Macro-Economic Analysis

Last week, the PSEi rose by 1.27% week-on-week to close at 6,881.37 (+86.51 points) as the beginning of inoculations for COVID-19 and supportive monetary and fiscal policies lifted investor sentiment, brushing off the two-year high inflation print of 4.7% for February.

Market outlook for this week

This week, we expect the market to take a breather as investor worries mount over the surge of more than 3,000 new infection cases, one of the highest daily in the past four months, and the increased number of COVID-19 patients being admitted to hospitals as reported by the Department of Health (DOH).

On the international front, investors await the release of the U.S. inflation print for February on Wednesday and the House’s passage of the US$1.9 trillion coronavirus relief package on Tuesday, which will be sent to President Joe Biden for his signature before the 14 Mar 2021 deadline.

 Stock Picks This Week

1. PLDT Inc. (TEL)

Recommendation: BUY

1-Year Target Price: PHP 1,567.90

Analysis: TEL reported 2020 net income of P24.3 billion (+8% year-on-year) – ahead of consensus estimates. Excluding nonrecurring items, forex, and mark-to-market charges, the telco’s 2020 core net income was posted at P26.1 billion (+3% y-o-y). We think the fixed-line and broadband segments should sustain their earnings performance due to the shift to work and study-from-home setups and as the company taps into underpenetrated areas. TEL registered solid numbers for the year as pandemic pushed demand for Internet services, driving service revenues to record levels. Given this, the management aims to ramp its capex further in 2021 to between P88 billion to P92 billion, from 2020’s record of P71.9 billion. Overall, they are hoping to exceed its core profit guidance of P29-30 billion for 2021, as they continue to tap into the underserved broadband market through their rapid expansion in ports, and the upside in mobile data demand and top-ups especially once the economy opens further.

Accumulating at current prices is advisable. Take profit around P1,400/P1,430 and set cut loss below P1,275.

2. Cemex Holdings Philippines, Inc. (CHP)

Recommendation: BUY

1-Year Target Price: PHP 1.61

Analysis: CHP booked a net income decline of 24.2% y-o-y to P985 million in 2020, above consensus’ estimates. Lower volumes and prices y-o-y were partially offset by lower costs, as CHP limited its non-essential spending. Specifically, total fuel cost and total power cost declined by 7%/16% y-o-y, respectively. We think that CHP’s earnings are likely to recover this year driven by higher sales volume and average selling prices as the economy continues to reopen and infrastructure projects of both the private and public sectors push through. For its part, the government targets to spend P1.1 trillion for infrastructure (+12% y-o-y). Moreover, the lifting of the rotary kiln, which will be used to expand its Solid Cement Plant in Antipolo, puts the company on track to complete the expansion project by Dec -21. The new cement line is expected to boost annual cement capacity by 26% (+1.5m metric tons) to 7.2m metric tons.

Accumulating once CHP breaks above P1.45 is advisable. Take profit around P1/62/P1.73 and set cut loss below P1.35.

3. Cebu Landmasters Inc. (CLI)

Recommendation: BUY

1-Year Target Price: PHP 5.73

Analysis: CLI is expanding its economic housing brand to four more cities in the Visayas and Mindanao, after seeing a spike in demand amid the pandemic. CLI is launching a Casa Mira community in Dumaguete this month. Casa Mira communities will also be built in Ormoc, Puerto Princesa, and Davao City within the year. Reservation sales should grow further with the planned launch of 15 residential projects worth P17 billion for 2021. It is also worth noting that CLI’s residential portfolio allocates around 50% to 60% of the economic segment to fill housing backlogs in the VisMin region. According to Leechiu Property Consultants, there is a projected housing backlog of 2.85m homes VisMin by 2022, hence CLI is well-positioned to capture even larger demand moving forward. On the valuation side, despite its outperformance in the residential space, CLI is still relatively cheap trading at 4.86x F12 P/E (peer average: 13.1x) and 0.75x F12 P/BV (peer average: 1.22x).

Accumulating at current prices is advisable. Take profit around P6.00/P6.10 and set cut loss below P5.20.


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