Upbeat on Philippine economy, stock traders see runaway corporate earnings

MANILA, Philippines—The Philippine economy’s surprise 6.4-percent growth in the first quarter, bucking the uncertainties spawned by the eurozone’s debt woes, seems to signal the start of positive things to come. Stock traders say robust corporate earnings may even join the parade.

Traders polled by the Inquirer all saw growth in corporate earnings for 2012, with forecasts ranging from 12 to 19 percent.

According to BDO Capital and Investment Corp. president Eduardo V. Francisco, corporate earnings per se will not go up just because business and consumer sentiments have been upbeat. He explained that people spending more because they are optimistic would be the catalyst that would improve the bottom line of many companies.

Increased spending

Retail, food and housing will likely benefit from consumers’ stronger spending appetite, while exporters and business process outsourcing companies may have the peso to fret about.

But strong concerns about the peso’s strength remain valid, Francisco said in a text message. The Bangko Sentral ng Pilipinas has been helping in the last few years to keep the peso from appreciating further.

He added that if the peso were to gain against the US dollar, Philippine exporters and BPO firms would lose their competitive edge worldwide.

Because of the peso’s appreciation, so-called “hot” money has been flowing freely into the local bourse—something which some sectors say must be checked.

But Francisco, as well as some analysts, said stock market flows could not and should not be controlled, although some countries such as Malaysia have tried requiring investments to stay for a certain period before investors can withdraw the funds.

“We should continue to make flows easy to come in or out. One example is to require investments to stay at least six months. This will ensure that people will take a longer view on investing. But then we will be losing the intraday traders. We will as a country be less competitive also if we make it more difficult to bring money in or out,” Francisco said.

Bright prospects

First Metro Investment Corp. senior analyst Cristina S. Ulang said that a 19-percent growth in corporate earnings is in the horizon. It will benefit the consumer, gaming, energy, mining, telecommunications and infrastructure sectors.

Specifically, she said, companies such as Puregold Price Club Inc., port magnate Enrique Razon’s casino and hotel developer Bloomberry Resorts Corp., Aboitiz Power Corp., Oriental Peninsula Resources Group Inc., Aboitiz Equity Ventures, Marcventures Holdings Inc., Benguet Corp., and Metro Pacific Investments Corp. of Manuel V. Pangilinan are all expected to gain.

First Metro Securities Brokerage Corp. research analyst Ghia Paula L. Yuson, meanwhile, said that corporate earnings are expected to grow by 12 to 15 percent “in the next 12 months,” and may even go higher with stronger than anticipated second-quarter earnings.

Strong growth in the second quarter—above 6 percent—would support growth earnings during the period, she said.

Among those that may exceed performance standards in terms of earnings this year are consumer, infrastructure, holding firms, banks and power firms, Yuson said.

Performers

Banks will benefit from anticipated loan growth, buoyant consumption, as well as big-ticket projects such as those in the government’s public-private partnership program.

Power sectors are in for brighter prospects as well since higher WESM prices and favorable weather conditions “should prop up earnings in the second half,” she said.

The Gokongwei family’s Universal Robina Corp., Puregold and the Sy family’s SM Investments Corp. stand to benefit from domestic consumption and lower prices of inputs such as oil, Yuson said. DMCI Holdings Inc., Ayala Corp., and GT Capital Holdings Inc. may also benefit from a wide range of infrastructure investments.

Banks with good earning potential are Metropolitan Bank & Trust Co., Bank of the Philippine Islands, and Security Bank Corp., she said.

Power companies Aboitiz Power, Energy Development Corp. and First Gen Corp. are in for a boost as well, Yuson added.

Yuson said relatively weaker corporate earnings this year may be seen in telecommunications and mining.

Tighter competition is seen to depress margins for telecommunications firms Philippine Long Distance Telephone Co. and Globe Telecom Inc., Yuson said.