will signal further correction.

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