The BSP expects inflation to remain elevated, staying above its 2-4% target until the 3rd quarter (3Q) 2024 due to the negative impact of the weather on agricultural production. However, while food prices remain high (despite slower expenditures), we note that the prices of some key staples like rice and sugar are starting to ease. There\u2019s a time lag before these get reflected on grocery prices but a sustained decline in the prices of these key staples should provide some relief to household expenses and to overall inflation.<\/p>\n\n\n\n
Weaker consumer confidence going into 2024 led to a weaker household spending in the 1st uarter (1Q) 2024. We highlight that the consumer confidence indicator (CI) has started to improve in 1Q 2024 (-10.9% vs. -19% in the previous 3-month period) driven by expectations of higher income stemming from higher employment and additional working family members. However, consumer sentiment remains tempered for 2Q 2024 and over the next 12 months (Feb 2024-Jan 2025).<\/p>\n\n\n\n
We also highlight that while spending for basic goods continue to show slower growth, spending for some discretionary items like restaurants, hotels and utilities are starting to show some recovery. The expectation is that whole consumer basket will revert back to its average growth trend as inflation eases and wages increase.<\/p>\n\n\n\n
The consumer sector trades at multi-year low valuations: 2024E 25E at 17.9x\/15.6x which are below the 10 -year average Price-Earnings (PE) ratio of 23.4x current\/20.3x forward. <\/p>\n\n\n\n
Our top picks: URC, MONDE and JFC.<\/p>\n\n\n\n
Our view is that inflation should come off but will remain relatively high and consumer spending should gradually recover. The 4th quarter (4Q) 2024 should look good for the sector. <\/p>\n\n\n\n
Among our top picks, MONDE has outperformed significantly year-to-date (YTD) while URC and JFC lagged by quite a bit. Thus, it doesn\u2019t come as a surprise that URC and JFC offers higher upsides and continue to be overwhelming buys based on consensus. <\/p>\n\n\n\n
Our targets for URC (P142\/share) and JFC (P290\/share) are more conservative while we have been more upbeat on MONDE (P13.80\/share) vs. consensus (and that has panned out very well so far). Worth noting too that JFC and URC continued to see net foreign outflows (accounts for a big part of their underperformance YTD.<\/p>\n\n\n\n