MACROECONOMICS WEEKLY UPDATE

Total trade in Jun-22 grew by 16.1% y-o-y to US$19.1bn (Jun-21: +32.0%; May-22: +15.8%). At the same time, trade deficit widened by 75.4% y-o-y (Jun-21: +133.9%; May-22: +74.7%) as imports (+26.0% y-o-y to US$12.5bn) outweighed exports (+1.0% y-o-y to US$6.6bn) by US$5.8bn.

 The Philippines Statistics Authority (PSA) reported that the country’s factory output as measured by the Volume of Production Index (VoPI) expanded from 0.9% y-o-y in May-22 to 2.4% y-o-y in June-22. 13 industry groups posted increases with the manufacturing of machinery and equipment posting the fastest growth at 45.3% y-o-y. Other industry groups that posted gains in June are fabricated metal products, transport equipment, food products, furniture, and rubber.

According to the Department of Energy (DOE), there is a need to open up renewable energy (RE) to 100% foreign ownership to enable the Philippines’ transition to indigenous sources of power—making it less vulnerable to supply disruptions. DOE Secretary Raphael Lotilla said that addressing volatility in energy prices requires ending the country’s overdependence on petroleum and petroleum-based fuels. For the long term, DOE sees the shift to hybrid systems which include solar, wind, and newer technologies to solve the impending energy crisis.

 According to the Independent Electricity Market Operator of the Philippines (IEMOP), the average wholesale electricity spot market (WESM) prices soared to P8.92 per kilowatt hour (kWh) (+4.82% m-o-m) in Jul-22 despite lower demand due to intermittent rains and thunderstorms resulting to cooler weather conditions. Supply also declined to 14,701 megawatts (MW) (-3.5% m-o-m) primarily driven by forced and planned outages of conventional generators.

   According to the Philippine Statistics Authority (PSA), the retail prices of construction materials in the National Capital Region (NCR) grew by 6.8% y-o-y in 1H22 – the highest recorded growth in 13 years. In May 2022 alone, PSA’s construction materials retail price index (CMRPI) accelerated by 6.2% y-o-y. The price growth was observed to have been driven by inflation and the reopening of the economy Moreover, economists have been noting that the ongoing international conflicts, such as the Russian-Ukraine War, have impacted the prices of building materials due to supply chain disruptions worldwide.

Bangko Sentral ng Pilipinas (BSP) reported a 4.4% y-o-y increase in the Jun-22 personal remittances to US$3.1bn, bringing the cumulative remittances to US$17.1bn (+2.8% y-o-y) in 1H22. For Jun-22, remittances sent home by long-/ short-term contract workers overseas grew by 4.8%/2.6% y-o-y respectively.

 In a joint report made by the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and the Truck Manufacturers Association (TMA), total automotive sales in Jul-22 rose by 29% y-o-y to 27,813 units driven by increased demand for commercial vehicles. This brought year-to-date vehicle sales to 182,687 units (+18.4% y-o-y). CAMPI said that the automotive industry remains cautiously optimistic about vehicle sales reverting to its current pre-pandemic trendline in the coming months, albeit challenging amid the ongoing headwinds to the economic recovery.

INDUSTRY NEWS

ACEN Corp. (ACEN) posted a net income of P2.2bn (-19% y-o-y) and EBITDA of P5.27bn (-7% y-o-y) in 1H22 driven by significantly higher costs of purchased power during coal plant outages in 1Q22. Consolidated revenues grew to P15.97bn (+19% y-o-y) on the back to higher prices at the Wholesale Electricity Spot Market (WESM)—offsetting the impact of customer buyout fees and curtailment in 1Q22. ACEN returned to profitability in 2Q22 with a net income of P1.8bn (+25% y-o-y) due to strong contribution of new operating plants, merchant sales, and easing up of curtailment in Visayas which significantly reduced the decline in net income for 1H22.

