MAYBANK Investments Securities Group (Maybank) has upgraded its outlook for the Philippine consumer sector from neutral to positive given easing inflation and an improving macroeconomic environment.
“A positive sector view comes from macroeconomic tailwinds and an improving sector outlook,” Maybank analyst Daphne Sze told The Manila Times in an email.
“We believe easing inflation and an improving macroeconomic environment are tailwinds to increased household purchasing power,” she added.
“This should lead to improved topline growth, coupled with declining input costs, [which] would improve gross and EBIT (earnings before interest) margins of the companies under our coverage.”
Maybank noted that consumer sector earnings in the first half rose 15 percent year-on-year (YoY), in line with forecasts. For the second half of the year, it remained selective on the sector.
“We remain selective and recommend companies with holiday-induced spending; strong earnings catalysts, robust RoE (return on equity) and re-rating potential; and absence of any regulatory overhang.”
Maybank also named Jollibee Foods Corp. (JFC) its top pick in the sector.
JFC, along with Monde Nissin Corp. (Monde) and Century Pacific Food Corp. (CNPF), were described as growing “ahead of its expectations.”
“JFC is our top pick for its diversification strategy, operating leverage, and strong balance sheet,” it said, adding that JFC’s robust performance in its local and international operations should continue to support strong cash flow generation.
“In our view, JFC’s commitment to increase its store network globally and improve profitability is aligned with its goal to be one of the top five quick service restaurants globally,” Maybank said.
Meanwhile, the upcoming holiday season is expected to bring about a surge in earnings for restaurants like JFC and Shakey’s Pizza Asia Ventures Inc., although Maybank believes JFC will outperform Shakey’s amid expectations of sustained strong volume momentum at Jollibee.
“We forecast a high single-digit FY 2024 SSSG (same-store sales growth) in the domestic market, as JFC has a strong brand name and it offers value to diners.”
Maybank forecast JFC’s fiscal year (FY) 2024 and 2025 net incomes to increase by 24 percent and 16 percent YoY, respectively.
“We think this is achievable given its dominance in the Philippines, and strong execution and management track record.”
For the second half of the year, Maybank said that lower rice prices could provide some relief for households because it would allow more spending for other items, as food typically consumes 39 percent of household expenditures in the country.
Maybank also maintained its 2024 and 2025 inflation forecasts for the Philippines at 3.2 percent and 2.8 percent, respectively.
“We expect pent-up holiday demand to increase sales volumes. too, supported by remittances from overseas foreign workers and holiday bonuses.”
It added that “on an annual basis, we still expect average sales growth for FMCG (fast moving consumer goods) producers to be in the mid-single to high-single digit level, underpinned by volume growth and minimal ASP (average selling price) increases.”
Retailers and FMCG producers are likely to be impacted by the higher minimum wage in the National Capital Region, which has risen by P35, or 5.7 percent, to P645 per day, Maybank said.
“Higher wages should exert further pressure on operating expenses and pre-operating expenses for retailers, although the impact on bottom lines should be minimal, we believe,” it noted.
On Tuesday, JFC shares were up 0.24 percent at P252.60 each; Monde Nissin was unchanged at P9.20 each; Century Pacific was down 3.52 percent at P38.40; and Shakey’s Pizza was up 1.49 percent at P9.55 apiece amid a flat finish for the Philippine Stock Exchange index.
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