MACROECONOMICS WEEKLY UPDATE

he Bangko Sentral ng Pilipinas (BSP) has ruled out another 75-basis-point (bps) rate hike as it is looking at further raising key policy rates by 25 to 50 bps on 18 Aug 2022. Moreover, during the Post-SONA Economic Briefing 2022, BSP Governor Felipe Medalla said the Monetary Board is unlikely to hold another surprise offcycle meeting. Medalla added that the remaining rate increase would be data-dependent.

Department of Finance (DOF) Benjamin Diokno said that the country does not need to borrow as much as it did the last few years with the crisis. He said that the government’s fiscal consolidation strategy will bring down the debt to GDP ratio from the current 63.5% to less than 60% by 2025 and cut the deficit to GDP ratio from the current 6.4% to 3% by 2022.

The International Monetary Fund (IMF) has raised its 2022 gross domestic product (GDP) forecast for the Philippines to 6.7%, from the original target of 6.5%, due to the strong recovery momentum felt in 1H22. The latest GDP projection of the IMF is well within the revised 6.5% to 7.5% growth target set by the Cabinet-level Development Budget Coordination Committee (DBCC). However, IMF expects a moderate growth momentum in 2H22 and in 2023 with its lowered GDP growth forecast of 5%-6.3% for the next year due to the impact of the war in Ukraine, slowdown in major trading partners, faster US monetary policy tightening, and high inflation.

In the near and medium term, the government sees the highest growth potential from the information technology business process management (IT-BPM) and mining sectors. During the Post-SONA (State of the Nation Address) Economic Briefing, Trade Secretary Alfredo Pascual said that the IT-BPM sector’s potential is even greater now with the heightened digitalisation and use of online services during the pandemic. While Finance Secretary Benjamin Diokno emphasized the mining sector’s high growth potential amid the lifting of the four-year-old ban on open pit mining.

The Philippine Statistics Authority (PSA) reported a 12.3% y-o-y drop in the inventory of rice to 2,220.21 thousand metric tons (MT) as of 01 June 2022. Stock held by the National Food Authority (NFA), commercial retailers, and households posted a 22.0%, 15.2%, and 7.3% y-o-y decline respectively. Similarly, corn inventory dropped by 9.2% yo-y to 873.48 thousand MT. Corn held by households and commercial wholesalers decreased by 48.0% and 2.7% y-oy, respectively.

According to Leechiu Property Consultants (LPC), office demand is seen to go back to 2016 levels, the year before the peak of Philippine offshore gaming operators (POGO) operations in the country. LPC noted that the office property leasing transactions in 2Q22 stood at 451,000 sqm (2Q21: 330,00sqm; +37% y-o-y), already at 70% of the 647,000 sqm office demand recorded in 2016. The information technology-business process management (IT-BPM) sector remains to be the biggest driver of the office sector with live demand of 212,000 sqm in 2Q22. Meanwhile, actual office absorption in the country stood at 255,000 sqm., the highest seen since the start of the pandemic.

The Department of Agriculture (DA) Undersecretary Kristine Y. Evangelista said that the DA is considering allocating more sugar for the consumer market since the demand of sugar is currently halved between household and industrial use. Furthermore, Ms. Evangelista said that the department will consult the sugar industry to assess the current inventory and develop plans to make more sugar available to households. The DA will use the consultations to determine an appropriate volume for sugar imports if needed.

According to the IT and Business Process Association of the Philippines (IBPAP), 30% of the BPO sector’s workforce has relocated to the countryside due to the pandemic. With this development, the industry is seeing an opportunity to decentralize operations and open new hubs outside of Metro Manila. Moreover, IBPAP sees hybrid work as an industry trend that will be adopted post-pandemic but still dependent on the company’s type of work.

Department of Tourism (DoTr) said that the Marcos administration is eyeing the development of more provincial airports across the Philippines. Among the potential locations are: Zamboanga, Dumaguete, Masbate, and Bukidon. The new administration is also set to continue ongoing airport projects, such as San Miguel Corp.’s (SMC) P740bn New Manila International Airport (NMIA) project in Bulacan. Meanwhile, Cavite province has been advocating for the development of the Sangley airport as an alternative to Ninoy Aquino International Airport (NAIA), since the demand for air travel is expected to increase within the next 30 to 40 years. The Civil Aviation Authority of the Philippines (CAAP), an arm of DoTr, recently started the procurement process for the expansion of the airports in Vigan, Baler, Roxas City, and Virac.

