This year\u2019s third quarter earnings season just ended, and clear trends can be observed if we look at it on a per sector basis. Broadly speaking, retail and restaurant earnings exceeded expectations as revenge spending trumps inflationary pressures.<\/p>\n\n\n\n
The same goes for food manufacturing companies, with most companies in the sector (except for MONDE) registering stronger-than-expected growth despite tighter margins due to high input costs. Banks performed well, as expected, with expanding net interest margins and lower bad loan provisions giving a boost to the sector\u2019s earnings.<\/p>\n\n\n\n
The property sector managed to report decent earnings, but mostly due to mall and hotel earnings, which is corollary to the revenge spending growth story in the retail sector.<\/p>\n\n\n\n
Overall, the 3rd quarter earnings were a pleasant surprise and it was mainly the reason why the market has made a strong rebound from the year\u2019s lowest close at the end of September.<\/p>\n\n\n\n
We expect holiday spending to give a much-needed boost to these sectors this quarter, even as inflation hits a new high in November and is expected to rise further in the coming months. It is also worth noting that the broader economy\u2019s K-shaped post-pandemic recovery, where high- and middle income households recover faster than lower-income households, is reflected in the earnings growth of the individual companies.<\/p>\n\n\n\n
PGOLD, which caters more to the mass market, significantly underperformed its peers with \u201conly\u201d 13% net income growth in the first nine months. By contrast, RRHI and WLCON, which cater more to the higher-income market, registered growth of 63% and 58% respectively.<\/p>\n\n\n\n
The lifting of capacity restrictions and easing of mask mandates greatly benefitted restaurants, with PIZZA and FCG reversing last year\u2019s losses, while JFC and MAXS reported growth of 171% and 82%
respectively. However, it remains to be seen how much longer revenge spending can be sustained as restaurants raise prices to cover their rising costs.<\/p>\n\n\n\n
The BSP\u2019s recent decision to raise benchmark rates by 75 bps will give banks a reason to raise rates on loans, while we have yet to see any significant increase on interests paid on deposits. The BSP held off on raising the 2% cap on credit card interest rates, but the central bank has hinted that it may reconsider this policy in January next year. This translates to wider margins for banks, which
we expect to continue in the near future as rates remain elevated to stave off inflation.<\/p>\n\n\n\n
The Big Three all reported double\u0002digit earnings growth, but the mid-sized banks underperformed with SECB even reporting that its net interest margins contracted by 12 bps in the first 9 months of 2022. There is a possibility that inflation pressures may result in another wave of NPLs in the first quarter of 2023, but the asset quality of the top banks should give them better insulation from this.<\/p>\n\n\n\n
We expect vacancies to rise in the near-term as POGOs leave and BPOs downsize their leased areas due to flexible work arrangements. Higher interest rates on housing loans may also dampen property sales, especially in the more mass market developments.<\/p>\n\n\n\n
However, property developers with retail and tourism segments should be able to weather the storm, as well as developers who cater to more upscale buyers. As with the banking sector, we are more optimistic on the larger property developers like ALI and SMPH.<\/p>\n\n\n\n