April 19, 2016 – Have We Finally Topped Out?

A few market observations to note:

nothing good.png

Since March 21, 2016 – we haven’t had a really strong direction except a consolidation.  After hitting 7412, we drifted sideways.  While there was a move towards another peak on April 14, 2016 – it failed and we fell 200 points since then.

 

Meanwhile since March 21, 2016 – April 19, 2016

We evaluate price performance of PSEI stocks since then:

In this “month-sary” we can see where the best price action came from:

$CA, $NOW,$IMP – more than 100% gains in a month

$BRN,$VITA,$CPM,$PF,$ISM,$ALCO,$FNI all above 30% gains versus the highs made when index hit 7400

Collectively, the only positive movement defying the index sideways action were third liners.  Save for a few second liners such as $X,$COSCO,$LPZ,$RRHI – most issues never went above 10% this entire month.

Also, the most sold down in the market have been gaming with $BLOOM and $MCP dropping 20% so far, not far from this list is $PLC which has a 9% drop.  We notice that amongst index names, $DMC is the worst dropping 9%.  $ION which has lost its love also down 13% since the last month.  Gold stocks oversold with $LCB,$LC, dropping 15% and $PX also down 10%.  $AT also down 8%.  We also note that $PXP fell 17% in this time span.

So in one snapshot, we can easily see the market was dominated by a few third liners and went selling spree on gaming, mining and previous love affair $ION.

$CAL,$ARA – are a few of the third liners that have not joined the highfliers in its third liner space.

april monthsary

*****

How do we spell this phenomenon?  With S&P 500 going higher and now printing 2100, the Philippines has not followed the new highs being printed in S&P500 suggesting it’s weaker than the US markets.  In the $USDPHP chart as well, we note that the dollar has been strengthening with a rising RSI (10 day) despite the sideways movement of the USDPHP.  Even if we simply make a support resistance line, we can see that there are limited gains for the Philippine peso given the strong appreciation at the 45.85 level (a technical target from it’s previous 47.85 vulnerable level when panic first started)

Assuming mean reversion, we then have to assume USDPHP will move back near its possible 46.85 median in the next 4 months suggesting a higher risk for equities to fall with low participation in index issues on any advance.

spx what

incoming

Perhaps what would concern most investors is that foreign flows have started selling.

The advance decline shows us a picture where there are more decliners amongst issues and only a FEW handful of issues going up.  As the market condenses into just a few issues going up, we can then observe that we have a thinning market and are ripe for correction.

advance decline

Compare the number of decliners in each day – it is rising.  The one thing to note is that we don’t have foreign buying.  In fact, as of April 19 2016 – we have a net foreign selling of Php 706,752,162.

******

What’s more concerning? 2015 Annual Reports have shown unexciting earnings reports.

Here’s how headline news for most earnings look like:

1.) Gaming Sector – Billions of Pesos of Losses

(It’s no wonder they’re not being picked up by the market, as they have failed to show anything but losses.)

a.) Melco Crown Philippines (MCP), the local unit of Macau-based Melco Crown Entertainment Ltd., widened its net loss from P6.3 billion in 2014 to P9.1 billion last year, dragged by a net loss of P3.1 billion in the fourth quarter.

http://www.philstar.com:8080/business/2016/04/18/1573910/melco-widens-net-loss-p9.1b-2015

b.)  Bloomberry -P3.38B Loss in 2015

Bloomberry Resorts Corporation, owner and operator of the Solaire Resort & Casino and Jeju Sun Hotel & Casino, reported an audited consolidated net loss of P3.38 billion in 2015 from a net profit of P4.07 billion in 2014.

In a disclosure to the Philippine Stock Exchange (PSE), Bloomberry said this is inclusive of the P998 million loss from its Korean operations.

The main drivers of last year’s loss were the large increases in depreciation and amortization from Sky Tower as well as higher interest expenses from additional loan drawdowns made during the year.
Read more at http://www.mb.com.ph/bloomberry-reports-p3-38b-loss-in-2015/#uAI3qrBMr5gX4jrC.99

c.)  Resorts World  (profitable but down 26% yoy )

LISTED Travellers International Hotel Group Inc., the operator of Resorts World Manila (RWM), said its net income dropped last year due to foreign exchange losses incurred during the period.

