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OUTLIER: URC weighed down by margin pressures as competition tightens

By Mark T. Amoguis, Researcher
MARGIN pressures and limited upside in the short-term sent investors in food and drinks conglomerate Universal Robina Corp. (URC) into selling mode, making it one of the most actively traded stocks last week.
During the week of Sept. 10-14, a total of P1.498 billion worth of 10.263 million URC shares exchanged hands, data from the Philippine Stock Exchange showed.
On a week-on-week basis, its share price went down by 2.48% to P141.30 apiece last Friday from the P144.90 closing price on Sept. 7. Year to date, the stock price slashed 8.25%.
“For consumer companies [like URC], most of the selling is really because of the margin pressures. URC cannot compete with other brands if they will pass on the import cost to the consumers, so they have to absorb some of the additional cost on their part,” said Rachelle C. Cruz, research analyst at AP Securities, Inc.
“The issue concerning the company is the competition. The peso is depreciating against the dollar. So what does it mean for URC? It means higher raw material cost,” she said.
Ms. Cruz added: “Currently, URC is trading at forward PER (price-to-earnings ratio) of 30.5 times and their average PER is 30.4 times for the past five years. That might explain the selling because upside is already limited.”
“What the investors are waiting for to come back… is mostly a recovery in terms of margins because URC is suffering from margin pressures due to intense competition especially on the coffee side.”
The URC’s coffee segment, which includes its Great Taste and Blend 45 coffee brands, was not the only one reeling from the intense competition in the instant coffee market segment. For one, Nestlé Philippines, Inc. was also complaining that it is competing at a disadvantage with Indonesia’s Kopiko, which imports its three-in-one coffee mix. Nestlé and URC source their sugar requirements locally and pay twice the world market prices.
In its latest unaudited financial statements, URC’s sales showed a 5.88% increase to P64.372 billion in the first half of 2018 from P60.795 billion in 2017’s comparative six months. Its bottom line during the period, however, was down by 22.74% to P4.934 billion from P6.386 billion previously due to lower operating income and foreign exchange gains.
The company has three core businesses — commodity food products, agro-industrial products, and branded consumer foods (BCF). The revenue posted by the BCF’s domestic businesses fell 1.85%, weighed down by the “lower volume and unfavorable mix in the coffee category.”
Ms. Cruz noted URC’s acquisition of the milling and refining assets owned by Roxas Holdings, Inc. and its subsidiary Central Azucarera Don Pedro, Inc. in Nasugbu, Batangas as one of the strategies being undertaken by the company in order to compete in terms of prices.
The transaction is currently under review of the Philippine Competition Commission.
Still, URC’s stock price rallied following the news of the acquisition as noted by Jeng T. Calma, trader at A&A Securities, Inc. wherein prior to the move, the stock’s price has “consolidated for too long” from its June low of P111.30. As the news broke, the URC stock’s price rallied to as high as P153.4 apiece on Sept. 10.
Even with last week’s net selling, Ms. Calma considered URC’s current stock price of P141.3 to be “attractive” compared to last week’s intraday high of P153.4.
For this week, she expects URC to trade within the support and resistance levels of P140 and P150, respectively.

