Corporate earnings seen to rise by 20-30% in 2021

CORPORATE earnings per share (EPS) may increase by 20-30% this year, as government restrictions are expected to be eased following COVID-19 inoculations.

According to the 2021 outlook released by Philstocks Financial, Inc. titled Hope Amid the Pressing Times, the Philippine Stock Exchange index (PSEi) is expected to finish the year at 7,150 to 7,750 at best.

A base EPS growth of 20% will allow the market to close the year with 7,150, while the company’s best bet of 30% EPS growth raises its PSEi projection to 7,750.

Philstocks said the EPS numbers, which measure the total return earned by a company derived by dividing its profit by the number of issued shares, are dependent on the developments related to the health crisis.

“A faster easing of restrictions, virus containment, vaccine roll out, and confidence improvement would give our companies a better chance of achieving a 30% EPS growth,” Philstocks said.

Philstocks is also expecting a continuous positive growth in market trends, projecting that the index would even break the 7,300 levels within the next several months. If it doesn’t, the company says it is anticipating the market to trade sideways.

“If the market fails to break and sustain ground at this level, it is expected to trade sideways, within the 6,600 and 7,300 range,” Philstocks said.

On Thursday, the PSEi dropped by 91.14 points or 1.28% to close at 6,991.01.

The firm also noted that an improvement in business and consumer confidence is a key indicator of market performance.

“Better consumer sentiment would lead to more spending which in turn would help our corporates’ toplines. Better business sentiment on the other hand would lead to the pursuance of store-network expansion, production capacity expansion, and other investment plans,” it said.

However, the company noted that the majority of the public’s budget will be spent on essentials, namely: food, beverage, and health products. Clothing and the footwear segment may not see significant recovery.

Philstocks’ research also pointed out that adjusting well to the pandemic is another key factor.

“Better adaptation to the new normal both by consumers and companies are also seen to help boost earnings,” the company said.

When the country put its regions on several lockdowns in an attempt to curb the spread of the virus, consumers began to conduct their transactions online — boosting companies’ preference and need for digital transformation.

“The online and digital transactions will continue to emerge and a higher contribution of it to revenue is expected,” Philstocks added.

Demand for data will be maintained as people continue to work and study from home, it pointed out.

Meanwhile, a rebound is expected for the energy sector, as commercial and industrial activities may pick up as lockdowns are eased.

Philstocks also said that once signed into law, the Financial Institutions Strategic Transfer bill “would serve as a major catalyst for the banking sector” as it would diminish risks when banks would be allowed to transfer bad loans to asset management companies. — Keren Concepcion G. Valmonte