First Gen Corp.’s (FGEN) 1H22 attributable net income slipped by 13% y-o-y to P6.6bn (from 1H21’s P7.1bn) due to fuel availability issues brought about by Typhoon Odette, gas interruptions at the Malampaya gas field, and the lack of wind. However, consolidated revenues grew by 21% y-o-y to P65.7bn attributable to the higher fuel and Wholesale Electricity Spot Market (WESM) prices. The recurring income of FGEN’s natural gas platform decreased by 10% y-o-y to P5bn due to unscheduled outages, elevated fuel prices, and higher taxes

Monde Nissin Corporation (MONDE) reported a rebound in its 1H22 net income to P4.3bn – ahead of consensus albeit below our expectations – amid the nonrecurring items from 2021 such as the elevated interest expense from the Arran convertible note and bank loans as well as the IPO-related expenses. Excluding the one-offs, MONDE posted its 2Q22 core net income to P2.0bn (+8.7% y-o-y), bringing the aggregate 1H22 core net income to P4.1bn (-4.1%).

Emperador Inc. (EMI) posted a 3.0% y-o-y increase in 1H22 attributable net income to P5.2bn – in line with consensus – despite the supply chain challenges and increase in input costs. EMI’s 1H22 revenues grew 11% y-o-y on the back of the 13% growth in international sales, mainly driven by the whisky segment, as well as the 19% growth in brandy sales.

Shakey’s Pizza Asia Ventures, Inc. (PIZZA) finished 1H22 strong, and delivered a 77% y-o-y increase in systemwide sales to P5.8bn. This has surpassed pre-pandemic levels due to the resurgence of dine-in sales. PIZZA’s net income meanwhile grew 18x to P250m in 1H22, driven by a stronger top line, favourable product mix, and menu optimisation initiatives. In addition, gross profit increased by 75% y-o-y to P1bn following a 210-bps margin expansion, despite an elevated cost environment. Management posted an EBITDA of P728m, an 80% y-o-y increase for the period, with margins higher by nearly 200 bps to 17.8%.

Jollibee Foods Corporation (JFC) posted a 186% y-o-y increase in 2Q22 attributable net income, bringing the aggregate 1H22 attributable net income to P5.1bn (+351.7% y-o-y) – ahead of consensus and our expectations. JFC’s 1H22 revenues rose 33% y-o-y to P94.9bn driven by the 35.4% increase in 1H22 system wide sales (SWS). The 2Q22 SWS similarly rose by 44.8% amid the 32.6% same store sales growth, 7.2% from new stores and new acquisition, and 5.0% favourable foreign currency translation.

D&L Industries, Inc. (DNL) posted a 22% y-o-y increase in 2Q22 earnings to P851m, bringing the 1H22 net income to P1.6bn (+17% y-o-y) – ahead of consensus- despite the Omicron impact early in the year and the sharp increase in commodity prices. DNL’s 1H22 revenue grew 59% y-o-y to P22.4bn given the higher prices and volumes in commodities.

Holcim Philippines, Inc. (HLCM) recorded a 1H22 revenues of P12.2bn (-11% y-o-y) and attributable net income of P661.5m (-59.4% y-o-y) amid soft market and cost pressures. HLCM cited that the escalating costs due to significant increase in fuel and power prices as well as the new-construction ban in relation to the national elections impacted company earnings. Moving forward, HLCM plans to continue driving operational efficiencies and accelerate its use of qualified wastes as alternative fuels to help offset rising costs.

MINING AND OIL NEWS

  Pilipinas Shell Petroleum Corporation (SHLPH) posted 1H22 net income of P7.8bn (1H21: P2.2bn) as B2B volume increased across all sectors within the period. Aviation sales surged 49% y-o-y driven by the continued increase in travel and opening of international and domestic borders. Meanwhile, commercial fuels volume rose by 5% y-o-y, with the sustained reliable supply of fuels for sector customers, as well as spot sales in Power, and other Fuel Oil customers. The recent earnings outperformance enabled SHLPH to declare a dividend of P1/share payable this Sep-22, bringing its dividend yield to 5.6%, based on 09 Aug 2022 closing share price.

