In 2013, PH consumer stocks continue to shine

As the outlook on the country’s economy continues to be bright while interest rates remain thin, Filipinos are now able and willing to spend more this year, benefiting food manufacturers, retailers and mall operators.

This means that shares of Philippine companies exposed to soaring consumer spending will likely extend their strong performance in 2013, analysts said, citing a lengthy list of factors that will fuel this trend.

“The consumer sector will remain a strong performer, driven by BPOs  (business process outsourcing), improvement in tourism and rise in job creation,” said Jonathan Ravelas, chief market strategist at BDO Unibank.

Growing labor force

“The demographic characteristics of the Philippine population are very favorable for the consumer sector. At the same time, the economy as a whole is picking up steam,” said Jose Vistan, research head at AB Capital Securities. “The unemployment rate seems to hover around 7 percent. The labor force is growing. That means more jobs are being created. That means more disposable income for spending.”

Household spending grew faster last year compared to that of the previous year. In the third quarter of 2012, spending expanded by 6.2 percent, faster than the previous year’s 5.9 percent, according to the National Economic Development Authority.

Analysts said the buying power of millions of Filipinos working overseas and their families, as well as foreign companies outsourcing jobs to the Philippines, would continue to support robust consumption.

Consumption boom

It is both a reflection and a cause of the nation’s accelerating economic growth after decades of lagging behind many of its Asian neighbors.

The economy grew by 7.1 percent year-on-year in the third quarter of 2012—the second fastest in Asia next to China’s 7.7 percent.

Growth accelerated as the central bank’s benchmark interest rates remained at historic lows. The overnight borrowing rate stands at 3.5 percent, ensuring sufficient supply of cash.

The phenomenal rise of the BPO sector is widely credited for the consumption boom in the country. Worth $11 billion a year, the outsourcing industry employs more than 600,000 people.

“Call centers mushroomed across the country, not just in Metro Manila,”  said BDO’s Ravelas.

The proliferation of call centers created demand for food and other necessities that fed the construction of more malls, he said.

“It looks like the consumer sector will remain in play moving forward,” Ravelas added.

Consumer spending may be spurred on further this year as the country holds mid-term elections in May.

Surging sales

The positive effect the elections will have on the consumer sector is clear. For example, sales of Jollibee Food Corp. and URC surged in 2007 and 2010, said Freya Natividad, head of research at F.Yap Securities.

A similar trend should manifest this year, Natividad said, adding that URC and Pepsi were among her top picks for this year.

Aside from election spending and the government’s pump-priming efforts, robust remittances from Filipinos living and working abroad should fuel household spending and the rise in related equities, said Astro del Castillo, managing director of First Grade Holdings.

Half of every peso spent by Filipinos last year went to food, drinks, clothes, home appliances and other household needs, according to government data.

Gregg Ilag, equity analyst at AB Capital Securities, said that the median performance of food manufacturers and retailers, which served as proxy for the consumer sector, showed an on-year rise of 77 percent, outperforming the broader market by 44 percentage points.

Risks

“The consumer sector will benefit from the rise in spending, which is vibrant in view of faster growth projected for 2013 due to elections,” said Ilag. “We prefer stocks that are not too pricey. There are stocks in the consumer sector that are not yet demanding.”

He cited Purefoods Corp. as an example. His other stock pick is Jollibee, which traditionally trades at a premium.

Analysts warn that there are risks to their bullish outlook on the consumer sector. These include the continued appreciation of the peso, which could diminish the spending power of OFWs and their families; a drastic acceleration of inflation; and further signs of strengthening in the US economy, which could trigger shifts in portfolio flows.

These, however, are not expected to materialize anytime soon.