Inflation print for Jul-22 rose to 6.4% (Jun-22: 6.1%, Jul-21: 3.7%, est. 6.1%) – within the Bangko Sentral ng Pilipinas’ (BSP) monthly forecast range of 5.6% to 6.4%. This brought year-to-date inflation to 4.7% (prev. 4.4%) – ahead of the government’s annual target range of 2% to 4%.

he Philippine Statistics Authority (PSA) reported the country’s preliminary labour force participation rate in Jun-22 at 64.8% (May-22: 64.0%; Jun-21: 65.1%), translating to 49.6m Filipinos who were either employed or unemployed. Unemployment rate remain unchanged compared to the prior month at 6.0% in Jun-22 (May-22: 6.0%; Jun-21:7.7%) and similarly, employment rate stayed the same at 94.0% during the period (May-22: 94.0%; Jun-21: 92.3%). This translates to a total of 508,000 jobs created y-o-y in Jun-22, bringing the total number of employed individuals to 46.59m from May-22’s 46.08m.

The Philippine Statistics Authority (PSA) lowered its 1Q22 Gross Domestic Product (GDP) growth rate estimate to 8.2% from the preliminary 8.3%. This was following the downward growth rate revisions from the following sectors: (i) Real estate and ownership of dwellings – from 7.9% to 5.9%, (ii) Manufacturing – from 10.1% to 9.8%, (iii) Wholesale and retail trade; repair of motor vehicles and motorcycles – from 7.3% to 7.0%.

The Philippine government is increasing its target on renewable energy (RE) installations to 52,826 megawatts from 44,000 MW within a 20-year period in a bid to achieve the 50% share of RE in the country’s energy mix. The target forms part of the National Renewable Energy Plan (NREP) drawn up by the Department of Energy (DOE) and the National Renewable Energy Board (NREB), aiming to reach 102,231 MW of existing, committed, and new build capacities. The targeted RE developments shall comprise of 27,162 MW of solar; 16,650 MW of wind; 6,150 MW of hydro; 2,500 MW of geothermal; and biomass is relatively marginal at 364 MW.

According to Philippine Amalgamated Supermarkets Association, sugar prices have risen between 40% to 42% as of June 2022, forcing consumers to modify their shopping behavior by purchasing smaller quantities of sugar. Supermarkets have also observed how several consumers have switched to brown sugar due to its lower prices in comparison with white sugar. The Department of Agriculture (DA) is currently verifying the overall sugar supply on hand and expected to be milled and is considering to increase the volume of sugar for consumer use. Meanwhile, the Sugar Regulatory Administration (SRA) is recommending the import of 300,000 metric tons of sugar.

INDUSTRY NEWS

Puregold Price Club, Inc. (PGOLD) posted a 4.1% y-o-y increase in its 2Q22 net income to P2.05bn, bringing the aggregate 1H22 net income to P4.20bn (+5.3%) – below our expectations albeit in line with consensus. This is driven by the continuous organic expansion of the retail outlets, strategic cost management, and sustained strong consumer demand. Similarly, PGOLD recorded a 7.9% y-o-y increase in revenue to P82.2bn amid the revenue contribution from the full operation of new stores in 2021 and 2022, with 9 new Puregold stores opened in 1H22. The company also reported a 10% y-o-y increase in total traffic, 0.6% same store sales growth for Puregold stores, and 3.8% SSSG for S&R Warehouse Clubs.

San Miguel Food and Beverage, Inc. (FB) posted an 8% y-o-y increase in consolidated net income of P18.8bn, despite the challenges of high inflation, rising fuel and raw material input costs, and currency depreciation. Consolidated revenues grew by 17% y-o-y to P172.1bn, driven by gains in volume and pricing adjustment across the product portfolios of its beer, spirits, and food divisions in order to mitigate the impacts of input cost increases.

Century Pacific Food, Inc. (CNPF) posted a 7.9% y-o-y increase in 2Q22 net income to P1.55bn, bringing the 1H22 net income to P2.96bn (+9.9%) – ahead of our above-consensus estimates – despite the higher input prices in 1H22 and the 14.0% increase in operating expenses. CNPF’s 1H22 revenue grew 15.1% y-o-y to P31.1bn driven by the resurgence in performance of the company’s Milk business. Moving forward, CNPF Executive Chairman Christopher Po said that cost pressures are beginning to ease for some inputs such as tuna, packaging, and freight. He added that the company would still target a mid-teens topline growth for 2022.

