april lynn tan, cfa

COL MID-YEAR MARKET OUTLOOK 2021

April Lynn Tan, CFAChief Equity Strategist

COL MID-YEAR MARKET OUTLOOK 2021COL MID-YEAR MARKET OUTLOOK 2021

Investing in the Uneven Recovery

MID-YEAR MARKET OUTLOOK


IndexYTD Return

(as of 07/27)

Ho Chi Minh Stock Index (VN) 15.7%

Strait Times Index (SG) 10.4%

Stock Exchange of Thailand (TH) 6.1%

Jakarta Stock Exchange Composite

Index (ID)2.0%

Kulala Lumpur Composite Index (MA) -6.9%

PSEi Index (PH) -8.6%

PH worst performing market in ASEAN YTD

Source: Bloomberg

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Philippines Singapore Indonesia

Vietnam Thailand Malaysia


One of the worst hit by COVID-19 despite the strictest lockdown

Source: Worldometers (as of July 27,

2021)

1,192

7,764

10,925

11,713

14,097

31,823

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Vietnam

Thailand

Singapore

Indonesia

Philippines

Malaysia

Total Cases/1M of Pop


And slowest vaccinations

Source: Bloomberg (as of July 27, 2021)

5%

10%

17%

18%

37%

76%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Vietnam

Philippines

Indonesia

Thailand

Malaysia

Singapore

% Vaccinated (at least 1 dose)


Slowest economic recovery and highest inflation

Source: Bloomberg

2.5%

-0.1%

-4.2%

1.0%

-4.0%

9.6%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2019 2020 2021

Indonesia Malaysia Philippines

Singapore Thailand Vietnam

GDP 2021E vs 2019

Country Inflation Rate (21E)

Thailand 1.1

Singapore 1.4

Indonesia 2.2

Malaysia 2.3

Vietnam 3.3

Philippines 4.2


Potential new wave of

infections and lockdowns

Source: DoH, Rappler


Why we remain optimistic

Inflation has peaked

Efficient vaccination efforts

Corporate earnings recovering

Negatives priced in


Inflation has peaked

Source: PSA

-10.0

-5.0

-

5.0

10.0

15.0

20.0

01/0

1/1

9

02/0

1/1

9

03/0

1/1

9

04/0

1/1

9

05/0

1/1

9

06/0

1/1

9

07/0

1/1

9

08/0

1/1

9

09/0

1/1

9

10/0

1/1

9

11/0

1/1

9

12/0

1/1

9

01/0

1/2

0

02/0

1/2

0

03/0

1/2

0

04/0

1/2

0

05/0

1/2

0

06/0

1/2

0

07/0

1/2

0

08/0

1/2

0

09/0

1/2

0

10/0

1/2

0

11/0

1/2

0

12/0

1/2

0

01/0

1/2

1

02/0

1/2

1

03/0

1/2

1

04/0

1/2

1

05/0

1/2

1

06/0

1/2

1

Food and Nonalcoholic Beverages Transport

9.6

4.7


Filipinos over 50 account for 82% of all deaths

despite accounting for only 26% of all cases

Vaccinations: Focus on higher risk groups. . .

Source: DOH


NCR Plus Population % of Total Cases % of Total

NCR 13,966,223 12.7% 533,350 37.2%

Bulacan 3,708,784 3.4% 51,031 3.6%

Pampanga 2,943,337 2.7% 25,070 1.7%

Batangas 3,107,925 2.8% 38,485 2.7%

Cavite 4,305,597 3.9% 74,698 5.2%

Laguna 3,397,582 3.1% 61,194 4.3%

Rizal 3,266,021 3.0% 56,688 4.0%

Metro Cebu 978,031 0.9% 26,890 1.9%

Metro Davao 1,870,385 1.7% 27,067 1.9%

Total 37,543,885 34.1% 894,473 62.4%

70% of population 26,280,720

. . . And NCR plus. . .

Source: PSA, DOH


(as of July 5, 2021)

First dose

administered

% of

Population

Second dose

administered

% of

Population

Share of

GDP

NCR (Metro Manila) 3,682,323 26.4% 1,214,855 8.7% 32.3%

Calabarzon or Region 4A

(Batangas, Cavite, Laguna, Rizal)1,085,694 6.6% 326,738 2.0% 14.3%

Central Luzon or Region 3

(Bulacan, Pampanga)828,349 6.6% 223,129 1.8% 10.4%

Central Visayas or Region 7 (Cebu) 450,071 5.6% 141,257 1.8% 6.5%

Davao Region or Region 11

(Davao)391,333 7.3% 89,126 1.7% 5.0%

Total 6,437,770 11.4% 1,995,105 3.5% 68.5%

Rest of Philippines 2,609,587 4.8% 925,343 1.7% 31.5%

. . .More efficient in reducing deaths and boosting economic growth. . .

Source: DOH, PSA, ABS-CBN


Enough vaccines procured for 71% of population

Brand/Source Quantity (Mil)

COVAX 44

Pfizer 40

Sinovac 26

Moderna 20

AstraZeneca 17

Sputnik V 10

Total 157

Source: News reports


NCR can “reopen”

faster than the rest

of the country. . .


