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Analysis and Recommendation
According to a recent survey conducted by Pulse Asia, the number 1 item that Filipino consumers have been spending more on is Food, with over 95% of respondents citing this as their top expenditure driver. On the flipside, however, over 53% of respondents mentioned that they had cut back on Food consumption in the past 3 months.
This just goes to show that the weight of inflation has been weighing heavily on the wallets of consumers, and given that price momentum has continued to heat up, we are likely to see further cost rationalization among Filipinos in the food and beverage space.
Our View: As we expect volumes to remain under attack in the coming months, we would expect sentiment among consumer stocks to be gloomy. Nevertheless, within the sector we note that there are still a handful of companies that may continue to show resilience in earnings and could even potentially generate positive surprises.
We would therefore recommend investors to remain positive with MONDE and RRHI. Despite profits having disappointed in the past couple of quarters, we note that MONDE’s gross margin, which was previously the company’s biggest area of concern, has actually been gaining steam in the past 3 quarters. As wheat prices continue to trend favorably for the company and coupled with the fact that instant noodles remain the lifeblood for many Filipinos, we therefore think that the company would be better insulated against volume decline, with any weaknesses to be more than made up for by margin upside.
In the same vein, we are also favorable with RRHI given its diverse clientele and retail portfolio which allows the company more leeway to continue raising prices.
CNPF, meanwhile, is also similar to MONDE as its canned goods are typically seen as household necessities. Gross margin performance for the company has also been impressive.
On a more somber note, we are downgrading our recommendation on PGOLD to a HOLD over concerns that the company’s reluctance to raise prices may lead to further gross profit margin (GPM) erosion.
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