Yields on gov’t debt climb

YIELDS ON government securities (GS) rose last week as traders remained cautious on growing expectations of rate hikes from the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).
On average, GS yields went up by 25.20 basis points (bp) week-on-week on Friday as bond prices dipped from previous levels, data from the Philippine Dealing and Exchange Corp. as of Sept. 14 showed.
With the exception of the 91-day Treasury bills (T-bills), all tenors saw their yields go up in the secondary market. At the short end, the 182- and 364-day T-bills climbed by 26.61 bps and 26.83 bps to yield 4.4497% and 5.1748%, respectively, while the rate of the 91-day T-bill fell by 54.72 bps to 3.5332%.
In the belly of the curve, the four-year Treasury bond (T-bond) posted a 54.11-bp increase to yield 6.8018% followed by the five-year T-bonds, which saw its rate climb 43.93 bps to 7.0089%. The two-, three- and seven-year debt papers followed, gaining 6.87 bps (5.7348%), 24.52 bps (5.7689%) and 13.44 bps (6.7534%), respectively.
At the long end, the 10- and 20-year T-bonds saw their rates go up by 88.44 bps (7.5571%) and 21.93 bps (7.6589%), respectively.
“GS yields increased this week due to widespread expectations of another US and PH rate hike this month,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (LANDBANK).
“Yields jumped the most [last] Monday after the US non-farm payrolls report beat market expectations. Trade tensions abroad merely tempered the rise in domestic interest rates,” he added.
Carlyn Therese X. Dulay, first vice-president and head of institutional sales at Security Bank Corp., shared the same assessment, adding that the rejection of all bids by the Bureau of the Treasury (BTr) for the reissued 10-year Treasury bonds last week “led [the] market to be defensive in prices across the curve in the secondary market.”
The BTr opted to reject all bids for its P15-billion offer of reissued 10-year bonds last Tuesday as tenders put forward by banks totalled P12.737 billion, below the amount the government wanted to borrow.
Had the BTr accepted all offers, the papers, which have a remaining life of nine years and six months, would have fetched an average rate of 7.64%, soaring by 129 bps from the 6.35% recorded in the bond offer in May.
The Treasury also rejected all bids for the 10-year papers when they were offered last July 3.
Meanwhile, economic managers are scrambling for solutions to curb inflation after it accelerated to 6.4% last month — its fastest pace in nine years. Even with elevated inflation being caused by supply-side issues, the central bank is widely expected to raise rates by another 50 to 100 bps by year-end to curb inflation expectations. The BSP has already raised rates by 100 bps since May.
Meanwhile, at the external front, market players are expecting another interest rate hike by Fed officials later this month. Fuelling these expectations was the increase in US non-farm payrolls — one of the metrics used in guessing the direction of US monetary policy — by 201,000 in August versus the 190,000 figure expected by economists. Given the low unemployment rate and increasing inflation rate in the US, Fed officials have been hawkish on the direction of monetary policy there.
For this week, Mr. Dumalagan said GS yields are expected to climb further given the sustained hawkish views on the monetary policy actions by the Fed and the BSP. “Trade concerns may still introduce some volatility,” he added, referring to the persisting trade tensions between the US and China.
For Security Bank’s Ms. Dulay, yields are expected to “trade within range” ahead of today’s T-bill auction, “which market expects to print 10-20 bps higher than previous auction levels.”
The Treasury is offering P15 billion worth of T-bills today. Broken down, the Treasury plans to raise P4 billion through the three-month papers, P5 billion for the six-month papers, and P6 billion in one-year T-bills. — Marissa Mae M. Ramos

Shares to rise as local investors return to market

By Arra B. Francia, Reporter
SHARES are seen to move upward in the week ahead after two consecutive weeks in the red, with more local investors participating in the market amid the exit of foreign funds.
The 30-company Philippine Stock Exchange index (PSEi) gave up 1.38% to close at 7,413.15 on Friday, further widening its weekly loss to 2.44% or 185.49 points. Analysts attributed the massive drop to net foreign outflows that climbed to P33.52 billion last week, significantly higher than the P4.43-billion net sales recorded in the week before.
The holding firms and financial sectors led the week’s losers, shedding 3.5% and 2.9%, respectively.
“Foreign funds have walked away from our market because of the continuous caution on emerging markets which we are,” Eagle Equities, Inc. Research Head Christopher John Mangun said in a weekly market report.
Mr. Mangun, however, noted that with the absence of foreign investors, locals are “picking up the slack” that has prevented the PSEi to record a total bloodbath.
“There is strong indication that the index will end in the green [this] week. The next support comes in at 7,350. The bottom line is that the market is moving away from relying on foreign funds. The market may take a little longer to climb as it absorbs all this foreign selling but eventually it will stop,” Mr. Mangun explained.
Meanwhile, online brokerage 2TradeAsia.com said investors will be looking at the Philippine peso, which breached the P54 mark last week — its weakest in almost 13 years — after continued fears of the trade war between the US and China. It noted that the weaker peso poses a challenge on listed firms’ spending in the fourth quarter, especially those with imported capital goods or fixed assets.
“Nonetheless, volatility of the local currency should eventually taper off, given the seasonal spike in remittances in 4Q, plus the fact a number of corporates have already undergone inventory hedging since the second quarter,” 2TradeAsia.com said in a weekly market note.
The online brokerage is also looking forward to the signing of an executive order (EO) that aims to control inflation. Malacañang said the EO will contain measures that will seek to lessen trade barriers on the importation of rice, fish, sugar, meat, and vegetables.
“The expected signing of an EO to control inflation…must be properly coordinated for a successful run. Otherwise, unabating (sic) inflation may prod corporates to implement pass-through charges, to maintain their ability to meet working capital needs,” according to 2TradeAsia.com.
Eagle Equities’ Mr. Mangun said there are more opportunities in second-line and speculative issues until the end of the year, lest blue chips start performing better. He placed the PSEi’s support from 7,200 to 7,350, with resistance from 7,500 to 7,840.

