Macro-Economic Analysis

Last week, the PSEi fell by -0.11% to close at 6,370.87 (-7.2 points), as investors mulled over extended lockdowns that continued to stunt economic activity in NCR Plus. In addition, the country’s recovery outlook was clouded by elevated COVID-19 cases and expectations of a pickup in inflation.

Market outlook for this week

This week, we expect the market to continue last week’s trend, trading sideways with a downward bias as investors remain on the sidelines and await the country’s inflation and unemployment rate prints this Wednesday and Thursday, respectively. However, this may be countered by progress in the country’s vaccine rollout plans, as the government received its first batch of Sputnik V vaccines. In addition, it expects to receive Moderna’s vaccine via the COVAX facility, after it was granted an emergency use listing (EUL) from the World Health Organization (WHO).

Stock Picks This Week

1. Aboitiz Equity Ventures, Inc. (AEV)

Recommendation: BUY

1-Year Target Price: PHP 40.04

Analysis: AEV posted a core net income of P7.8 billion, up +243% year-on- year (y-o-y) in 1Q 2021, ahead of consensus’ estimates, as all business segments posted double-digit earnings growth. For the power distribution business, we think there is room for volume growth to turn positive for the year. Aboitiz Power (AP) disclosed that average peak demand in Luzon and Visayas increased by 19% y-o-y in Apr-21 given relatively more relaxed quarantine measures. There could also be a lift for the power generation segment as the first unit of the 668MW Dinginin plant is targeted for commercial operation within this year.

For the infrastructure segment, management expects the common tower business to contribute to both revenue and earnings this year. For the cement business, apart from the company’s cost-saving initiatives, we expect Republic Cement’s earnings to be supported by higher sales volume driven by the new cement capacities in Bulacan and Iligan. AEV’s valuation has also become attractive with the stock trading at 12.91x T12 P/E, below its 5-year historical average of 15.79x.

Bargain hunters can begin accumulating at current levels. Set cut loss below P34.00 and take profit around P39.50.

2. Universal Robina Corp. (URC)

Recommendation: BUY

1-Year Target Price: PHP 178.00

Analysis: URC posted net earnings growth of 51.3% y-o-y to P3.0 billion for  1Q 2021 – in line with our estimates, driven by higher operating income and reduced net foreign exchange loss. Consolidated sales totaled to P34.6 billion (+3.5% y-o-y) for the quarter, as its BCF segment’s sales rose by 1.3% y-o-y to P25.7 billion. Meanwhile, its commodity foods group (CFG) saw sales growth of 19.4% y-o-y to P5.9 billion. These were able to offset its agro-industrial group’s (AIG) sales decline of 7.1% y-o- y to P2.6 billion.

For FY21F/22F, we see URC’s earnings growing by a 13.5% CAGR as the company benefits from: (i) rebound of its out-of-home categories, (ii) further gains from its cost rationalisation initiatives; (iii) increased distribution network (having reached 200k distribution points as of end2020); and (iv) better operating margins from its Farms segment post rightsizing of its hog operations.

Accumulating once URC breaks above P134.50 is advisable. Set cut loss below P125.00 and begin taking profits at around P148.0. For long-term investors, we have a target price of P178.0.

3. Manila Electric Company (MER)

Recommendation: BUY

1-Year Target Price: PHP 308.60

Analysis: MER generated P5.1 billion in core net earnings in 1Q 2021, down by 10.7% y-o-y, in line with consensus estimates. Total revenues for 1Q 2021 stood at P64.7 billion, down by 7% y-o-y, due to lower distribution revenues at P14.4 billion (-4.2 y-o-y) and generation and pass-through charges at P48.1 billion (-8.1% y-o-y).

Energy sales volume decreased by 4% y-o-y to 10,473 GWh in 1Q21 as the decline in the commercial segment had offset the growth in the residential and industrial sectors. With energy sales volume only down by 3.7% last 1Q21, there is room for MER’s volume growth to turn positive for the year. MER is forecasting a 20% increase in energy sales in Apr-21 given relatively more relaxed quarantine measures.

For the whole year, management expects energy sales to be around 46,300 GWh, which is 6% higher than FY20 and 1% lower than FY19. MER added that the optimism to return to near pre-pandemic levels also comes from the expected increased contribution of Global Business Power Corp. (GBPC) after it completed the full acquisition last 31 Mar 2021.

Accumulating once MER retests the P260.00-265.00 level is advisable. Set cut loss below P250.00 and take profit around P300.00

Material in this article is obtained from sources we believe to be reliable, but its reliability or precision cannot be guaranteed. This is for the sole purpose of providing details and does not provide an offer from us to buy or sell securities mentioned in this document.


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