Although the February 2023 inflation rate has cooled down to 8.6%, inflation for the poorest Filipinos was higher at 9.7% due to the greater share of food and essentials to their total expenditure. We note that the elevation in food prices may continue to persist in the next few months, despite the government\u2019s efforts to import more supply, as the uptrend in corn and sugar costs remains stubborn. <\/p>\n\n\n\n
Based on the latest data from the Sugar Regulatory Administration (SRA), the average price for mill-site sugar is still up by 87% YoY. Given that income classes lower C, D, and E comprise 90% of the population, we can expect a large chunk of nationwide expenditure to continue shifting more towards necessities as food takes on a larger share of consumers\u2019 wallets.<\/p>\n\n\n\n
This trend should benefit our picks: PGOLD, MONDE, and FB. <\/p>\n\n\n\n
PGOLD remains focused on maintaining the affordability of its SKUs and has been focused on growing its fresh foods category with prices that are comparable to those of local wet markets. The company also maintains close proximity to communities through its sari-sari store partners. PGOLD\u2019s accessibility and friendly pricing would therefore position it as the retailer of choice for most of the masses which would allow them to capture a large bulk of the country\u2019s necessities-driven consumer spending.<\/p>\n\n\n\n
Likewise, MONDE\u2019s main revenue driver which is Lucky Me noodles should also see heightened demand as consumers seek out cheaper food alternatives. Additionally, MONDE\u2019s market price is currently underappreciating the full worth of its FMCG segment. At P11.76\/share, investors would not only be able to buy the alternative meat segment for free, they would also be purchasing the FMCG segment at a 14% discount (valued at P13.5\/share). Even though the alt.meat segment has not been performing well, this is still good value.<\/p>\n\n\n\n
Lastly, FB is expected to generate robust topline growth given its staple meat products and popular food portfolio. Although the company has been increasing prices to a limited degree, sales volumes should continue to expand given that pork is the most popular variety of meat amongst Filipinos. Similar to what we saw with URC, the combination of price increases and healthy volumes should provide uplift to FB\u2019s operating income and net earnings despite continued cost pressures.<\/p>\n\n\n\n