SONA, earnings take center stage

By James A. Loyola

Trading today is seen to be muted as all eyes, and ears, will be waiting for cues from President Duterte’s State of the Nation Address this afternoon.

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“Equities investors will give extra attention on: (1) sequel tax reform plan (specifically on corporate taxes, retention/removal of earlier fiscal incentives; renewable energy); (2) pace of provincial project expansions under the Build, Build, Build agenda; and (3) other issues covering the administration’s territorial issue with China, Endo and BBL,” said

It added that, “specifically, investors would like to see if the key direction hasn’t changed, or may divert in light of the initial phase of the tax reform plan’s impact on inflation. This will be crucial to listed companies’ capex rollout, including timing of budget preparation for large- ticket infra undertakings.”

As such, said “any hint to affirm this year’s growth prospects could invigorate appetite for equities, especially if these would lead to increased direct investments and job creation.”

“Investors will also focus on the central bank’s next policy move to arrest further weakness of the peso… So far, cuts in reserve requirement may be highly considered to keep a lid on pressure build-up on borrowing costs,” it added.

For trading picks, the online brokerage said “spotting for potential junctures will top investors’ checklist and remains closely tied to a favorable macro environment… keep tab on trading opportunities as second quarter corporate earnings and industry developments unfold.”

Among the early birds to have announced second quarter earnings, Metrobank is favored by both SB Equities and Abacus Securities Corporation.

SB Equities said Metrobank is their top pick in the banking sector with a target price of P100 per share. “Its current historical price-to-book value ratio of 0.9x is unwarranted given that Metrobank also stands to benefit from rising interest rates and strong credit growth in the Philippines,” it noted.

Noting that Metrobank’s earnings growth was driven by higher margins, fast loan growth, and higher fee income, Abacus said “this affirms that the recent price weakness doesn’t reflect the bank’s solid fundamentals, and supports our BUY rating on the stock (target price P97.00).”

In a study, Abacus observed that liquor sales have been rising, as beneficiaries of income tax cuts could be using the extra cash to get intoxicated.

“Among the winners, we reiterate our BUY rating for San Miguel Food and Beverage with a target price of P90.00 as the strong growth this year and the year after will be driven by resilient consumer spending, grabbing market share and capacity expansion from both San Miguel Brewery and Ginebra San Miguel,” it said.

Abacus also favors LTG Group because of it controls Tanduay Distillers, Inc. as well as the strong growth of its tobacco business.

Eagle Equities Research Head Christopher Mangun observed that “the index has been trading in an upward trend channel since the beginning of July after bottoming out at 7,000 at the last week of June.”

“If the index continues to trade within this trend channel next week, then we may see it test and break above the 7,500 level which is a strong resistance level technically and psychologically.
Breaking above that level will confirm the reversal and that we are out of bear territory,” he noted.

Mangun said the SONA “may give investors the assurance that they have been longing for. This event may turn out to be the catalyst to get investors back into this market. The alternative is that we continue to trade low volume and the market starts to go sideways.”