In a disclosure to the Philippine Stock Exchange (PSE) on Thursday, the partly Andrew Tan-owned hotel and gambling unit said net profit declined by 26 percent last year to P4.01 billion from the P5.44 billion realized in 2014.

“The company focused on building a base in 2015, particularly in the mass and premium mass segments. Operating costs were controlled as the company remained profitable even as revenues declined,” Travellers said in its statement.

Resorts World 2015 profit down 26% on forex losses

2.) Telco Sector  – A tale of two different companies 

$TEL slides the most in its past 17 year history after showing a very bleak outlook for its next 3 years as it tries to shift and transform in the digital age.

http://business.inquirer.net/207778/psei-slides-on-gloomy-pldt-outlook

http://business.inquirer.net/207901/biz-buzz-the-cost-of-candor-p102b

$GLO meanwhile has stepped up all its efforts in ever expanding their capacity networks and is seen to hold more market share growth as years pass by.  No wonder it has been able to sustain its 34% runup from its lows (1600-2150).  It was a matter of faster data needs and Globe at least has delivered on this front.

http://thestandard.com.ph/business/202522/globe-investing-at-least-750m.html

http://thestandard.com.ph/business/198729/globe-s-profit-jumps-to-p16-5b.html

Excluding Bayan’s results, Globe’s net income and core net income jumped 22 percent and 5 percent, respectively from 2014, the company said.

Globe said it recorded consolidated service revenues of P113.7 billion last year, or 15 percent higher than the previous record of P99 billion in 2014.

“We made history again in 2015 as Globe delivered a banner year, closing 2015 with record revenues, Ebitda [earnings before income, tax, depreciation and amortization] and net income. We have proven year after year our strong commitment to create and deliver value for our customers and shareholders. Our latest achievements continue to motivate us to be more efficient, focused and ready to take on new challenges in the years ahead,” said Globe president and chief executive Ernest Cu.

“As we foresee an increasingly challenging competitive landscape moving forward, we will continue to strengthen our leadership in the digital space, gearing all our efforts toward uplifting the state of Internet services in the country and fortifying the Globe brand as a whole to be the customer’s first choice for all their data needs,” Cu said

3.) Consumer Sector?

a.) $URC – strong

EARNINGS of Universal Robina Corp. (URC) increased by nearly half in the first quarter of its 2016 fiscal year, on the strength of its branded foods segment and foreign exchange gains.

http://www.bworldonline.com/content.php?section=Corporate&title=urc-earnings-grow-47%-to-p4.79-billion&id=122987

b.) $JFC – in line

Jollibee 2015 earnings dip 10% on store openings, higher costs

The homegrown fast-food giant pocketed P4.81 billion last year, down by a tenth from P5.36 billion in 2014, JFC said in a disclosure to the stock exchange yesterday. In the fourth quarter alone, earnings were halved to P948 million from P1.72 billion.

Weighing on bottomline was P1 billion in short-term costs associated with information technology upgrade, increase in network development organization, the acquisition of American burger chain Smashburger and added supply chain and logistics costs — necessary investments to boost the company’s growth, JFC Chief Financial Officer (CFO) Ysmael V. Baysa said.

Without these extraordinary costs, operating income would have grown by 20.9% in the fourth quarter and 4.8% for the full year, while net income attributable to equity holders of the parent company would have increased by 8.2% in the October to December period and 7.8% for the entire 2015.

http://www.bworldonline.com/content.php?section=Corporate&title=jollibee-2015-earnings-dip-10%on-store-openings-higher-costs&id=122830

c.) $MAXS – Back in the Black

“The results validate a complete turnaround of our business. From a transformative period in 2014, we have successfully transitioned to the growth phase. We are confident with our strategies to sustain this trajectory in the coming years,” MGI President and CEO Robert F. Trota was quoted in the statement as saying.

