亞太地區(qū)市場策略中點(diǎn)加速

EquityResearchMultiIndustryPhilippinesMarketHazel632858Justin632858EquityResearchMultiIndustryPhilippinesMarketHazel632858Justin632858632858632858VarunAhuja,656212Halfwaypoint=AccelerationFigure1:Wesetour12monthindextargetat Source:Companydata,CreditSuisse■Capturing2020expectations-WesetourPSEi12monthtargetformid-2020at9,200,whichis13%abovethecurrentlevels.Ourtargetisbasedonabottom-upapproachusingourtargetsforstocksunderourcoverage.Ourmodelforecasts2019EPSgrowthof11.7%and2020EPSgrowthof13.3%.OurtargetimpliesaforwardP/Emultipleof18.0x.Upsidecatalysts-Wethinkthecrucialdriversforthemarketduringthesecondhalfoftheyearincludewillbe(1)GDPgrowth(2)Improved(3)Inflationand(4)Earningsgrowth.Fortheremainderoftheyear,keyissuestowatchoutforincludethe“Build,build,build”program,the“TRABAHO”bill(package2),thepassageoftheREITs,theTourismspikeandmoreupdatesonthetradewarbetweenUSandChina.Sectorviewsandstockpicks-Weprefersectorswithstrongearningsgrowthpotentialandincreasingreturnsfora12-monthview.Earningsgrowthprofilesshowthatbanks(16.4%),property(14.6%)andconsumer(14.3%)wouldexhibitthefastestgrowth.Asweexpecttherallytocontinueclosertoouryear-endtargetof8,500,weexpectthelaggardgrowthstockstoeventuallyplaycatchup-LTGroup(LTG),Metrobank(MBT),DNLIndustries(DNL),BankofthePhilippineIslands(BPI),CenturyPacific(CNPF).Ourmodelportfolioisoverweightoninfrastructure,bankandconsumer.OurtopconvictionpicksforthemarketincludeBankofthePhilippineIslands(BPI),GTCapital(GTCAP),AyalaLand(ALI),Megawide(MWIDE),andRobinsonsRetail(RRHI).■■DISCLOSUREAPPENDIXATTHEBACKOFTHISREPORTCONTAINSIMPORTANTDISCLOSURES,ANALYSTCERTIFICATIONS,LEGALENTITYDISCLOSUREANDTHESTATUSOFNON-USANALYSTS.USDisclosure:Creditasonlyasinglefactorinmakingtheirinvestmentdecision.關(guān)注回復(fù)：研究加入“起點(diǎn)財經(jīng)”微信5AugustFocusFigure2:ThePSEihasrisen8.9%YTDbutwebelievethereisfurtherupside Figure3:Weexpectearningsforstocksunderourcoveragetoaccelerateto14.1%in2H19 ---Source:TheBLOOMBERGPROFESSIONALservice,CreditSuisseSource:Companydata,CreditSuisseFigure4:GDPgrowthslowedto5.6%in1Q19asgov’texpenditureswereimpactedbybudgetdelayFigure5:Inflationwasanissuein2018butcontinuestodecelerate 76543210-May- Nov- May- Nov- May- Nov- May- Nov- May-RealGDPYoYGrowthInfrastructureSpendYoYGrowthSource:CEIC,CreditSuisseSource:CEIC,CreditSuisseFigure6:Weanticipateturnover,margins,andoverallReturnonEquitytoexpand Figure7:WecontinuetopreferBanks&ConsumerandarecautiousonTelcos Php6Telecoms-5432105AugustFocusFigure2:ThePSEihasrisen8.9%YTDbutwebelievethereisfurtherupside Figure3:Weexpectearningsforstocksunderourcoveragetoaccelerateto14.1%in2H19 ---Source:TheBLOOMBERGPROFESSIONALservice,CreditSuisseSource:Companydata,CreditSuisseFigure4:GDPgrowthslowedto5.6%in1Q19asgov’texpenditureswereimpactedbybudgetdelayFigure5:Inflationwasanissuein2018butcontinuestodecelerate 76543210-May- Nov- May- Nov- May- Nov- May- Nov- May-RealGDPYoYGrowthInfrastructureSpendYoYGrowthSource:CEIC,CreditSuisseSource:CEIC,CreditSuisseFigure6:Weanticipateturnover,margins,andoverallReturnonEquitytoexpand Figure7:WecontinuetopreferBanks&ConsumerandarecautiousonTelcos