November 28, 2016
Weekly Stock Market Report and Special Report: The Rest of the 9M16 Earnings Results and the PSEi
It is nice to wait for the SEC Form 17-Qs of the SMC group of companies to review their performance better. Preliminary figures are always given in the Analyst Briefing, but it is always nicer to see the financials and their notes. GSMI is still bolstered by higher sales volumes which reversed its shrinking retained earnings. Two out of PF’s three businesses are doing well because of better chicken prices and higher sales volume. PCOR continues to reap superior margins as a result of its RMP-2 program, and SMC’s power and infra businesses are already on their feet.
Coming from an election year in 2016, 2017 sales are seen to taper. This goes for beer, which had an excellent double-digit sales volume growth, liquor, branded foods and fresh meats. However, this will be offset again by PCOR earnings due to new service stations, roads and increasing car sales and power due to the upcoming Malita and Limay coal-fired power plants. Infra has a lot under construction such as the Boracay airport, Skyway 3, MRT7 and other projects. What’s finally nice with SMC is its easing leverage position. This is the stock’s major concern flooring its share price. Still, for us, SMC packs value that is not equivalent to its current share price.
A lot has been said on SMC, but one thing that gave grave concern in 9M16 earnings season is TEL’s sinking into deficit from retaining earnings. TEL still paid hefty common cash dividends this year. With minimal income as a result of losing subscribers to GLO, TEL’s retained earnings shrunk into a deficit as of 9M16. This reminds us of GSMI which had a similar problem. TEL is reinventing itself as a “tech” stock with Paymaya and its other new businesses. What really shakes TEL’s future is a potential new competitor. TEL’s cash dividend payments will take a blow from that as its sustainability is already compromised in 2016.
Meanwhile, the PSEi fell below 7,000 again as earnings season ended and the third quarter Philippine economic performance was announced. Nationwide protests against the Marcos burial likewise did not improve market sentiment. Our three fundamental market direction tools all agree for this week’s outlook. Our additional fundamental market direction tool likewise shows the continuation of the current cycle after resting at a support level.
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