Duterte tax re­form spells stim­u­lus for re­tail­ers

Business World - - FRONT PAGE -

MAU Di­zon, a mar­ket­ing of­fi­cer in one of the largest Philip­pine banks, is among mil­lions of Filipino tax­pay­ers who stand to ben­e­fit from Pres­i­dent Ro­drigo R. Duterte’s tax re­form plan that aims to re­turn to con­sumers P860 bil­lion ($17 bil­lion) over five years.

Ms. Di­zon will pay lower taxes un­der the pro­posed re­form and is likely to spend most of the sav­ings on sta­ples, which ac­count for about a third of her fam­ily’s monthly bud­get.

“The ad­di­tional in­come will mat­ter since we have one of the high­est taxes and prices are ris­ing,” she said.

STORY ‘FAR FROM OVER’

Not sur­pris­ingly, Philip­pine re­tail­ers have beaten the 23% ad­vance in the bench­mark stock in­dex, South­east Asia’s best per­former this year.

Met­ro­pol­i­tan Bank & Trust Co. (Metrobank), the na­tion’s third­largest money man­ager, says the rally still has steam be­cause the fa­vor­able im­pact of the tax cuts on dis­pos­able in­comes won’t be short-lived.

“The story for re­tail­ers is far from over as the tax cuts will have a multi-year in­come ef­fect,” said John L. Padilla, head of eq­ui­ties in­vest­ment at Metrobank, which man­ages P440 bil­lion in as­sets.

“Con­sumer com­pa­nies will gain, par­tic­u­larly those that pro­vide the ba­sics, but re­tail­ers are the clear win­ners from the tax plan.”

Pure­gold Price Club, Inc., a gro­cery op­er­a­tor, and Robin­sons

Re­tail Hold­ings, Inc., which runs su­per­mar­kets and drug­stores, have risen 39% each this year, while Philip­pine Seven Corp., the largest con­ve­nience store op­er­a­tor, is up 24%. SSI Group Inc., a re­tailer of high-end brands such as Prada and Gucci, has surged 62%.

De­pend­ing on what law­mak­ers ap­prove, tax­pay­ers may get be­tween P860 bil­lion and P945 bil­lion from 2018 through 2022, ac­cord­ing to Fi­nance depart­ment es­ti­mates in Au­gust.

Not all con­sumer stocks will gain from the plan, the first of up to five pack­ages of which is ex­pected to be en­acted by yearend in time for im­ple­men­ta­tion start­ing Jan­uary.

NO FIZZ

Food and bev­er­age mak­ers are less ap­peal­ing than pure re­tail­ers to in­vestors in­clud­ing ATR As­set Man­age­ment.

The rea­son: their mar­gins are un­der threat from a weak peso and ris­ing oil prices. Pepsi-Cola Prod­ucts Philip­pines, Inc. and Uni­ver­sal Robina Corp., a bot­tler of iced tea and snacks-food man­u­fac­turer, have seen shares drop more than seven per­cent this year amid a plan to tax sug­ar­sweet­ened drinks.

“The pre­ferred play is more re­tail than con­sumer man­u­fac­tur­ing com­pa­nies, which po­ten­tially face higher in­put costs and a very com­pet­i­tive land­scape,” said Ju­lian Tar­robago, head of eq­ui­ties at ATR As­set, which man­ages P104 bil­lion of as­sets.

Restau­rant op­er­a­tors such as Jol­libee Foods Corp., Max’s Group, Inc. and Shakey’s Pizza Asia Ven­tures, Inc. are bet­ter bets than food and drinks com­pa­nies, ac­cord­ing to April Lynn L. Tan, head of re­search at COL Fi­nan­cial Group, Inc.

Af­ter all, eat­ing- out was the third-largest ex­pense for the av­er­age Philip­pine fam­ily in 2015, while food, cloth­ing, medicine and spend­ing on con­sumer durables cor­nered 40% of the bud­get, govern­ment data show.

Still, not all in­vestors are bet­ting on one-way gain in re­tail­ers’ shares, given their el­e­vated val­u­a­tions. Pure­gold, Robin­sons and SSI trade at 22 times to 25 times 12- month for­ward es­ti­mated earn­ings, ver­sus a mul­ti­ple of 19 for the bench­mark in­dex.

“In­vestors who don’t have a po­si­tion might want to wait for a cor­rec­tion as val­u­a­tions of th­ese stocks aren’t cheap,” said Jonathan Rave­las, chief mar­ket strate­gist at BDO Uni­bank Inc.

The mar­ket has “al­ready tucked in the po­ten­tial ben­e­fit of the tax cuts.”

Metrobank’s Mr. Padilla is happy hold­ing on to shares of Pure­gold and Robin­sons he’s been buy­ing over the past year.

“We haven’t seen the last of the rally,” he said.

“We want to en­joy the ride.” — Bloomberg

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