Red Cross gala focuses on Malabon’s dyeing art

THE Philippine Red Cross (PRC) and some of the country’s leading couturiers are coming together to mount a special fashion gala.
The PRC Malabon Chapter and the Designers Circle Philippines will present Tintura De Malabon: A Revival fashion show to support Malabon’s blood bank which opened early this year.
Set on Sept. 22 at the Solaire Grand Ballroom in Parañaque City, the fund-raiser will also serve as an attempt to revive Malabon’s fabric dyeing industry, which used to be a major craft in the city. The show will feature creations by designers Johnny Abad, Renee Salud, Fanny Serrano, Gener Gozum, Paolo Blanco, Francis Calaquian, Karen Castro, Ivan dela Cruz, Pencil Diestra, Bernard Escalona, Rafael Gonzales, Rey Lazaro, Arman Marco, Jontie Martinez, Nicky Martinez, Sonny Boy Mindo, Dave Ocampo, Vince Sityar, and Edwin Uy.
Also taking part is Soroptomist Philippines, an organization which focuses on livelihood and empowerment among women. Members of the group will model the designers’ creations.
The chapter aims to raise P3 million from the event to provide relief to families in Malabon affected by typhoons and to assist indigent patients in need of blood products.
Designer Rene Salud, a staunch supporter of the Red Cross, expressed his group’s wholehearted support for the event because of the values it upholds.
“Not a lot of people want to do it now because we rely on modern technology,” said Mr. Salud about Malabon’s dyeing art.
Only one family is engaged in the home-grown craft today. Mr. Salud noted that if would be a waste if this industry cannot be supported as even young designers can benefit from its revival.
For more information on Tintura De Malabon, contact PRC-Malabon City Chapter at 366-6470 or 0927-2503995.

Brazil coffee, corn may hit minimum prices after election

BRASILIA — Brazil’s coffee and corn prices could fall to the government’s guaranteed minimum prices if the weakening real currency reverses direction after October’s wide-open presidential election, an Agriculture Ministry official said on Friday.
That would trigger the government’s subsidy program that pays producers the difference between the market price and the guaranteed minimum, Savio Rafael Pereira, deputy secretary for agriculture policy, said in an interview.
“If the new president assumes office, and the dollar falls (versus the real), probably the price of coffee would fall quite a bit, and then it could start to hit the minimum price of coffee,” Pereira said.
“Two products run this risk — coffee and corn — if the dollar falls greatly.”
Pereira’s comments demonstrate the major economic risks presented by the October elections, the most wide open in decades. Market fears that Brazil will fail to elect a business-friendly candidate have weakened the real, which hit its lowest closing point on Thursday since its creation in 1994.
Farmers thus far have benefited by the strong dollar driving up the value of their products priced in reais.
The minimum price of coffee set by the government for a 60-kilogram bag of arabica type 6 is 341.21 reais ($81.47) in the 2018/19 season versus an average price of 424.06 reais in this month in Sao Paulo, according to government compiled data.
Minimum corn prices vary by state, with the floor for top producer Mato Grosso set at 16.71 reais per 60-kg sack. The average market price for corn in September in the city of Lucas do Rio Verde, Mato Grosso, was 26.00 reais.
Pereira said that the amount paid out in the subsidy program is usually very small and targeted, far from the level of farm subsidies seen in the United States.
“It’s not a profitable price for the producer,” he said. “You will not produce for a long time at this price, you’ll go out of business.”
The government spent about 800 million reais last year on corn subsidies after the commodity fell below minimum prices, he said. — Reuters

How PSEi member stocks performed — September 14, 2018

Here’s a quick glance at how PSEi stocks fared on Friday, September 14, 2018.

