PSEi expected to reach 8,300 level by end-2019

BPI Securities Corp. projects the local bourse to reach the 8,300 level by the end of 2019, driven by a rebound from the consumer sector on expectations of slower inflation next year.

BPI Securities President and Chief Executive Officer Hermenegildo Z. Narvaez said the forecast is based on individual outlooks for the different stocks forming the Philippine Stock Exchange index (PSEi).

“Our expectation is the market will probably grow in line with earnings growth, so this will suggest that we’re looking at a 9-10% growth over the next year,” Mr. Narvaez said during a yearend market outlook briefing in Makati City on Wednesday.

BPI Securities predicts the PSEi will end the year at the 7,650 level.

The local brokerage is particularly upbeat on the consumer sector, which could benefit from higher margins once inflation slows down next year. BPI Lead Economist Emilio S. Neri, Jr. said during the same briefing that he expects inflation to fall below 4% by the middle of 2019, predicting full-year inflation to settle at 3.6%.

Slower inflation will address the key concern of higher input costs that consumer companies have been experiencing this year.

“The underlying numbers for the consumer sector is quite strong. If you look at the revenue growth of the likes of CNPF and DNL, you’re actually able to see a double-digit growth,” Mr. Narvaez said, referring to Century Pacific Food, Inc. and D&L Industries, Inc.

“It’s important to note that given that we’re expecting inflation to slow down, companies probably should be benefiting from some margin expansion in 2019,” he added.

Mr. Narvaez also noted the upcoming midterm elections will support spending in 2019, further helping boost consumer stocks.

BPI Securities’ stock pick for the consumer sector is CNPF, expecting an upside of 12.3% to P17.50 from its price of P15.58 on Tuesday.

Slower inflation is also seen to benefit retailers’ gross margins next year. Mr. Narvaez noted the business model of retailers already allow them to pass on higher input costs to end-consumers.

“Moving forward, they’re going to be able to continue to raise prices. They’ve been able to absorb the increase in input costs, and the growth of these input costs will probably slow down in 2019,” Mr. Narvaez explained.

The brokerage selected Puregold Price Club, Inc. as its top pick for the retail sector.

Meanwhile, the BPI Securities executive noted investors should be more selective when dealing with the restaurant sector. He cited Jollibee Foods Corp., which has been able to sustain healthy same-store sales growth as it was able to pass on higher input costs to consumers.

For the property sector, Mr. Narvaez said demand for real estate remains strong because of both domestic and overseas Filipino buyers, alongside demand from the offshore gaming sector.

The only concern for the property sector is that pre-sales have been “so strong” over the previous years, raising the question whether or not this high base can be sustained.

“The good thing though is a lot of property companies have anticipated this increase in interest rates, so a lot of them are moving away or trying to focus less on the development side of the business and more on the leasing side,” Mr. Narvaez said.

BPI Securities named Ayala Land, Inc. as its top pick for the property sector, expecting its shares to rise 21.2% to P51.69 each from its price of P42.65 on Tuesday.