A subsidiary under Del Monte Pacific Ltd. (DELM) acquired assets of a US broth brand, Kitchen Basics from McCormick and Co., to expand its retail presence. Kitchen Basics products are distributed nationally throughout the US and include a range of conventional and organic stock and broth offerings. The acquired assets comprise intellectual property and inventory with a total amount of ÚS$99m and the transaction was financed by the unit’s available credit facilities.

Axelum Resources Corp. (AXLM) reported a sales increase of 9% y-o-y to P3.38bn for 1H22 attributed to the steady volumes and higher average selling prices across core product segments. Global market demand remained robust but was hampered by international shipping constraints. In addition, AXLM strategically implemented pricing adjustments to mitigate escalating inputs and preserve operating margins. Gross profit rose 8% y-o-y to P861.89m, translating to an industry leading gross profit margin of 26%. EBITDA rose 19% y-o-y to P632.65m y-o-y due to cost optimisation and impact of a stronger dollar to its export business. Net income soared by 32% y-o-y to P420.85m, following increased contribution of new products covered by fresh tax incentives granted in 2021.

San Miguel Corp. (SMC), through San Miguel Food and Beverage, Inc. (FB), plans to construct 12 poultry mega-plants nationwide costing about $100m each or $1.2bn for all 12 facilities. SMC and FB President and CEO Ramon Ang said that each plant will produce 80m birds per year with each bird weighing about 2.5kg, bringing the total production to 960m birds. He added that the project is ongoing and is expected to be finished by Jun-24.

The Philippine Stock Exchange (PSE) has approved Solar Philippines Nueva Ecija Corp.’s (SPNEC) stock rights offering (SRO), which will occur from 30 Aug 2022 until 05 Sep 2022. SPNEC is offering some 1.87bn in rights shares to eligible shareholders at a price of between P1.50 and P1.76 per share. SPNEC is expecting net proceeds of around P2.8bn to P3.3bn intended for project development, including securing land and off-take agreements, and general corporate purposes.

Aboitiz Power Corp. (AP) has partnered with Singapore-based Clime Capital Management Pte. Ltd. (Clime Capital) and Rocky Mountain Institute (RMI), with the support of the United States Trade and Development Agency (USTDA), to explore the feasibility of developing up to 3,000 megawatts (MW) of offshore wind projects in the Philippines. According to Clime Capital, there is a significant potential to expand wind power generation in the Philippines, particularly offshore where wind farms generate more power. The consortium aims to encourage private sector investment in offshore wind and utility -scale green energy power in the Philippines and Southeast Asia.

ACEN Corp. (ACEN) announced that it is embarking on a new roadmap aiming to boost its attributable renewable energy (RE) capacity to 20 gigawatts (GW) by 2030—six times its current RE capacity of 3.4 GW. ACEN highlighted that solar and wind will remain its core energy technologies, complemented by battery energy storage, floating solar, and offshore wind. Moving forward, ACEN’s strong balance sheet, robust pipeline, and strong partnerships provides opportunities to expand in Australia, Vietnam, Indonesia, and India.

Century Pacific Food, Inc. (CNPF) posted a 7.9% y-o-y increase in 2Q22 net income to P1.55bn, bringing the 1H22 net income to P2.96bn (+9.9%) – ahead of our above-consensus estimates – despite the higher input prices in 1H22 and the 14.0% increase in operating expenses. CNPF’s 1H22 revenue grew 15.1% y-o-y to P31.1bn driven by the resurgence in performance of the company’s Milk business. Moving forward, CNPF Executive Chairman Christopher Po said that cost pressures are beginning to ease for some inputs such as tuna, packaging, and freight. He added that the company would still target a mid-teens topline growth for 2022.

A subsidiary under Del Monte Pacific Ltd. (DELM) acquired assets of a US broth brand, Kitchen Basics from McCormick and Co., to expand its retail presence. Kitchen Basics products are distributed nationally throughout the US and include a range of conventional and organic stock and broth offerings. The acquired assets comprise intellectual property and inventory with a total amount of ÚS$99m and the transaction was financed by the unit’s available credit facilities.

Axelum Resources Corp. (AXLM) reported a sales increase of 9% y-o-y to P3.38bn for 1H22 attributed to the steady volumes and higher average selling prices across core product segments. Global market demand remained robust but was hampered by international shipping constraints. In addition, AXLM strategically implemented pricing adjustments to mitigate escalating inputs and preserve operating margins. Gross profit rose 8% y-o-y to P861.89m, translating to an industry leading gross profit margin of 26%. EBITDA rose 19% y-o-y to P632.65m y-o-y due to cost optimisation and impact of a stronger dollar to its export business. Net income soared by 32% y-o-y to P420.85m, following increased contribution of new products covered by fresh tax incentives granted in 2021.

