{"id":323404,"date":"2023-05-30T20:39:11","date_gmt":"2023-05-30T12:39:11","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=323404"},"modified":"2023-05-30T20:39:13","modified_gmt":"2023-05-30T12:39:13","slug":"forecasted-levels-of-psei-2023","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/forecasted-levels-of-psei-2023\/","title":{"rendered":"Forecasted levels of the PSEi: Bull, bear, and base case"},"content":{"rendered":"\n
<\/div>\n\n\n\n

Analysis and Recommendation<\/h2>\n\n\n\n

Our Base (or Neutral) Case:<\/strong> The PSE index (PSEi) may settle at 6,450<\/em><\/strong>, assuming the 2023 Earnings per Share (EPS) of the index will grow by 10%, slower than the EPS growth rate of 16% during the 1st quarter (1Q) of 2023. This also assumes that there are no further interest rate hikes from the BSP.<\/p>\n\n\n\n

Our Bull (or Optimistic) Case:<\/strong> If the 2023 EPS manages to sustain the 1Q\u2019s growth rate of 16%, then it could justify an index value of 6,800<\/em><\/strong> as long as the BSP does not hike rates further.<\/p>\n\n\n\n

Our Bear (or Pessimistic) Case:<\/strong> If the BSP interest rate goes up to 6.50% (tracking the U.S. Fed’s rate) and EPS growth falls to single digits, then the index would likely see a drop to 6,100<\/em><\/strong>.<\/p>\n\n\n\n

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The U.S. Federal Reserve (Fed) is considering another 25bps (0.25%) hike given that inflation may not be declining as fast as they would hope for. Right now, investors are already pricing in another rate hike as the base case. <\/p>\n\n\n\n

This will have ramifications on the PSEI, particularly with regard to the Peso, and the outlook on corporate earnings expansion. The BSP may be forced to hike once more in order to protect the currency.<\/p>\n\n\n\n

Higher interest rates by the BSP place a challenge on the market\u2019s capacity to generate adequate returns. We would therefore look towards investing in stocks that can generate above-average earnings yields such as the following.<\/p>\n\n\n\n

Banking Stocks<\/strong><\/h2>\n\n\n\n
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A potential 0.25% rate hike would provide additional juice to the banks’ net interest margin (NIM) upside. Still, a rate cut (expected in June) could boost the loan book outlook.<\/p>\n\n\n\n

BDO and BPI:<\/strong> Safest picks due to highest ROEs and hefty CASA ratios<\/p>\n\n\n\n

MBT:<\/strong> Deeply undervalued<\/p>\n\n\n\n

SECB:<\/strong> Highest earnings yield, but riskiest given low ROE<\/p>\n\n\n\n

Consumer Stocks: Retailers and Distributors<\/strong><\/h2>\n\n\n\n
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Operating costs are likely to trend downwards throughout the year as inflation cools.<\/p>\n\n\n\n

PGOLD and RRHI:<\/strong> Ability to raise prices and tie-ups with BPI and GoTyme (RRHI), as well as affordable pricing and aggressive expansion outside of Metro Manila (PGOLD) will continue to fuel the topline<\/p>\n\n\n\n

SSI:<\/strong> Store optimization allows for revenue growth without overly relying on expansion. Keeps overhead tempered. Direct beneficiary of strong mall foot traffic<\/p>\n\n\n\n

KEEPR:<\/strong> Synergies with PGOLD. Further upside from the return of tourism and travel retail<\/p>\n\n\n\n

Consumer Stocks: Restaurants<\/strong><\/h2>\n\n\n\n
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Recommended for retail investors due to their small sizes<\/p>\n\n\n\n

PIZZA:<\/strong> Potato Corner should continue to be accretive to margins given its scalability. Franchise business model also allows PIZZA to continuously receive income without any recurring operating costs<\/p>\n\n\n\n

MAXS:<\/strong> Undervalued compared to other resto names after factoring in 2Y EPS growth. PEG ratio of 0.18x is cheap versus the 0.66x average of its peers.<\/p>\n\n\n\n

Power Generation<\/strong><\/h2>\n\n\n\n
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AP:<\/strong> EPS forecasts for AP have gone up significantly (53.7%) from 2022. Even with its 24.7% YTD gain in price, earnings yield is still significantly higher than the PSEi\u2019s 8.6%. There is some downside risk for its large hydro segment, which might see its output go down by as much as 26% due to El Ni\u00f1o<\/p>\n\n\n\n

FGEN:<\/strong> Offers superior earnings yield of 24.2%, but there may be some liquidity issues considering the stock\u2019s 11% public float. Recent run-up in price could be attributed to tender offer speculation, but still doesn\u2019t sufficiently price in its earnings potential<\/p>\n\n\n\n

Property<\/strong><\/h2>\n\n\n\n
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MEG:<\/strong> Surging residential pre-sales of P39.6 Billion for 1Q 2023, up 71% YoY. Mall rentals jumping to P1.2 Billion, up 73% YoY, with 209,000 average daily foot traffic (+80% YoY). Revenue for hotel operations growing 61.64% to P813 Million for 1Q 2023 on the back of reviving domestic tourism and MICE activities<\/p>\n\n\n\n

RLC: <\/strong>1Q 2023 net income of P2.66 Billiion, up 90% YoY, bringing outperforming results. Solid performance on residential sales with pre-sales take-up at P5.6 Billion (+119% YoY). Solid mall revenues, jumping P3.9 Billion (+46 YoY) for 1Q 2023.<\/p>\n\n\n\n

Telco<\/strong><\/h2>\n\n\n\n
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Despite the weak earnings outlook in the telco sector, the drop in share price of CNVRG<\/strong> and TEL<\/strong> have made them too cheap to ignore<\/p>\n\n\n\n

Utilities<\/strong><\/h2>\n\n\n\n
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Earnings growth is promising, and earnings yield is attractive but we are concerned about MWC’s<\/strong> return ratios (ROIC 4.11x) and high leverage (Net Debt\/EBITDA 7.70)<\/p>\n\n\n\n

<\/div>\n\n\n\n

This report is prepared by PinoyInvestor\u2019s partner broker below. Find out more about our partner brokers<\/a> and sign up to avail their complete trading brokerage services.<\/em><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Here\u2019s a commentary on an important issue or event affecting the stock market<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[],"class_list":["post-323404","post","type-post","status-publish","format-standard","hentry","category-special-reports","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"_links":{"self":[{"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/posts\/323404","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/comments?post=323404"}],"version-history":[{"count":2,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/posts\/323404\/revisions"}],"predecessor-version":[{"id":323423,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/posts\/323404\/revisions\/323423"}],"wp:attachment":[{"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/media?parent=323404"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/categories?post=323404"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-json\/wp\/v2\/tags?post=323404"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}