Php6Telecoms-5432102009A2010A2011A2012A2013A2014A2015A2016A2017A CAPEXtoSalesSectorTiltsSource:Companydata,CreditSuisseSource:Companydata,CreditSuisse2PhilippinesMarket5AugustHalfwaypoint5AugustHalfwaypoint=AccelerationCapturing2020WesetourPSEi12-monthtargetformid-2020at9,200,whichis13%abovethecurrentlevels.Ourtargetisbasedonabottom-upapproachusingourtargetsforstocksunderourcoverage.Ourmodelforecasts2019EPSgrowthof11.7%and2020EPSgrowthof13.3%.OurtargetimpliesaforwardP/Emultipleof18.0x,slightlybelowthefive-yearaverageofUpsideWethinkthecrucialdriversforthemarketduringthesecondhalfoftheyearwillbe(1)GDPgrowth–weexpectGDPgrowthtoaccelerateforthesecondhalfoftheyearbringingfullyearto6.5%in2019vsthe6.6%averageinthelastfiveyearsduetothelateapprovalofthebudget.(2)Improvedliquidity-Asheadlineinflationislikelytodeceleratefurther,BSP'sMonetaryBoard(MB)mayseethisasanopportunewindowtocutitspolicyratesasearlyas8August.Inaddition,wethinktheBSPwillcutthereserverequirementratio(RRR)byanother100bpin2H19afterhavingcutitby200bpthusfarin2019.(3)Inflation-HeadlineinflationrateforJune2019deceleratedto2.7%YoY,ordown53bpversusMay's3.2%YoY.Weexpectinflationtrendstoremainsubduedandmayevenhit2.3to2.5%forthemonthofJuly,mainlyduetolastyear'shighbase.And(4)Earningsgrowth–Earningsdeliveryforthesecondhalfoftheyeariscrucial;Weexpect2019EPSgrowthtocloseat11.7%and2020EPSgrowthtocloseat13.3%.Welikeinfrastructure,banksandWeprefersectorswithstrongearningsgrowthpotentialandincreasingreturnsforour12-monthview.Earningsgrowthprofilesshowthatbanks(16.4%),property(14.6%)andconsumer(14.3%)wouldexhibitthefastestgrowth.Conglomeratesshouldrealisea12%growth,whileutilitiesarelowerat7%.Withabettermacro-economicbackdropthis2H19,completionofthemid-termelections,aswellasanaggressiveinfrapushfromthegovernment,weseeexcitingtimesahead.Oninfrastructure,wepreferbeneficiariesoverbiddersandcontractorsoveroperators.OnBanks,weremainconvincedthatPhilippinebanksarewellpositionedtodeliverstrongNIIgrowthheadinginto2019-20E,mainlydrivenbyimprovingNIMstocounterbalanceslowerlendingmomentum.Wepreferbanksthatarewellcapitalised,havepositiverepricinggapprofile,strongCASAfranchise,andimprovingoperatingleverage.Wethinkconsumerconfidencewillrecoverforthesecondhalfofthisyearalongsideabettermacrobackdropoffallinginflationandrenewedconsumerconfidence.Welikeconsumernamesthathaveclearearningsvisibility,stronggrowthmomentumandincreasingreturns.OurconvictionAsweexpecttherallytocontinueclosertoouryear-endtargetof8,500,weexpectthelaggardgrowthstockstoeventuallyplaycatchup.TheleadersandlaggardsfromouruniverseoffergoodearningsprofileandclarityplusincreasingROEsbutdifferinabsolutesharepriceperformance.Thetop5thathaveoutperformedincludeMAXS,RLC,MEG,URCandWLCONwhilethetop5thathaveunderperformedincludeLTG,MBT,DNL,BPI,CNPF.Ourmodelportfolioisoverweightoninfrastructure,banksandconsumer.Wearemarketweightonconglomerateswithpreferencefortheonesthatarehighlyexposedtotheconsumersectorandwithaminimalexposuretotheinfrastructuresector.Duetoregulatoryheadwindsandtheoverhangofathirdplayerenteringthespace,weareunderweightontelecoms.OurtopconvictionpicksforthemarketincludeBankofthePhilippineIslands(BPI),GTCapital(GTCAP),AyalaLand(ALI),Megawide(MWIDE),andRobinsonsRetailWesetourPSEi12monthtargetatCrucialdriversforthemarketduring2H19includeGDPgrowth,improvedliquidity,inflation,andWeprefersectorswithstrongearningsincreasingOurtopconvictionpicksforthemarketincludeALI,BPI,GTCAP,MWIDE&3PhilippinesMarket5AugustTableofHalfwaypoint=Acceleration1Focus2Halfwaypoint=Acceleration3Capturing5AugustTableofHalfwaypoint=Acceleration1Focus2Halfwaypoint=Acceleration3Capturing2020 Upside Welikeinfrastructure,banksand Ourconviction Capturing2020612monthindextargetat Firsthalfrecapversus2H19 Catalyststhatwilldrivethemarket Keyriskstoour UpsideGDPboostfromconsumptionand Inflationsettofall Monetaryeasingcycletocontinue,FXtotrade Keyissuestowatchout Welikeinfrastructure,banksandBanks:Policyeasingcycleamuch-needed Consumer:Natural Conglomerates:AfocusongrowthandROE Power:Criticaltightsupplyinthemedium-tolong- Property:Earningsintactbutregulatoryriskpiles Telcos:Entryofanewoperatortoremainanoverhanginthenear OurConvictionLeadersversus Overweightoninfra,banksand Convictionbasket 4PhilippinesMarket5AugustFigure8:CreditSuissePhilippinesCoverageBDOUnibankBankofPhilippineIslandsPhilippineNationalBankSecurityBankCorpN-----5AugustFigure8:CreditSuissePhilippinesCoverageBDOUnibankBankofPhilippineIslandsPhilippineNationalBankSecurityBankCorpN-----AyalaCorporationDMCIHoldings,Inc.GTCapitalJGSummitMetroPacificInvestmentsSMInvestmentsSanMiguel------CenturyPacificFoodsD&LIndustries,Inc.EmperadorDistillersInc.Max'sGroupPuregoldPriceClub,IncShakey'sPizzaAsiaVentures,Inc.UniversalRobinaCorporationWilconDepot-----AyalaLandFilinvestLandRobinsonsLandSMPrimeN----GlobeNN----AboitizPowerCorpManilaElectricN----7.48.0Source:TheBLOOMBERGPROFESSIONALservice,Companydata,CreditSuisse5PhilippinesMarket P/E ROE EPSbnUS$18A19E20E18A19E20E18A19E5AugustCapturing202012monthindextargetatFigure9:Wesetour12monthindextargetat Source:Companydata,CreditSuisseWesetour12monthPSEitargetatWesetourPSEi12monthtargetformid-2020at9,200,whichis13%abovethecurrentlevels.Ourtargetisbasedonabottom-upapproachusingourtargetsforstocksunderourcoverage.Ourmodelforecasts5AugustCapturing202012monthindextargetatFigure9:Wesetour12monthindextargetat Source:Companydata,CreditSuisseWesetour12monthPSEitargetatWesetourPSEi12monthtargetformid-2020at9,200,whichis13%abovethecurrentlevels.Ourtargetisbasedonabottom-upapproachusingourtargetsforstocksunderourcoverage.Ourmodelforecasts2019EPSgrowthof11.7%and2020EPSgrowthof13.3%.OurtargetimpliesaforwardP/Emultipleof18.0x,slightlybelowthefive-yearaverageof18.5x.Philippinestockvaluationsarenowmorethan1standarddeviationbelowthefive-yearmean.Fromaregionalperspective,however,thePhilippineshasthesecond-highest2019EP/Eversusitspeers.OnaP/B-ROEbasishowever,thepremiumtotheregionhasbeenbelowtheaverage.Figure10:ThePSEiistradingmorethan1standarddeviationbelowits5-yearmean Figure11:Philippineshasthesecond-highest2019EP/Eamongregionalpeers +28642+15Y-1-20 