MGI said restaurant sales climbed 6% to P8.59 billion in 2015, driven by the opening of 85 company-owned and franchised outlets across its brands, Max’s Restaurant, Pancake House, Yellow Cab Pizza and Krispy Kreme. MGI had a network of 588 stores, including 35 overseas, as of end-2015.

http://www.bworldonline.com/content.php?section=Corporate&title=maxs-group-back-in-the-black-in-2015&id=124580

d.) $DNL – in line –

D&L Industries’ recurring net income reached P2.29 billion, or earnings per share of P0.32, in the full year 2015. This is 12% higher than the same period last year. Earnings before interest and taxes were higher by 13% year-on- year at P2.90 billion. Revenues were down 5% from last year.

http://www.dnl.com.ph/index.php/news-events/102-d-l-industries-announces-proforma-full-year-2015-results

e.) $PF – San Miguel Pure Foods Co. Inc. (PF.PH) saw net profit jump 24% on year to 4.8 billion pesos, even as its revenue rose only 4% on year to 107 billion pesos.

Brightest spot in this arena comes largely from the branded value added group which caters to most fastfood chains such as KFC,JFC,Wendy’s and convenience stores such as Family Mart, 7-11 and Lawson amongst others

https://www.morningstar.com/news/dow-jones/staples/TDJNDN_201603172981/san-miguel-2015-net-profit-at-php382-billion-up-26-on-year.html

branded.png

great

Retail Sector – Shining Brightly for the Consumer Staples 

a.) $PGOLD,$COSCO – 10% ,12% growth respectively –  P5B and P4.5B in profits.

298 store

EARNINGS of billionaire Lucio L. Co-led Puregold Price Club, Inc. climbed by a tenth on robust consumer spending, as same-store sales growth accelerated to its fastest pace in four years.

At end-2015, Puregold was operating 298 stores nationwide comprising of 255 Puregold stores, 10 S&R Membership Shopping stores, 16 S&R New York Style Pizza stores and 17 stores of NE Bodega and Budgetlane Supermarket that were acquired during the year.

This year, Puregold is eyeing to increase net sales by 12%-15%, driven by the 3% and 4%-5% growth in same-store sales of Puregold and S&R outlets, respectively. This will also be boosted by the opening of 25 new Puregold and two S&R stores as well as the full-year contribution of NE Bodega and Budgetlane Supermarket.

 

http://www.bworldonline.com/content.php?section=Corporate&title=higher-same-store-sales-consumer-spending-lift-puregold-profit-to-p5b&id=126028

http://www.mb.com.ph/cosco-posts-record-r4-5-b-profit-in-2015/

b.) $MRSGI -20% growth

NEWLY listed Metro Retail Stores Group Inc. (MRSGI), the largest retailer in the Visayas region, said its net income in 2015 rose 20 percent from a year earlier to P758.6 million, boosted by its expansion efforts starting last year

Metro Retail 2015 income up 20%

c.) $RRHI – 22% growth – P 4 Bil income

Robinsons Retail Holdings Inc. said Tuesday net income jumped 21.9 percent in 2015 to P4.34 billion from P3.56 billion in 2014, on positive same-store sales growth and contribution from newly opened stores.

Robinsons Retail said in a disclosure to the stock exchange consolidated net sales hit P90.88 billion last year, up 13 percent from P80.40 billion in 2014.

The retail holding firm of the Gokongwei group said it opened 179 new stores in 2015 to end the year with a total of 1,506 stores. The opening of new stores expanded the company’s gross floor area by 9.7 percent year-on-year, it said.

The company said it registered same-store sales growth of 4.1 percent in 2015, higher than the 3-percent consolidated same-store sales growth target for the year.

