Over the past month, the PHP has been one of the worst performing currencies versus the USD, contrary to many of its Asian neighbors. The PHP\u2019s total year-to-date (YTD) return against the USD now stands at -4.62%. The prolonged woes of the PHP have brought jitters to the market seeing as a number of prominent listed companies have either a.) significant amounts of USD-denominated debt, b.) rely heavily on imports, or c.) have a combination of both. <\/p>\n\n\n\n
As such, we are therefore presenting stocks that could potentially fare better than most amidst the currency volatility, while likewise also taking a look at names that are in a less than stellar position. Note that all recommendations are fairly liquid, with a 6M avg. daily value turnover of at least P5-Million. <\/p>\n\n\n\n
Amongst the roster of names, we have handpicked APX, CNVRG, TEL, and DNL<\/strong> as our winners. <\/p>\n\n\n\n Out of the four, the first three have the added bonus of being very cheap with blended forward P\/E\u2019s that are below the PSEI\u2019s 11.0x. For APX, the main attraction comes from the fact that the gold producer\u2019s revenues are sourced in Dollars while its reporting currency, on the other hand, is reported in Peso. <\/p>\n\n\n\n As such, weaknesses in the latter allow APX to experience a positive upward adjustment to its revenues. Based on reported 1st quarter (1Q) 2024 earnings, we estimate that for every 100bps YoY increase in the USDPHP, APX receives a P36.4 Million boost to its topline. <\/p>\n\n\n\n Meanwhile for CNVRG, the fiber provider boasts the distinction of being the only telco with ZERO debt exposure to USD. When coupled with its industry-low net debt-to-equity of 0.49x which is only 27.9% of the industry average, the financing cost outlook of the company becomes all the more attractive. <\/p>\n\n\n\n As for TEL, while the company does not possess as clean of a debt profile as CNVRG with 15% of its obligations being USD-denominated, the company nevertheless benefits from having a strong hedging position. To be specific, 15% of the telco\u2019s Lastly, DNL benefits from its healthy ability to pass on costs to customers which would therefore allow it to bypass the increased pricing of raw materials brought about by the weaker Peso. Additionally, the manufacturers also benefits from the recent appreciation of the CNY versus the PHP seeing as a big chunk of export sales are derived from that region. Although the stock is not as undervalued relative to the market as our other picks, its appealing characteristics amidst the ongoing Peso fiasco make the premium in P\/E worth it in our view.<\/p>\n\n\n\n Meanwhile, we are less optimistic on the outlooks for CEB, URC, PGOLD, AC, and JGS. <\/p>\n\n\n\n The first two would be impacted mainly on the imports side of things seeing as the former is heavily reliant on sourcing jet fuel from abroad , while around 50% of the latter\u2019s raw materials are procured from external sources. Additionally, CEB has 60% of its debt allocated to the USD. By extension, this would also place their parent company JGS in a less than stellar position. <\/p>\n\n\n\n The same story applies to PGOLD as 45 to 55% of S&R\u2019s inventory comes from abroad, with majority being purchased from US suppliers. While S&R does possess pricing power, we think that the pass-on of costs will not necessarily be 1:1 given the increased competition in the market from new players such as Landers. <\/p>\n\n\n\n As for AC, although Q1 earnings were solid, it should still be noted that the company remains the second most heavily leveraged conglomerate (behind only SMC) with net debt-to-equity of 0.81x versus peers\u2019 median of 0.57x. Out of the total debt amount, 30.4% or around P184.15-Bn is USD-denominated. <\/p>\n\n\n\n For CEB, PGOLD, URC, and AC, we still maintain a HOLD rating given that the currency risks are matched by recent good to great earnings performances as well as improving outlooks for topline and OPEX management. JGS though is a SELL as we view the conglomerate as being less attractive than its other listed subsidiaries.<\/p>\n\n\n\n
revenues are dollar-linked, while at the same, 52% of its USD debt is hedged via an
instrument that grants TEL a subsidy whenever the USDPHP trades at above P54.77.<\/p>\n\n\n\nThe less fortunate souls<\/h3>\n\n\n\n