. . .Even with the delta variant

Source: Bloomberg

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1/1/21 2/1/21 3/1/21 4/1/21 5/1/21 6/1/21 7/1/21

UK - Cases

0

500

1,000

1,500

2,000

1/1/21 2/1/21 3/1/21 4/1/21 5/1/21 6/1/21 7/1/21

UK - Deaths

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1/1/21 2/1/21 3/1/21 4/1/21 5/1/21 6/1/21 7/1/21

USA - Cases

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

1/1/21 2/1/21 3/1/21 4/1/21 5/1/21 6/1/21 7/1/21

USA - Deaths


Faster economic recovery to also address

credit ratings downgrade risk

Source: Bloomberg

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

09/0

1/2

011

04/0

1/2

012

11/0

1/2

012

06/0

1/2

013

01/0

1/2

014

08/0

1/2

014

03/0

1/2

015

10/0

1/2

015

05/0

1/2

016

12/0

1/2

016

07/0

1/2

017

02/0

1/2

018

09/0

1/2

018

04/0

1/2

019

11/0

1/2

019

06/0

1/2

020

01/0

1/2

021

Budget Balance (%GDP)

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Debt to GDP (%)

-9.01

54.5%


Corporate earnings recovering

1Q21 Median Earnings Growth (% Y/Y)

Source: COL estimates

• Cost cutting measures

• Lower taxes (CREATE)

• Lower provisions (banks)

Sector Median Growth (%)

Cement 81.4%

Power 65.5%

Banks 18.5%

Telcos 13.4%

Consumers 8.5%

Conglomerates 5.6%

Properties -27.4%

Total 6.3%


Source: Bloomberg

Negatives priced in

5.00

10.00

15.00

20.00

25.00

30.00

07/08/2011 07/08/2013 07/08/2015 07/08/2017 07/08/2019 07/08/2021

PSEi P/E Band

18.68


Source: Bloomberg

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

SM

EM

P

JGS

SM

PH

JFC

BLO

OM

UR

C

ICT

ALI

SC

C

AEV

AC

AG

I

BP

I

AP

RR

HI

SEC

B

FG

EN

DM

C

MP

I

MEG

GLO RLC

GTC

AP

TEL

BD

O

LTG

PG

OLD

MB

T

MER

Index Stocks: Standard Deviation fr 10-Yr Ave P/E

Negatives priced in


Source: Bloomberg, COL estimates

Cumulative Net Foreign Buying (Since 04/99, in PhpMil)

Foreign investors heavily underinvested in PH

-50

0

50

100

150

200

250

300

350

400

450

500


There is hope,

even with the

delta variant

Source: Bloomberg

44,000.00

45,000.00

46,000.00

47,000.00

48,000.00

49,000.00

50,000.00

51,000.00

52,000.00

53,000.00

54,000.00

12/9/20 1/9/21 2/9/21 3/9/21 4/9/21 5/9/21 6/9/21 7/9/21

SENSEX (India)

-8.5%

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

12/9/20 1/9/21 2/9/21 3/9/21 4/9/21 5/9/21 6/9/21 7/9/21

Daily new cases


2H21 Stock Picks

Themes Sector Stock

Price

(Php)

FV

(Php)

21E P/E

(X)

21E P/BV

(X)

21E Div

Yield (%)

Defensive Companies/

Search for Yields

TelcosTEL 1,242.00 1,820.00 10.4 2.2 6.5

GLO 1,907.00 2,480.00 10.7 2.8 5.5

Consumer staple PGOLD 40.20 57.00 15.7 1.6 1.2

REIT FILRT 7.00 -- 18.2*** -- 6.6***

Cyclical Companies

BanksBDO 106.2 158.00 11.7 1.1 1.1%

MBT 44.55 91.20 8.7 0.7 9.0%

Consumer

discretionary

GTCAP 563 1,020.00 10.0 0.6 0.6%

DNL 8.01 9.60 21.5 3.0 2.0%

Property MEG 2.87 4.00 9.2 0.5 2.4%

Infrastructure MPI 3.6 8.30 8.5 0.5 3.1%

Growing Demand for Meat

AlternativesConsumer MONDE* 15.26 -- 31.1 3.9 1.8%**

Tight Power Supply

SituationPower AP 24 42.66 11.9 1.2 3.5%

*Based on Bloomberg consensus forecast

**Based on 2022E estimates

***From REIT plan, 2022E estimates


Risks:

• New wave of infections

• Delays in vaccine procurement

• Fed rate hikes

• Ratings downgrade


Summary

• The Philippine market has underperformed most of Asia due to the country’s poor

management of the COVID-19 crisis, rising inflation and slower economic

recovery.

• However, we remain optimistic as inflation has peaked, while the ramping up of

vaccinations focused on vulnerable groups and NCR plus should reduce deaths

and help the economy recover faster, allowing the country to avoid a ratings

downgrade.

• Corporate earnings are also recovering despite the ongoing crisis, while

valuations of stocks are still cheap, with most trading significantly below their 10-

year historical average P/Es.


The stock market is a device to transfer money from the ‘impatient’ to the ‘patient’.

- Warren BuffettChairman, Berkshire Hathaway

“


In the short run, the market is a voting machine but in the long run, it is a weighing machine.

- Benjamin GrahamFather of Value Investing

“

april lynn tan, cfa

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