Phoenix Petroleum Philippines, Inc. (PNX) posted a net income of P201m in 2Q22 (1Q22: net loss of P262.7m) attributable to the gains from overseas businesses and continued effort to streamline operations. Operating expenses decreased by 10% q-o-q mostly driven by PNX’s continued implementation of its resource management initiatives and operational improvements. Overall volume plummeted by 13% q-o-q due to increases in inventory costs and working capital limitations dampening domestic fuels. Household demand for LPG was also softened amid rising selling prices and uptick in inflation.

Converge ICT Solutions Inc. (CNVRG) reported 1H22 net income of P3.95bn (+21.5% y-o-y) – below our/consensus estimates. Consolidated revenues for the period reached P16.0bn (+36.3% y-o-y) as residential segment revenues grew 37.9% y-o-y to P14.1bn. This was driven by 36.1% y-o-y growth in subscriber base to 1.82m. Meanwhile, revenues from the enterprise segment grew 25.5% y-o-y to P2.0bn, driven by the 106% growth in revenues from SMEs. For the quarter, CNVRG achieved an EBITDA of P9.2bn (+41.5% y-o-y), with margins at 57.2% (1H21: 55.1%).

REAL ESTATE NEWS

   Megaworld Corporation (MEG) reported an 18% growth in net income to P5.9bn in 1H22 (from P5.0n in 1H21), in line with consensus estimates but below our forecast. Consolidated revenues for the first half amounted to P27.5bn (+23% y-o-y) with the company’s core businesses all registering double digit growth in revenues during the period – led by residential sales, mall and office rentals, and hotel operations.

 Property developer Federal Land, Inc., a member of GTCAP Holdings, Inc. (GTCAP), and Japanese firm Nomura Real Estate Development Co., Ltd (NRE) have formed a joint venture that will integrate both firms’ expertise. Federal Land NRE Global, Inc. (FNG), the joint venture company, aims to integrate Japanese innovation and technology, and Federal Land’s knowledge of the Philippine real estate market to construct more well-built and innovative properties. The initial project under FNG spans 250-hectares of residential, office, commercial, and industrial developments in Metro Manila, Cebu, and Cavite and aims to generate over 6,000 additional jobs within its first five years of operations.

 Robinsons Land Corp. (RLC) generated P5.4bn (-3% y-o-y) in net earnings in 1H22, amid lower taxes booked last year due to the enactment of CREATE law. Nonetheless, net income still came in 34% higher than prepandemic levels and ahead of our above-consensus estimates. RLC also beat our forecasts at the EBIT level, ending the first half at P7.08bn (+6% y-o-y). Consolidated revenues rose to P27.5bn, higher by 6% y-o-y, driven by the accelerating recovery of its investment portfolio, comprised of malls and offices, and amplified by the recognition of revenues from the Phase 2 of its Chengdu project in China.

REAL ESTATE INVESTMENT TRUST

AREIT Inc. (AREIT) reported 1H22 net income of P1.61bn (+64% y-o-y), on the back of higher revenues booked at P2.36bn (+67% y-o-y), amid the contribution of new asset acquisitions and stable operations. AREIT’s properties maintained above industry occupancy rate level of 97% (albeit lower than last quarter’s 1Q22). AREIT has also recently declared 2Q22 dividends at P0.49/share, up 2.1% q-o-q and 10% y-o-y. For 2022, AREIT has received the approval from its Board to infuse Six Cebu based office buildings that will expand the REIT’s GLA to 673k sqm and AUM to P64bn, a 113% increase since IPO.

DDMP REIT, Inc. (DDMPR) reported a net income growth of 17% y-o-y in 1H22 supported by revenue growth 2.9% y-o -y to P1.23bn and rental income which stood at P1.14bn (+7.6% y-o-y). The Board of Directors of DDMPR has approved a cash dividend to all shareholders as of record date 31 Aug 2022 amounting to P486.7m or P0.0272990/ share with payment date on 26 Sept 2022.

