The Bangko Sentral ng Pilipinas (BSP) cut its key rate by 25bps or 0.25% to 6.25% — in-line with expectations and the first interest rate cut in 4 years. It also reduced the rates on overnight deposit and lending facilities to 5.75% and 6.75%, respectively.<\/p>\n\n\n\n
The BSP guidance remained dovish with the BSP expecting headline inflation to trend lower to its 2%-4% target. The BSP Governor believes that inflation expectations are well-anchored and that the risk to inflation outlook tilted to the downside. It also hinted of another possible rate cut by October or December.<\/p>\n\n\n\n
We view the rate cut as a clear catalyst for the market. We reiterate our positive view on the Philippine market and would take the current weakness as an opportunity to revisit potential sector winners, that is, those stocks which typically outperform on a rate cut cycle: Property and Banks. The recent earnings results showed the resilience and potential positive earnings revisions for these sectors. <\/p>\n\n\n\n
The property sector’s earnings grew by 13% year-on-year (y-y) in the 1st half (1H) 2024 with most of the results coming within expectations. ALI posted the fastest growth while SMPH outperformed during the 2nd quarter (2Q).<\/p>\n\n\n\n
ALI and RLC remain our top stock picks in this sector. Positive earnings revisions are seen for both ALI and RLC (strong in residential), but negative for FLI and MEG due to POGO risk in their office segment, as well as for SMPH with its Bay Area exposure.<\/p>\n\n\n\n
The sector\u2019s recent underperformance (down 5.64% year to date) can be traced to the foreign-led selling of ALI and SMPH. But we expect the sector to start doing much better, now that the BSP has initiated its rate cuts. We\u2019ve been highlighting that the Property sector consistently outperform prior to and after the start of previous easing cycles.<\/p>\n\n\n\n
Earnings momentum of the banking sector was sustained with 1H 2024 averaging growth of 15% y-y driven by strong loan volumes and lower provisions which offset higher opex, flat net interest margin (NIM) and trading losses. <\/p>\n\n\n\n
In terms of order of preference, we have MBT as our top sector pick followed by BDO and then BPI.<\/p>\n\n\n\n
BPI outperformed in terms of earnings as it posted the fastest growth at 22% y-y for 1H 2024, thanks to market share gains and higher contribution from Robinsons Bank (RBANK). Loan growth was also strong across the board. BPI led with the highest growth rate at +18% y-y driven by RBANK\u2019s integration. <\/p>\n\n\n\n
On a core basis though, MBT outpaced its peers with a 15% y-y growth (vs. BDO\u2019s +13% and BPI\u2019s +11%). Consumer lending led the growth while corporate also saw
a recovery. Outlook is optimistic in anticipation of additional rate cuts which could drive credit demand.<\/p>\n\n\n\n
BPI topped most of the performance metrics \u2013 faster earnings and loan growth and higher NIMs and ROEs \u2013 partly attributed to the integration of RBANK, however, looking at just organic growth, MBT outpaced its peers in terms of loan growth. <\/p>\n\n\n\n