Leading online stock brokerage COL Financial has tempered its outlook on local equities for this year on slower corporate earnings, but affirmed a bullish long-term outlook with the local stock barometer seen hitting the 10,000 milestone by 2020.
For 2015, COL Financial sees the Philippine Stock Exchange index ending the year at 7,950 compared, lower than the previous forecast of 8,300.
In a briefing on Monday, COL head of research April Lee-Tan said COL’s tempered optimism was due to a deterioration in the earnings outlook for listed companies.
Growth in earnings per share (EPS) is now seen by COL to average only 4 percent from 15 percent previously. However, COL expects EPS growth to accelerate to 10 percent next year.
COL’s earnings forecasts are less optimistic than the consensus. For this year, consensus EPS growth is 8.6 percent, rising to 13.1 percent for next year.
Lee-Tan said the average earnings by listed companies this year would likely be weighed down by the banking, gaming, consumer and power sectors. For banks, she said net interest margins turned out “flattish” compared to COL’s earlier expectations of a slight improvement. For gaming, she said earlier forecasts might have been overoptimistic while earnings have also been muted by delay in operations of new integrated resorts.
Even for the consumer sector, which was previously favored by many, she said interest had been tempered by below-than-expected first quarter earnings results. She said that a more intense competition would likely continue gnawing on earnings for the rest of the year.
For the power sector, delay in operations of power plants was likewise seen to weigh down on earnings.
But Lee-Tan stressed that the PSEi would still be on track to reach 10,000 by 2020. It was previously projected that the PSEi would hit this level as early as 2018.
“The pace will slow down in the short-term due to numerous speed bumps,” Lee-Tan said, noting however that there was still opportunity to generate returns through stock picking.
She said the pullback was likely temporary, saying that the Philippines still had one of the best fundamental long-term stories globally. She noted that the Philippines’ economic growth of more than 6 percent was expected to be faster than the average growth of both developed and developing economies globally in the next few years.
“And while the Philippines’ exports are weak, the country is not too dependent on exports to drive economic growth,” Lee-Tan said.
The COL analyst also cited the country’s strong external accounts, with a current account surplus equivalent to 4.4 percent of gross domestic product (GDP), due mainly to resilient overseas Filipino remittances and sustained growth of the business process outsourcing (BPO) sector.
“This makes the country less vulnerable to sharp interest rate hikes or significant peso weakness,” she said.
Globally, she said liquidity conditions remained favorable for stocks as an asset class as only the US was expected to raise interest rates soon.
Despite the ongoing market weakness, Lee-Tan added there was no indication of local equities slipping into the bear market.
COL’s favored sectors contained a mix of cyclical and defensive counters: Airlines, banks, property and power firms. Specifically, COL’s top stock picks are: Ayala Corp., Metropolitan Bank and Trust Co., SM Prime Holdings Inc., First Gen Corp., Cebu Air Inc., Filinvest Land Inc. and Ayala Land Inc.
COL head of technical research Juan Barredo said the index currently ranged from the 7,665 resistance level to the 7,272 support level. If the support level is breached, he said a slide closer to 7,050 might be seen.
“We look to take a more defensive approach in buying by waiting for reactions to support rather than buying along extensions into upswings,” Barredo said.
“A large consolidation may take shape for the rest of the year showing similar stride as such shown back in 2011. We then drive the need to be a little more selective in stock picking by focusing on stronger or more resilient trend tides and staying light on issues that have broken below the medium (130-day) to long-term (260-day) moving averages,” Barredo said.
Barredo said some resilient stock picks that may open up trading windows were: Aboitiz Equity Ventures, Double Dragon Properties, Cebu Air, Crown Asia Chemicals Corp., D&L Industries, GT Capital, Manila Electric Co., SM Prime Holdings., Universal Robina Corp. and Xurpas Inc.