Robinsons Retail said in the fourth quarter, consolidated net income attributable to equity holders of the parent company grew 12.7 percent to P1.37 billion from P1.22 billion last year.

http://thestandard.com.ph/business/202524/robinsons-profit-jumps-22-.html

d.) $SSI – The lone loser in the group –  strong competition from H&M & Uniqlo hurting them and tighter gross margins ahead

SSI saw its first profit decline in five years in 2015 amid rising competition and the need to match price discounts of rival brands like Hennes & Mauritz AB’s H&M and Fast Retailing Co.’s Uniqlo clothing chain. Net income fell nearly a fifth even as sales hit a record. Last year’s profit margin shrank to 53.5% from 56.1% the previous year, Mr. Huang said.

http://www.bworldonline.com/content.php?section=TopStory&title=luxury-brand-seller-braced-for-rising-competition&id=126165

*****

4.) Transportation Sector: – Glowing Earnings – due largely to low oil prices

a.) $CEB – http://www.mb.com.ph/cebu-pacific-quadruples-net-income-to-p4-4-billion-in-2015/

Robust passenger and cargo revenues coupled with lower operating expenses boosted Cebu Pacific (CEB)’s net earnings by 414 percent to P4.4 billion last year.

The airline’s passengers now number over 125 million since its inception – “a testament to our commitment in enabling everyone to fly, through our extensive and most affordable flight network.”

In 2015, CEB flew a total of 18.4 million passengers, up 8.9% from the 16.9 million passengers flown in 2014. The record numbers boosted passenger revenues to P42.7 billion, an increase of 6.2% year-on-year.
Read more at http://www.mb.com.ph/cebu-pacific-quadruples-net-income-to-p4-4-billion-in-2015/#uu7gLHLSGQoPSP7h.99
*****

Notable Small Cap Stocks

1.) $CROWN – crown up

2.) $VITA – profitable again

“The company has significantly increased 2015 sales to P3.445 billion from P2.366 billion in 2014 by intensive marketing, introduction of more food products, improved formulation technology for its feeds products and tolling operational partnerships,” Vitarich said.

The food segment, which involves production and distribution of chicken broilers, saw a 54% increase in sales to P1.22 billion due to increased turnover of poultry volume.

The feeds segment, which involves manufacturing and distribution of animal and aqua feeds and other products, reported a 30% jump in sales to P2.05 billion. Sales from the farm segment rose 23% to P164 million, driven by better supply of day old chick volume.

http://www.bworldonline.com/content.php?section=Corporate&title=vitarich-swings-backto-profit-in-2015&id=125232

*****

Conglomerates, Properties, Banks, Power, Oil and Mining – not included in this report – there were a handful of strong earnings from some of them, with some showing good earnings outlook for the 2017.  – next post for a summary –

*****

I guess  just simply reading headlines would tell you that not all stocks that have risen can sustain their run-up.  If their earnings cannot match their rallies, they’re likely just going to retest their recent lows of January 2016.

Nevertheless, some stocks despite negative earnings in 2015 could have seen their lows as prevailing prices for some commodities as well as oil have been increasing.

Nickel prices have started to stay above $4/lb

Oil prices as we have been watching – are trading between 36-42 this past month.

nickel up.png

Nickel prices worldwide seemed to have bottomed out judging from this chart.  While it can stay sideways for still a long time , at least we see higher lows forming for the commodity.

nickel lakas.pnggold bias.pngGold may be trading sideways but still above all the moving averages and between 1220-1260 in the past month.  Negative yield rates continue to benefit the said precious metal.

Pierre Lassonde writes more about this. http://www.valuewalk.com/2016/04/gold-the-investment-you-never-knew-pierre-lassonde-slides/

*****- Short note – with the recent drop of $LC at 23 cents, it would be useful to note that 20 cents held as a company’s support during a stock rights offering last 2014 and with a pending 19.8 Mil ounces of gold under Far Southeast – best to be seeing the company more as a bet on the FTAA license.  If you’re stuck with it, you’re better off just holding on to it with most alternatives in this market – unappetizing –

Recall the following:

“Gold Fields recognizes the positive results of the ongoing due diligence studies in the Far Southeast project. Our acquisition of the 40-percent stake, pursuant to the terms of the agreement, reflects our commitment to the project, the Philippines and the host community. Gold Fields looks forward to the acquisition of the remaining 20-percent stake upon the issuance of the FTAA,”

Also this one – on why sometimes it makes sense to buy an uneconomic gold company –

https://www.kitco.com/commentaries/2016-01-28/It-s-Time-To-Buy-Uneconomic-Gold-Companies.html

the wrath

Despite the failed Doha talks, Oil has traded in a sideways fashion although below 42.

oil sidewa.png

 

 

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