We have a positive outlook on consumer companies on high topline prospects and moderating commodity prices. We believe that the easing inflation will continue on a downward trend and will support more consumer spending. As a consumption-based economy, with the average Filipino household spending ~40-50% of their budget on food staples and other discretionary consumer items, we believe that slowing inflation will raise mpurchasing power and thus lead consumers to spend more.<\/p>\n\n\n\n
On our coverage universe, the consumer sector\u2019s earnings increased by 11% year-on-year (y\/y) in the 1st quarter (1Q) of 2023 driven by JFC, RRHI, WLCON, and URC. Aggregate sales expanded by 14% y\/y but gross profits (GP) lagged at a 10% growth y\/y as costs remain a challenge to GP margin recovery.<\/p>\n\n\n\n
Here’s a summary of our ratings and target prices for select consumer stocks traded in the PSE.<\/p>\n\n\n\n <\/p>\n\n\n\n Margin Management<\/strong><\/p>\n\n\n\n As a result of the supply crunch last year, consumer companies have secured more raw materials at a steeper price. Thus, these firms have been experiencing gross profit margin (GPM) erosion during this period. However, as prices soften, we believe that these firms are in a position to recover their margins moving forward. In our coverage universe, we believe that Jollibee Foods Corp. (JFC) and Universal Robina Corp. (URC) are strong contenders for margin recovery. <\/p>\n\n\n\n Although JFC\u2019s 1Q 2023 margins were flat quarter-omn-quarter (q\/q), they were higher year-on-year (y\/y) ending at 18.2% as lower manufacturing costs offset higher raw material costs. Whereas URC\u2019s 1Q 2023 margins were lower y\/y but higher q\/q at 26.9% precisely due to higher raw material costs. As these higher-priced raw materials are flushed out, we believe that they should recover their margins in the next few quarters. <\/p>\n\n\n\n On another note, we are also positive on Monde Nissin Corp.\u2019s (MONDE) margin improvement. Although its margins deteriorated the most y\/y, shaving off ~5ppts to 30.4% in 1Q 2023, we are optimistic that it will follow the margin trend of its sector. We have already seen some progress q\/q, and would like to observe this again in 2Q23 to solidify our stance on MONDE.<\/p>\n\n\n\n Sugar Tax and Salt Tax<\/strong><\/p>\n\n\n\n In 2018, the Philippines (PH) implemented excise taxes on sugar-sweetened beverages under the Tax Reform for Acceleration and Inclusion (TRAIN) Law as a fiscal policy intervention to improve the collective society\u2019s health standards. Under the TRAIN law, taxes levied were equivalent to Php6.00\/liter for beverages using purely caloric sweeteners and Php12.00\/liter for those using high fructose corn syrup (HFCS). <\/p>\n\n\n\n As of June 21, 2023, it was announced that the Department of Finance (DOF) is proposing to increase this to Php12.00\/liter and will be indexed annually by 4%, regardless of the type of sweetener used. In addition to this, the DOF and Department of Health (DOH) are eyeing to implement a \u201csalt tax\u201d of Php10.00\/100g on snacks and other pre-packaged foods that exceed the DOH’s specified thresholds for fat, salt, and sugar content as early as 2024. <\/p>\n\n\n\n Similar to the \u201csugar tax\u201d, the \u201csalt tax\u201d is proposed in the name of improving citizens\u2019 health standards and reducing health risks. We believe that the increase in sugar tax should not disrupt consumer businesses as much, considering that this has been implemented a long time ago. <\/p>\n\n\n\n In terms of the salt tax, we would likely see trends such as a decrease in salty food consumption, a rise in healthier chips, and other packed product offerings and an increase in the prices of food products upon the implementation of the salt tax.<\/p>\n\n\n\n![\"\"](\"https:\/\/www.pinoyinvestor.com\/smartinvestor\/wp-content\/uploads\/2023\/06\/Screenshot-2023-06-27-at-12.05.04-AM.png\" "\\"Screenshot-2023-06-27-at-12.05.04-AM\\"")
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