Macro-Economic Analysis

Last week, the PSEi dropped 2.22% week-on-week to close at 6,728.55 (-152.82 points) as daily COVID-19 cases continued to increase last week, hitting its six-month high on Friday at 4,587. The increasing number of cases resulted in the reimposition of curfews in several areas in Metro Manila. Moreover, the muted improvement in unemployment numbers in Jan-2021 at 8.7% (Jan-20: 5.4%, Oct-20: 8.7%) did not help investors’ confidence.

Market outlook for this week

This week we expect the market to continue its downtrend as more COVID-19 cases are being recorded, breaching the 5,000 mark on Saturday. OCTA Research group’s projection of 8,000 new daily cases in the country by end-March, the slower-than-expected vaccination rate, the first confirmed case of the Brazilian COVID-19 variant in the Philippines, as well as the discovery of the Philippine ‘P.3’ variant in Japan, are set to further temper confidence among investors.

 Stock Picks This Week

1. Puregold Price Club Inc. (PGOLD)

Recommendation: BUY

1-Year Target Price: PHP 53.00

Analysis: Year-to-date, PGOLD ‘s share price is down by 13.4%. That brought the stock back to its support levels of P34.50/P35.00. With PGOLD currently trading near the support level, we think it is a good risk to reward trade to enter the stock at current levels.

Accumulating around P35.00 is advisable. Set cut loss below P34.50. For long-term investors, our price target is P53.00.

2. Jollibee Foods Corp. (JFC)

Recommendation: SELL

1-Year Target Price: PHP 159.00

Analysis: JFC generated 4Q 2020 net income of P2 billion (- 34.5% y-o- y), which pared full year net losses to only P11.5 billion (2019 net income: P7.3 billion). At the EBIT level, JFC posted full year net operating loss of P12.6 billion, dragged by 26% q-o-q higher opex that was booked in 4Q20. We had projected P7.5 billion in net operating losses for 2020: we had factored better operating margins (at -5.3% versus actual at -9.8%) on higher sales expectations of P143.1 billion (versus actual net sales of only P129.1 billion.

We are of the view that prospects remain clouded. COVID-19 woes aside, we think JFC Philippines will lag the pecking order in terms of reopening winners. Structural changes brought about by the rise of delivery aggregators as well as upside risks to inflation make it difficult for JFC to navigate its price-sensitive target market. On the international front, performance in the last year was unimpressive. We prefer to see a more pronounced recovery before turning bullish on this segment.

Lightening position once JFC breaks below P177.00 is advisable. For long-term investors, our price target is P159.00.

3. Semirara Mining and Power Corp. (SCC)

Recommendation: SELL

1-Year Target Price: PHP 17.18

Analysis: SCC’s 4Q 2020 earnings dropped by 77% y-o-y and 39% q-o-q to P453 million, bringing FY20 earnings to P3.4 billion (-67% y-o-y), below consensus expectations. While the average selling price for energy this year is expected to improve as the company is increasing its long term contracted capacity with distribution utilities and retail customers, management said that earnings for the segment will likely underperform as SCPC unit 2 is currently on unplanned outage, which is expected to last until June 2021. For the coal business, Molave North Block 7 (NB7) is expected to resume mining operations by 2Q21. That being said, while SCC’s earnings may improve this year, we expect the company’s bottomline to lag compared to other energy and mining companies given the company-specific headwinds.

Lightening position once SCC breaks below P12.00 is advisable. Next support level is P11.00

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