FINANCIAL services provider Unicapital Group has raised its Philippine Stock Exchange index (PSEi) target to 7,600 from 7,000 previously, citing easing policy rates, slowing inflation, and accommodative Bangko Sentral ng Pilipinas (BSP) and US Federal Reserve monetary policy.
In a report, Unicapital research head Wendy Estacio-Cruz said the new target was based on a 13x price-to-earnings ratio (P/E) and 17 percent earnings per share (EPS) growth outlook for the year, “higher than our previous estimate of 11 percent year-on-year.”
“We expect further policy rate easing to boost corporate earnings through a lower cost of capital and increased consumer spending,” she said, noting that based on an analysis, the bear and bull case scenarios ranged from 7,000 to 8,000.
The revised target index level was attributed to policy rates starting to ease, which could support the PSEi’s momentum, and inflation expectations now averaging at 3.5 percent in 2024 and 3.3 percent in 2025 due to declining rice prices following a tariff reduction effective July this year.
“To reach these targets, we expect both the US Fed and the BSP to remain accommodative in order to boost economic activity, which should lower borrowing costs and encourage business investments and consumer spending.”
Unicapital is anticipating another 50-basis-point (bps) rate cut from the Fed and 50 bps from the BSP, for a total policy rate cut of 100 bps and 75 bps, respectively, for the US and Philippine central banks.
The financial services provider also said that PSEi target for FY 2025 was pegged at around 8,400, based on a 13x P/E ratio and a 10-percent anticipated growth in EPS for that year.
“While the target P/E is 1.0 standard deviation below the five-year historical average, it reflects the current market environment and investor sentiment,” Estacio-Cruz said.
Unicapital’s coverage includes 20 companies, and it expects key sectors such as property, real estate investment trusts, consumer, power and conglomerates to benefit from a declining interest rate environment, lower borrowing costs, and reduced inflationary pressures.
It has assigned “overweight” ratings on SM Prime Holdings Inc., AREIT Inc., and ACEN Corp., noting that SM Prime was trading at a 40 percent discount to its one-year forward net asset value (NAV) despite a high return on equity (ROE).
AREIT, meanwhile, was said to be trading at a one-year forward yield of 6.3 percent with a total return potential of 32 percent, while ACEN’s valuation premium was warranted by its strong earnings growth.
SM Prime shares were up 1.69 percent at P33 each, AREIT stocks were up 0.79 percent at P38.40 apiece, and ACEN shares were flat at P5.39 each on Monday.
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