San Miguel Corp. (SMC), through San Miguel Food and Beverage, Inc. (FB), plans to construct 12 poultry mega-plants nationwide costing about $100m each or $1.2bn for all 12 facilities. SMC and FB President and CEO Ramon Ang said that each plant will produce 80m birds per year with each bird weighing about 2.5kg, bringing the total production to 960m birds. He added that the project is ongoing and is expected to be finished by Jun-24.

The Philippine Stock Exchange (PSE) has approved Solar Philippines Nueva Ecija Corp.’s (SPNEC) stock rights offering (SRO), which will occur from 30 Aug 2022 until 05 Sep 2022. SPNEC is offering some 1.87bn in rights shares to eligible shareholders at a price of between P1.50 and P1.76 per share. SPNEC is expecting net proceeds of around P2.8bn to P3.3bn intended for project development, including securing land and off-take agreements, and general corporate purposes.

Aboitiz Power Corp. (AP) has partnered with Singapore-based Clime Capital Management Pte. Ltd. (Clime Capital) and Rocky Mountain Institute (RMI), with the support of the United States Trade and Development Agency (USTDA), to explore the feasibility of developing up to 3,000 megawatts (MW) of offshore wind projects in the Philippines. According to Clime Capital, there is a significant potential to expand wind power generation in the Philippines, particularly offshore where wind farms generate more power. The consortium aims to encourage private sector investment in offshore wind and utility -scale green energy power in the Philippines and Southeast Asia.

ACEN Corp. (ACEN) announced that it is embarking on a new roadmap aiming to boost its attributable renewable energy (RE) capacity to 20 gigawatts (GW) by 2030—six times its current RE capacity of 3.4 GW. ACEN highlighted that solar and wind will remain its core energy technologies, complemented by battery energy storage, floating solar, and offshore wind. Moving forward, ACEN’s strong balance sheet, robust pipeline, and strong partnerships provides opportunities to expand in Australia, Vietnam, Indonesia, and India.

PLDT, Inc. (TEL) reported 1H22 net income of P16.7bn (+30% y-o-y) – ahead of our/consensus estimates. On consolidated service revenues, TEL logged an all-time high P94.3bn (+5% y-o-y) led by data and broadband which grew by 10% and comprised 80% of total Service Revenues. Fiber-only revenue grew faster by 62% y-o-y to P23.2bn and now account for 82% of total home revenues (from 1H21’s 63% contribution). By segment: Home revenues were up 24% y-o -y to P28.1bn as it added more than 401,000 net fiber subscribers in 1H22, bringing total fixed broadband subscribers to 3.2m. Enterprise revenues likewise grew 9% y-o-y to P23.2bn amid the return of more business activities.

Meanwhile, individual wireless revenues were down by 6% y-o-y at P41.2bn as it still reflected the impact of Typhoon Odette during the first quarter. Nonetheless, mobile data traffic reached 2,081 PB (+30% y-o-y). In 1H22, TEL’s total consolidated expenses including interconnection costs and manpower reduction program (MRP) reached close to P43.8bn (+11% y-o-y). TEL ended 2Q22 with a consolidated EBITDA of P25.0bn (+7% y-o-y) with margins at 52%. TEL capex spending already reached P46.0bn in 1H22, already at more than half of its P85bn FY22 capex guidelines

The Philippine Competition Commission (PCC) is evaluating the complaint filed Dito Telecommunity Corp. (DITO Telecom) against Globe Telecom. Inc. (GLO) and Smart Communications (Smart) for alleged anti-competitive practice in their interconnection agreements. DITO Telecom alleged that both Smart and GLO were abusing their dominant positions to prevent DITO Telecom from expanding its market reach and growing as an industry player. Management specified that out of the 100 calls that DITO Telecom makes to reach out to one of these telcos, only 30 are able to get through.

International Container Terminal Services, Inc. (ICT) reported 2Q22 core net income of US$152.2m, bringing 1H22 earnings to US$294m (+50% y-o-y), above consensus expectations, due to higher operating income. Gross revenues from port operations grew by 20.4% y-o-y to US$1.1bn in 1H22 due to higher volume, favorable container mix, tariff adjustments at certain terminals, new contracts with shipping lines and services, higher revenues from ancillary services, and contribution of new business (Manila Harbor Center). Consolidated volume in 1H22 came in at 5,752,582 (+5.4% y-oy) twenty-foot equivalent units (TEUs) due to new shipping lines and services at certain terminals, as well as the improvement in trade activities as economies recover from the impact of the pandemic.

