Last week, the PSEi surged 4.25% higher week-on-week to close at 6,951.54 points (+283.57 points), tracking the Asian region driven by the reopening in China and the weaker US Dollar. Moreover, the easing of the US inflation print from 7.1% in Nov 2022 to 6.5% in Dec 2022 as well as comments of slower rate hikes this year by top economic managers in the Philippines bolstered optimism.
Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said that the BSP may be nearing the end of its monetary tightening cycle as he sees inflation normalising to about 3% in the latter part of the year; he also signalled a 25-50 bps (0.25%-0.50%) rate hike in their February meeting, noting that there is less pressure to match the US Fed’s rate hikes. At the same time, Department of Finance (DOF) Secretary Benjamin Diokno said that the BSP is nearing its peak rate and that there could be a pivot towards the middle of the year.
PSE Market Outlook this week
This week, we anticipate a volatile market and expect it to trade sideways with a downward bias on some profit-taking as the local bourse is nearing overbought levels. Nonetheless, this may be tempered by the expectation of further cooling US inflation that suggests slower pace of rate hikes moving forward. Investors are also awaiting corporate earnings releases from the US as well as monitoring more data releases from China as the latter reported nearly 60,000 deaths from COVID-19 after dismantling its zero-COVID policy in early Dec 2022.
Stock Picks this week
1. Nickel Asia Corp. (NIKL)
|Recommendation||Buy on pullbacks|
|1-Year Target Price||PHP 9.19|
NIKL formed a head and shoulders bottom, an intermediate-term bullish pattern. The price seems to have reached the end of a period of “accumulation” at the bottom of a major down- trend; the break out through resistance signals a reversal to a new uptrend.
According to Technical Insight, our automated chart pattern recognition program, the measured price target after NIKL broke out ifits head and shoulders bottom pattern is P7.00 to P7.20.
Looking at fundamentals, we reiterate that the growth in stainless steel production and the incentives and penalty programs imposed by the European and U.S. governments continue to drive adoption rates for Electric Vehicles. Nickel prices can also remain elevated given the proposal by the Indonesian government to impose a progressive levy on the export of on nickel pig iron and ferronickel. Moreover, we believe NIKL’s foray into the renewable energy generation business is a long-term catalyst amid the tight power supply in the country.
Accumulating once NIKL pulls back to P6.40/P6.30 is advisable. Set Stop Limit orders below P6.00 and take profits at around P7.20.
2. PLDT Inc. (TEL)
|Recommendation||Buy on breakout|
|1-Year Target Price||PHP 1,550.00|
Despite the recent rally, TEL’s share price failed to retest its key resistance level of P1,500.00. Currently, TEL is showing signs of profit-taking at 1,400.00 level, which suggest that the recent rally may just be a dead cat bounce. We are of the view that it is key for TEL to surge past P1,500.00 for the rally to be sustainable.
As for fundamentals, we still see TEL as best positioned in the current competitive and regulatory environment among telcos under our coverage. We expect the capex overrun will have limited impact on TEL’s core telco business and that its balance sheet can absorb worst-case conditions relating to the overspend.
Accumulating once TEL breaks above P1,500.00 is advisable. Set Stop Loss orders below P1,400.00. Take profit at around P1,700.00 to P1,900.00. For long -term investors, our target price for TEL is P1,550.00.
3. Robinsons Retail Holdings, Inc. (RRHI)
|Recommendation||Buy on breakout|
|1-Year Target Price||PHP 70.00|
Year-to-date, RRHI’s has rallied by as much as 9.1%. This was after the company disclosed that it will to acquire an additional 4.4% stake in Bank of the Philippine Islands (BPI) worth almost P20 billion, bringing the retail firm’s stake to 6.8%. Despite the recent rally, RRHI’s share price failed to surge past or even retest its immediate resistance levels of P60.00/P62.00.
At current levels, the stock is trading above its key moving averages and its MACD is hovering atop its signal and zero lines; however, we are of the view that it is key for RRHI to surge past P62.00 for the rally to be sustainable. As for fundamentals, amid a rising inflation environment, we turn to retailers, given their ability to pass on costs to their mid to high-income target market. Furthermore, we believe RRHI is best positioned to leverage on the wallet share shift and return of mobility amid further economic reopening.
Despite the Omicron impact and post adjustments to current margin trends, we retain our forecasts for RRHI, as our outlook for the mall-based retailer remains largely intact amid: (i) favourable mobility trends and shifting wallet allocation conducive for RRHI’s growth; and (ii) Strong balance sheet position.
Accumulating once RRHI breaks above P62.00 is advisable. Set Stop Limit orders below P58.50 and take profits at around P70.00/P72.00. For long-term investors, our target price for RRHI is P70.00
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