 
Philippine Stock Exchange’s most active stocks by value turnover — September 7-14, 2018

Approved foreign investment pledges (Q2 2018)

Approved foreign investment pledges (Q2 2018)

Exporters support clusters to raise manufacturing competitiveness

EXPORTERS have expressed their support for the clustering of shipping and manufacturing hubs to lower logistics costs and make exports more competitive.
“The Philippines should follow the success of other countries in developing strong export clusters centered near hub seaports in a bid to become a major exporting nation,” the Philippine Exporters Confederation, Inc. said in a statement over the weekend.
The group was citing one of the three policy briefs published by The Arangkada Philippines Project (TAPP) of the Joint Foreign Chamber of Commerce in the Philippines (JFC).
“A powerful way to drive productivity is for regional governments to work with their private sectors to promote cluster formation by strengthening and building upon existing or emerging clusters, where competitive advantage and product or service differentiation already exists,” according to the recommendation made by the JFC.
The policy brief described clusters as “geographic concentrations of interconnected companies and institutions in a particular field.”
“Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery, and services, and providers of specialized infrastructure,” it added.
The recommendation, drawn up in the policy brief on Philippine seaports and shipping, cited as an example of a potential cluster in the country the shipbuilding and ship repair industry based in Subic.
The paper noted that Clark-Subic-Tarlac-Pampanga-Zambales region has other potential clusters, such as mango production in Zambales, which could develop into a robust trading hub, bringing more frequent ship visits to the area.
Aside from the Clark-Tarlac-Subic Corridor, the paper cited other ports and airports where the country could build strategic regional clusters — Batangas for food processing and manufacturing hubs; Coron and Aklan for tourism aside from food and fisheries; Davao for banana and pineapple production among others.
It said the PHIVIDEC industrial estate in Cagayan de Oro can house food processing and cold storage facilities.
Leyte can serve a cluster for coconut farming.
Sarangani and General Santos, meanwhile, can serve as a fisheries cluster.
The report also noted that Cebu can serve as a cluster for the furniture industry with the potential for manufacturers to consolidate in a planned area near a modern port.
“Airport, port, and logistics infrastructure in various regional cluster areas should be developed to address the needs of each kind of good and trade traffic,” it said.
“The cluster by its nature must aim to scale up, to lower costs, produce larger volumes, attract larger ships, and lower costs to become competitive in global markets.”
The paper also stressed the need to offer incentives, including fiscal ones, which will attract domestic and foreign exporters to locate in the clusters.
It added that the country can look to Thailand which has established a successful model of industrial clustering.
“The quality of port infrastructure, port efficiency, and hub port connectivity to feeder ports need considerable improvement. The cost to export should be more competitive and excessive fees imposed by foreign shippers should be regulated,” it noted.
“Increasing global trade presents immense opportunity for Philippine ports to scale up to become more significant in intra-regional trade. Intra-Asia trade is growing strongly and becoming more important than TransPacific and Asia-Europe shipping,” it added. — Janina C. Lim

Poverty database bill hurdles House committees

A SUBSTITUTE bill establishing a data collection system for welfare beneficiaries, has been approved by two committees at the House of Representatives.
Seal of the Philippine House of Representatives
House Bill (HB) 8217, or the Consolidated Poverty Data Collection (CPDC) System Act will set up the data collection effort at local government unit (LGU) level. The bill said the database is an “economic and social tool towards the formulation and implementation of poverty alleviation and development programs.”
The bill names the Philippine Statistics Authority (PSA) as the lead implementing agency, in coordination with the Department of Information and Communications Technology and the Department of Interior and Local Government.
LGUs will serve as the primary data collectors, which will require the deployment of additional PSA statisticians at the provincial level.
Data collected by LGUs is to be transmitted to the PSA, which will compile them in a national CPDC System databank. LGUs may maintain their own CPDC database for planning and program implementation at the local level.
The bill has also provided measures to protect the privacy of participants and requires voluntary participation by individuals.
It provides for financial assistance to low-income LGUs.
“Fourth, fifth, and sixth class LGUs shall be given assistance in the first three years of implementation of the act,” according to the bill.
The bill consolidates HBs 4700 and 5588, and was reported out by the Committees on Poverty Alleviation and Appropriations to the Rules Committee. — Charmaine A. Tadalan