BANKING AND FINANCE NEWS

Metropolitan Bank & Trust Co.’s (MBT) 1H22 net income rose to P15.6bn (+33.4% y-o-y) – ahead of DBS’s above consensus expectations on modest rise in interest and non-interest income as well as the flat increase in operating expenses. Net interest income grew 6% y-o-y to P39.8bn, while non-interest income rose by 8% y-o-y to P14.9bn on the back of higher fee-based income. Gross loans rose by 9% y-o-y to P1.3tr, led by a 12% growth in corporate and commercial lending and 16% increase in gross credit card receivables Operating expenses was flat at P29.4bn (+0.2% y-o-y) backed by ongoing efforts to improve operational efficiency, resulting in 53.8% cost-to-income ratio (1H21: 57.2%). Non-performing loans (NPLs) ratio eased to 1.9% in 1H22 (1H21: 2.25%). As of end Jun-22, capital ratios remain well above regulatory requirements with Common Equity Tier 1 (CET 1) Ratio and Capital Adequacy Ratio (CAR) at 16.8% and 17.6%, respectively.

HOLDINGS NEWS

JG Summit Holdings, Inc. (JGS) reported substantial improvements in both topline and core profits for 2Q22. Consolidated revenues rose 53% y-o-y to P84.4bn in 2Q22, bringing the group’s 1H22 revenues to P151.1bn (+29% y-o-y). Meanwhile, the company’s core net income after tax soared 48% y-o-y to P2.1bn in 2Q22, strongly rebounding from the P689m loss in 1Q22. On a year-to-date (YTD) basis, 1H22 core net income after tax is still 15% lower y-o-y due to the unprecedented volatility in oil and input prices that negatively affected the group’s margins and was most felt in its petrochemicals business.

Phinma Corp. (PHN) posted a consolidated net income of P639m (-18% y-o-y) due to increasing costs amid continued abnormal conditions and lower contribution from the educational services segment. PHN registered consolidated revenues of P8.63bn (+10% y-o-y) due to the improved performance of PHINMA Property Holdings Corp. (PHINMA Properties) and gains of P95.21m from PHN’s investment in Song Lam Cement Joint Stock Corp. (Song Lam). Consolidated revenues of Phinma Education Holdings, Inc. (PHINMA Education) decreased to P1.37bn (-6.82% y-o-y) due to higher costs and one-time charges. Meanwhile, consolidated revenues of the Construction Materials Group (CMG) came in at P7.07bn but registered lower net income of P443.28m due to higher costs and supply chain issues.

Keepers Holdings, Inc. (KEEPR) posted a 17.9% y-o-y increase in net income to P980.7m amid the strong sales recovery performance from all categories, better management of cost and operating expenses, improved sales mix, as well as the increase in interest income and net foreign exchange gains realised. KEEPR’s revenue grew 27.4% y-o-y to P4.3bn due to both the price increases and volume growth, particularly from the recovering demand of the onpremise channel given the easing of community restrictions. Overall volume growth grew by 23% y-o-y to 2.1m cases with the brandy/other spirits/ wines/specialty beverages growing by 17%/18%/56%/107% y-o-y, respectively.

FINTECH

UNObank Inc. and UnionDigital Bank Inc. started commercial operations last month, boosting the efforts of the Bangko Sentral ng Pilipinas (BSP) to convert the Philippines from a cash-heavy to a cash-lite economy. Lyn Javier, sector-in charge of the BSP’s Financial Supervision Sector, said that these 2 banks are ready to operate after receiving the approvals of regulators. UNObank and UnionDigital Bank started their operations on July 5 and July 18 respectively after they were issued a certificate of authority to operate by the BSP.

PHILIPPINE STOCK MARKET UPDATE

The PSEi continued its strong rally for the seventh straight day, jumping 112.80 pts (up 1.67%) to 6,850.64 and breaking above resistance level of 6,800. The PSE index gained 34.73pts (up 0.54%) to close at 6,468.97 while the broader All Shares index was up 0.22%. Value turnover dropped to P5.3B (34% lower than the previous day) while foreign outflows persisted.

The broader All Shares (up 1.23%) and other sectoral indices ended with gains. Value turnover improved to P8.3B (up 52% from the previous day) while foreign funds remained bullish with net foreign inflows (+P1.3B).

Among index movers were SM (up 2.33%), BDO (up 4.50%) and ALI (up 3.78%)