Dovish BSP spurs properties, banks
‘We reiterate our positive view on the Philippine market and would take the current weakness as an opportunity to revisit potential sector winners’
Daily Tribune‘We reiterate our positive view on the Philippine market and would take the current weakness as an opportunity to revisit potential sector winners’
The Bangko Sentral ng Pilipinas’ 2023 Sustainability reveals that the bank has cut electricity use by 12 percent, water consumption by 24 percent, and trash by 38 percent in BSP’s main office in Manila last year.
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The recent Bangko Sentral ng Pilipinas (BSP) decision to cut its key rate by 25 basis points (bps) or 0.25 percent is expected to further spur gains in the equities market.
The first interest rate cut in four years was in line with market expectations. It also reduced the rates on overnight deposit and lending facilities to 5.75 percent and 6.75 percent, respectively.
AP Securities views the rate cut as a clear catalyst for the market. “We reiterate our positive view on the Philippine market and would take the current weakness as an opportunity to revisit potential sector winners, that is, those stocks that typically outperform on a rate cut cycle which are the Property and Banks. The recent earnings results showed the resilience and potential positive earnings revisions for these sectors,” it added.
The property sector’s earnings grew by 13 percent in the 1st half from a year ago with most of the results coming within expectations.
Ayala Land Inc. posted the fastest growth while SM Property Holdings (SMPH) outperformed during the second quarter, according to AP Securities.
POGO syndrome
“ALI and Robinsons Land Corp. (RLC) remain our top stock picks in this sector. Positive earnings revisions are seen for both ALI and RLC (strong in residential), but negative for FLI (Filinvest Land Inc.) and MEG (Megaworld) due to POGO (Philippine Offshore Gaming Operations) risk in their office segment, as well as for SMPH with its Bay Area exposure,” it added.
The sector’s recent underperformance (down 5.64 percent year to date) can be traced to the foreign-led selling of ALI and SMPH.
But we expect the sector to start doing much better, now that the BSP has initiated its rate cuts. We’ve been highlighting that the Property sector consistently outperforms before and after the start of previous easing cycles.
Sustained banking momentum
Earnings momentum of the banking sector was sustained with the first half average growth of 15 percent from a year ago driven by strong loan volumes and lower provisions which offset higher operation expenses, flat net interest margin and trading losses.
In terms of order of preference, MBT (Metrobank) was the top sector pick followed by BDO (Banco de Oro) and then BPI (Bank of the Philippine Islands).
AP Securities sees BPI outperform in terms of earnings as it posted the fastest growth at 22 percent during the period from last year, thanks to market share gains and higher contribution from Robinsons Bank (RBANK).
BPI topped most of the performance metrics — faster earnings and loan growth and higher NIMs and ROEs — partly attributed to the integration of RBANK, however, looking at just organic growth, MBT outpaced its peers in terms of loan growth.
The BSP guidance remained dovish, according to AP Securities, with the BSP expecting headline inflation to trend lower to its two percent to four percent target.
BSP Governor Eli Remolona Jr. believes that inflation expectations are well-anchored and that the risk to inflation outlook is tilted to the downside. It also hinted at another rate cut by October or December.