PCCI backs Davao City as gateway for Mindanao

TAGUM CITY, DAVAO DEL NORTE — The Philippine Chamber of Commerce and Industry, Inc. (PCCI) has endorsed Davao City as the main international gateway for Mindanao and called for the development of a bigger airport.
On the sidelines of the Mindanao Business Conference here last week, Samie C. Lim, PCCI vice president for retail and tourism, said it is important to have an identified hub for Mindanao to serve as an anchor in the promotion of tourism.
“What must be done is for Mindanao to have a single international gateway, not each city vying to have one because, if that is the case, the government budget will be split,” Mr. Lim said.
The Francisco Bangoy International Airport, also called Davao International Airport (DIA), has been lined up for development since the previous administration, but the planned auction for a public-private partnership project has been put on hold.
The Duterte administration previously announced that it is looking at funding the project through treasury funds.
With DIA having limited space for expansion, there have been discussions at the regional level for the development of a new airport. Among the sites floated were Samal Island and Tagum City.
Mr. Lim said with Davao City already established as Davao Region’s commercial center, both the business sector and the government should work together in identifying a property for a bigger airport facility.
He acknowledged that identifying the site and the planning would take a “very long process,” and said it should be started soon.
Mr. Lim added that it does not “have to be government (that finances it) as there are private companies willing to do it.”
“There are companies that cannot bag projects in Metro Manila and that these companies, which are awash with money, can be invited to invest here,” he said.
At the same time, the PCCI official said infrastructure for “seamless connectivity” between the city and other Mindanao destinations must be developed, along with other tourism facilities, attractions, activities such as festivals, and even medical services.
Mr. Lim said the PCCI is currently working on raising $20 million that will be invested particularly for tourism projects in 20 destinations around the country, including the cities of Tagum and Davao.
The business sector, through the Davao City Chamber of Commerce and Industry, Inc., has also been pushing for the development of a bigger airport as well as the creation of a management agency that will be independent from the Civil Aviation Authority of the Philippines. — Carmelito Q. Francisco

Bill filed to exempt OFW dependents from travel tax

A BILL exempting the dependents of Overseas Filipino Workers from paying travel tax has been filed at the House of Representatives.
House Bill 8196, introduced by Bulacan Rep. Jose Antonio R. Sy-Alvarado, will cover dependents of either married or solo parents working overseas.
Passengers leaving the country are charged P1,620 travel tax for economy and business class seats, regardless of the place where the air ticket was issued, as provided in Presidential Decree 1183. The rate increases to P2,700 for first class tickets.
At present, migrant workers are exempted from paying travel tax, documentary stamp tax and airport fees.
If enacted, the bill will change Section 35 of the Migrant Workers and Overseas Filipinos Act of 1995, as amended, by including in the exemption the dependents of OFWs.
Mr. Sy-Alvarado filed the measure in consideration of the economic contributions of OFWs.
“The total remittances of our beloved overseas workers amount to billions of dollars which in return contributes to a positive impact on the country’s earnings and foreign exchange rate,” he said in the explanatory note.
The bill intends to “alleviate their sacrifices to their respective families and recognize their valuable role,” he added.
The proposed bill is pending at the House Committee on Overseas Affairs with a related measure House Bill 6138, authored by Davao del Norte Rep. Pantaleon D. Alvarez and Ilocos Norte Rep. Rodolfo C. Fariñas. — Charmaine A. Tadalan

Government cash utilization improves to 86% in August

CASH utilization by government agencies improved to 86% in August from 78% in July, the Department of Budget and Management (DBM) said.
Cash use by national government agencies, local government units (LGUs), and state-owned corporations declined from 91% a year earlier.
Utilization is measured via the Notice of Cash Allocation, a disbursement authority issued by the DBM, allowing agencies to withdraw funds from the Bureau of the Treasury to pay for contracted projects.
The NCA balances are usable until the end of each quarter, when they lapse.
The government spent P1.81 trillion of the P2.12 trillion budget in the eight months to August, leaving a balance of P304.83 billion.
In August, about P217.71 billion was disbursed, in part tapping the previous month’s balances. Only P82.85 billion was released in July.
National government departments had an average NCA usage ratio of 84% in August.
Other executive offices such as the Anti-Money Laundering Council, Commission on Higher Education, and the Housing and Land Use Regulatory Board, among others, had the lowest utilization rates, averaging 43%.
This was followed by the National Economic and Development Agency and the Department of Energy with 54% and 69% NCA usage rates, respectively.
Budgetary support funds for Government Owned and Controlled Corporations had an 89% usage rate, while local government units used 91% of the NCA releases. — Elijah Joseph C. Tubayan

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