By Adam J. Ang

The benchmark Philippine Stock Exchange index (PSEi) is not expected to retest previous lows given the “better” financial conditions under an ongoing health crisis over past events, according to COL Financial Group, Inc.

The local brokerage sets its target for the market index at 7,000, which is 15% higher compared with present levels, with an implied price-earnings (P/E) ratio of 15.3x.

“We’re not expecting a retest of the previous lows,” COL Financial Chief Equity Strategist April Lynn C. Lee-Tan said in the company’s virtual midyear market outlook briefing, Friday.

The market may not revert to levels previously recorded during times of crisis, the official said.

“In past crises, we’ve seen the market going down to 8x P/E. But this time around, there’s a possibility that we may not return to the 4,600 level where the 8x P/E is,” she claimed.

This is because financial conditions now are “better” with stocks becoming “more attractive” given the low interest rates and strong Philippine peso.

Such a condition implies a reduced insolvency risk and stock valuations becoming enticing over bonds, she noted.

For instance, companies now are raising funds as they are taking advantage of the cheap rates. “In past crises, this never happened. If you wanted to borrow money during crisis, it is always so much more expensive,” Ms. Tan claimed.

The trend of corporate bonds sale followed in part by the Bangko Sentral ng Pilipinas’ “aggressive” rate cuts.
However, Ms. Tan stressed that the stock market’s momentary strength is unsustainable as the country’s economic recovery is also expected to be slow.

In April and May, the local market rallied by 32.7% from a low level of 4,600 with a slight fall in the number of coronavirus disease infections globally and the observed optimism from the advances in treatment and vaccine discovery.

Aside from the perceived slow recovery, the local market will not maintain its present strength as it is heavily weighted towards traditional businesses, like financials and real estate, which are “sensitive” to the pandemic’s impact. “Because of that, our weak performance is not surprising,” Ms. Tan said.

Moreover, foreign investors, whose contributions to the market are crucial, are not buying into Philippine stocks due to government regulatory issues, such as the potential tax imposition on “junk” foods, the possible heavy regulations to issuing water contracts, and the denial of Lopez-led ABS-CBN Corp.’s franchise renewal by the Congress, among others.

“It doesn’t help that there are regulatory issues right now,” the official said.

Though next year’s earnings are subject to downside risks, COL Financial said: “there are opportunities to buy cheap stocks, and those are (from) companies (in) the vulnerable sectors.”

Among the company’s top stock picks are Puregold Price Club, Inc. Century Pacific Food, Inc., PLDT Inc., Aboitiz Power Corp., Ayala Land, Inc., Megaworld Corp., BDO Unibank, Inc., Metropolitan Bank & Trust Co., and D&L Industries, Inc.

Del Monte Pacific Ltd. (DMPL) shed $81.4 million in its fiscal year 2020 due to the closures and sale of its production plants in the United States.

In a regulatory filing on Friday, the listed canned food manufacturer noted that one-off expenses worth $113.6 million dragged its earnings down to a loss. These include a $59.9-million expenses from the closures and sale of its US facilities and a $47.1-million tax incurred from issuing dividends.

The loss came despite a 9% increase in sales to $2.1 billion in the year ending April.

Its US subsidiary Del Monte Fruits, Inc. (DMFI) posted an 8% growth in sales to $1.5 billion, making up 72% of its parent’s sales, driven by high demand for all its products. New products launched in the year also added to this growth, forming 5.1% of its retail and foodservice sales.

Del Monte Philippines, Inc. (DMPI) saw a sales uptick by 6.6% and 10.1% in peso and US dollar terms, respectively, due to a series of price increases and lower trade promotion spend. Its general trade segment, which forms half of the sales, expanded by 9%.

The unit’s S&W brand booked a 9% sales growth resulting from higher sales of packaged and mixed fruits in Asia, the Middle East, and America, as well as fresh pineapples in North Asia.

Meanwhile, in its fourth-quarter profit report, DMPL, which is listed in Singapore and the Philippines, posted a net loss of $12.4 million due to a $17.2-million expense relating to its US’s unit loan retirement and plant closures. Sans the one-off expenses, it could have earned $4.8 million.

The company, however, saw its sales grow by almost a half to $638.4 million in the February-April period.
DMFI posted a 65% jump in sales to $500.4 million, as customers shopped for more grocery items while staying at home amid an ongoing coronavirus pandemic.

Its Philippine subsidiary saw sales rise by 15% and 18% in peso and US dollar terms, respectively, resulting from its expanded retail channels as it gained market share across all product categories in April over the same month a year ago.

Its foodservice business shifted to e-commerce and community delivery services as it tries to recoup from sales declines caused by store closures during the lockdown months.

“This new focus will create the foundation for a future increasingly reliant on e-commerce,” the company claimed.
Demand surged for its flagship brands: 100% pineapple Juice, spaghetti sauce, and tomato sauce, as consumers became more concerned about their health and shifted to home cooking amid the pandemic, it noted.

Further, its S&W brand posted a slump in fourth-quarter sales as demand for its fresh pineapples in China did not offset the higher sales of its shelf-stable packaged products, like pineapples, beans, corn, and juices sold around Asia and the Middle East.

Del Monte is expecting a return to profitability in its next fiscal year. Presently, it intends to sustain product demand by optimizing its production facilities while enforcing strict safety protocols as it operates amid a health crisis.

Shares in Del Monte soared 27.5% to close at P5.10 each on Friday. — Adam J. Ang

Suntrust Home Developers, Inc. will be injecting $82 million more for its hotel and casino project, while it entered into a separate deal to borrow P7.3 billion for the same project.

The company told the stock exchange, Friday, that it entered into a fifth supplemental agreement with Westside City Resorts World, Inc. to pay the additional fund, on top of the initial deposits of $20 million and $46 million, on or before July 31. The amount forms part of its payment for its five-star hotel and casino project in Parañaque.

Suntrust expects to have until Dec. 31 to raise at least $300 million for the construction and development of the said project.

Westside would have to pay back the deposits if the terms of their co-development deal would not be met by end-December. If it fails to do so, these will incur a 6% per annum rate interest.

In a separate disclosure, Suntrust said it is borrowing P7.3 billion with a 5.25% annual rate from Fortune Noble Ltd. which will be used to finance its project.

To recall, the company entered into a deal with the Hong Kong-based firm, which will subscribe to the former’s P7.3-billion convertible bonds that can either be turned into 6.64 billion common shares, representing about 47.79% of Suntrust’s enlarged issued share capital, or debts.

Meanwhile, Suntrust also finalized a deal extending to Dec. 31 the completion of Fortune Noble’s subscription to the company’s 2.55 billion shares. In October last year, the Suncity Group Holdings, Ltd.’s wholly owned subsidiary bought 51% of the latter’s stake.

Shares in Suntrust grew 2.54% to close at P1.21 each on Friday. — Adam J. Ang