MINING AND OIL NEWS

Semirara Mining and Power Corp. (SCC) registered a consolidated core net income of P25.8bn (1H21: P6.3bn) primarily driven by the all-time high coal selling prices and higher electricity sales volume in 1H22. For the coal segment, revenues came in at P45.18bn (1H21: P18.9bn) boosted by stronger USD. Total shipments of coal, however, dropped to 3.7 million metric tons (MMT) (-24% q-o-q) amid China’s reimposition of COVID-19 lockdowns and its shift to Russian coal. Also, coal production dropped to 3.4 MMT (-21% q-o-q) due to heavy rainfall and higher stripping activities. The decline in coal production coupled with the lower sales volume raised high-grade coal inventory to 1.5 MMT (+5-% q-oq). For the power generation segment, 1H22 revenues surged to P5.8bn (+50% y-o-y) mainly driven by improved operating performance and market conditions. Total electricity sales were lower at 900 GWh (-9% q-o-q), 56% of which was sold to the spot market. Total spot purchases decreased to P245m (-60% q-o-q) on the back of higher plant availability, which improved by 8 percent from 60% to 65%.

REAL ESTATE NEWS

MREIT, Inc. (MREIT) reported 2Q22 distributable income of P638m bringing 1H22 figure to P1.3bn. The company also posted 2Q22 net income of P677.8m (+100.2% y-o-y: 2Q21: P338.0m) resulting to 1H22 earnings to P1.4bn – above our forecasts. Meanwhile, MREIT’s revenue came in at P1.8bn for 1H22 amid maintained high occupancy rate of 96.5% and new contracts secured during the second quarter.

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

SM Investments Corp. (SM) has recently obtained approval from the Securities and Exchange Commission (SEC) to raise its ownership in Allfirst Equity Holdings to 100%. The transaction also involved the approval from the SEC to merge with Allfirst with SM as the surviving corporation. Allfirst Equity is the owner of Philippine Geothermal Production Co. Inc (PGPC), the operator of Tiwi-Mak-Ban steam fields in Albay which is among the biggest steam fields developments in Asia generating around 300MW of electricity. The Sy group noted that the acquisition of PGPC would serve as a strategic move for the group’s expansion of their portfolio of investments in high growth sectors, including renewable energy, across the Philippines.

Metro Pacific Investments Corp. (MPI) reported a core net income of P7.5bn (24% y-o-y) for 1H22, above consensus expectations, largely due to improved traffic on its toll roads and higher volume of electricity sold. In terms of operating income, its power business continued to contribute the highest share at 60%, followed by toll roads (26%), water (15%), and other businesses (-1%). The power segment generated P5.9bn in core net earnings in 1H22, up by 9% y-o-y. Consolidated revenues for the period improved by 34% y-o-y to P199.6bn primarily due to the higher passthrough generation and other charges in relation to the prevailing increase in global fuel prices and P13.6bn contribution of the power generation business. Energy sales volume increased by 6% y-o-y to 23,968 GWh in 1H22 driven by the double-digit volume growth of the Commercial segment. Meanwhile, the water business’ bottomline was stable at P1.4bn (+1% y-o-y) as the lower operating expenses had offset the reduction in billed volumes. Next, the toll roads’ net income surged by 34% y-o-y to P2.5bn driven by increase in traffic volumes (+19% y-o-y to 884k) and the impact of toll rate adjustments implemented in the latter part of 2021 in the Philippines and Indonesia. For hospitals, core income dropped to P370m (-48% y-o-y), attributed to higher personnel costs with the additional headcount and higher depreciation from completed capex as they resume expansion plans.

San Miguel Corp. (SMC) reported a 24% increase in its recurring consolidated net income for 1H22 to P32.5bn driven by topline gains across all business segments despite geopolitical conflicts resulting in supply and cost issues. The company’s consolidated sales revenue grew 73% higher y-o-y to P711.4bn due to sustained volume growth and better selling prices. SMC’s operating income also went up by 41% y-o-y to P85.9bn due to the performance of its fuel and oil subsidiary Petron and sustained recoveries in its food, beverage, packaging, and infrastructure business.

PHILIPPINE STOCK MARKET UPDATE

The local market continued to move sideways after Philippine GDP came in lower than expected at 7.4% (vs. consensus estimate of 8.3%)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.Among index movers were SM (up 3.47%), ALI (up 4.56%), and SMPH (1.91%)