Source:TheBLOOMBERGPROFESSIONALservice,CreditSuisseSource:Refinitiv,CreditSuisseFirsthalfrecapversus2H19Inourstrategypiece“WhenRealReturnsMatter”ourmainthesisfocusedoncompaniesandsectorsthatwebelievedwoulddeliverstronggrowthdrivenby“real”returns.In2018,6Wehighlightedthattheinto2019ismoregovernmentinitiatesamoreassertivestance5AugustthemainsourceofEPSdisappointmentwasworse-than-expectedinflationandover-investmentleadingtointensifiedcompetition,slimmermarginsandmorecashcalls.For2019however,wehighlightedthattheexpectationcomingintotheyearismorepositiveasthegovernmentinitiatesamoreassertivestance.Wehadexpectedinflationtocoolfurther,whichwoulddriveconsumerconfidenceupward.Welikewiseexpectedaggressivecapitalinvestmenttoslow,withcapex-to-salesratiosdeceleratingto12%in2018andfurtherdownto10%in2019(fromhighsof13-15%in2015-17).WecontinuetoanticipaterealROEsincreasingonthebackoftheseimprovingfundamentals,withassetturnoverandmarginsexpectedtoexpandin2019-20.ThePCOMPindexisup8.9%YTD,11.1%inUSDterms.Whilewethinkexpectationsforlowerinflationhavebeenmostlyfactoredin,wedonotbelievethestrongtrendsfor2H19earningsare.Figure12:Weexpectaggregatecapex-to-salesratiotodecline… PhpFigure13:…andanticipateturnover,margins,andoverallReturnonEquitytoexpand 65435AugustthemainsourceofEPSdisappointmentwasworse-than-expectedinflationandover-investmentleadingtointensifiedcompetition,slimmermarginsandmorecashcalls.For2019however,wehighlightedthattheexpectationcomingintotheyearismorepositiveasthegovernmentinitiatesamoreassertivestance.Wehadexpectedinflationtocoolfurther,whichwoulddriveconsumerconfidenceupward.Welikewiseexpectedaggressivecapitalinvestmenttoslow,withcapex-to-salesratiosdeceleratingto12%in2018andfurtherdownto10%in2019(fromhighsof13-15%in2015-17).WecontinuetoanticipaterealROEsincreasingonthebackoftheseimprovingfundamentals,withassetturnoverandmarginsexpectedtoexpandin2019-20.ThePCOMPindexisup8.9%YTD,11.1%inUSDterms.Whilewethinkexpectationsforlowerinflationhavebeenmostlyfactoredin,wedonotbelievethestrongtrendsfor2H19earningsare.Figure12:Weexpectaggregatecapex-to-salesratiotodecline… PhpFigure13:…andanticipateturnover,margins,andoverallReturnonEquitytoexpand 65432102009A2010A2011A2012A2013A2014A2015A2016A2017A2018A2009A2010A2011A2012A2013A2014A2015A2016A2017A2018ACAPEXtoSalesDuPontPCOMPex-BanksAggregateOperatingSource:TheBLOOMBERGPROFESSIONALservice,Companydata,CreditSuisseSource:TheBLOOMBERGPROFESSIONALservice,Companydata,CreditSuisse11.7%,comparedtoa5%growthin2018Thisyear,despitecompaniesregisteringdisappointingresultsduringthefirstquarter(seePhilippinesMarketStrategy–1Q19results:Multiplemisses,butnotconcerning),weareconfidentthatour2019earningsexpectationswillbemet.Unlikepreviousyearswhereininitialearningsexpectationsweretypicallydowngradedeverysubsequentmonth,consensusEPSestimatesfor2019haveremainedlargelyunchangedandthemarketseemstobeconfidentthatearningswillgrowdoubledigit.Weforecast2019earningstoincreaseby11.7%,comparedtoa5%growthin2018.2H19shouldseeafaster14%growthinearningsforcompaniesunderourcoverage.GDPgrowthof5.6%in1Q19wasa4-yearlow,primarilyduetothedelayedpassageofthe2019nationalbudget,whichwasonlysignedlastApril.WeexpectGDPgrowthtoreboundfrom1Q19oncatch-upgovernmentinvestmentsandinfrastructurespending.Inflationhasfallenfrom5.2%in2018to2.8%inJune,andweexpectittoslowevenmorefortherestof2019,dippingbelow2.0%asriceprices(10%oftheconsumerpriceindex)fall,onliberalisedimportation.Thesefactorshaveapositiveimpactonspendingpowerandlowercostsforcorporates.ThisstrongdomesticdemandstorymakesthePhilippinesmoreinterestingand“safer”fromglobalnoiseontradeandweakness.Furthermore,theEPStonominalGDPgrowthmultiplierhasnormalisedto1.05x(versuslastyear’sinitialmultiplierof1.20x),closertoits2011-2018actuallevels(Notethatinmostofthepasteightyears,EPSgrowthlaggednominalGDPgrowth).7PhilippinesMarket5AugustFigure14:2019EPSestimateshaveyettobedowngradedfrominitialexpectations Figure15:Weexpectearningsforstocksunderourcoveragetogrow14.1%in2H19 ---(month)12EPS-3456789 EPS-EPS-Source:Refinitiv,CreditSuisseSource:Companydata,CreditSuisseWeexpectearningsforstocksunderour14.1%YoYforversus11.8%in5AugustFigure14:2019EPSestimateshaveyettobedowngradedfrominitialexpectations Figure15:Weexpectearningsforstocksunderourcoveragetogrow14.1%in2H19 ---(month)12EPS-3456789 EPS-EPS-Source:Refinitiv,CreditSuisseSource:Companydata,CreditSuisseWeexpectearningsforstocksunderour14.1%YoYforversus11.8%inWeexpectearningsforstocksunderourcoveragetogrowby14.1%YoYfor2H19versus11.8%in1H19.WeexpecttheConglomeratestodeliverthefastestgrowthat19%,followedbyConsumerat17%.BanksandPropertysegmentsshouldgrowat13%whileUtilitiesandTelcoswillshowamoremutedgrowthat9%and2%,respectively.Figure16:Weexpectearningstoaccelerateinthesecondhalfof2019(PSource:Companydata,CreditSuisseCatalyststhatwilldrivethemarketWethinkthecrucialdriversforthemarketduringthesecondhalfoftheyearwillbe(1)GDPgrowth–weexpectGDPgrowthtoaccelerateforthesecondhalfoftheyearbringingfullyearto6.5%in2019vsthe6.6%averageinthelastfiveyearsduetothelateapprovalofthebudget;(2)Improvedliquidity-Asheadlineinflationislikelytodeceleratefurther,BSP'sMonetaryBoard(MB)mayseethisasanopportunewindowtocutitspolicyratesasearlyas8August.WethinktheBSPwillcutovernightratesbyanother50bpin2H19.Inaddition,wethinktheBSPwillcutthereserverequirementratio(RRR)byanother100bpin2H19afterhavingcutitby200bpthusfarin2019.(3)Inflation-HeadlineinflationrateforJune2019deceleratedto2.7%YoY,ordown53bpversusMay's3.2%YoY.Weexpectinflationtrendstoremainsubdued,andtheymayevenhit2.3to2.5%forthemonthofJuly,mainlyduetolastyear'shighbase.Nevertheless,quarterlysequentialtrendsstillpointtoinflationbeingcomfortablybelow2%within3Q19,especiallywith:(a)riceimportskeepingpricesincheck;(b)globaloilpriceonadowntrend;and(c)ourexpectationthatpowerratesmaydeclinefurther.(4)Earningsgrowth–Earningsdeliveryforthesecondhalfoftheyeariscrucial;weexpect2019EPSgrowthtocloseat11.7%and2020EPSgrowthtocloseatKeyriskstoourWeseedownsiderisktoourrecoverystoryandPhilippinemarketEPSgrowthof11.7%/13.3%in2019E/2020E,shouldhigher-than-expectedinflationandhigherinterestdriversforthemarketduringthesecondhalfoftheyearwillbeGDPgrowth,improvedliquidity,inflationandearningsgrowthWeseedownsiderisktoourrecoverystory,shouldhigher-than-Philipeethigherinterestrates8CS 2H18- 2H19- 5August5Augustratespersistfor2019.Higheroilpricescouldalsoimpactoverallinflation.Currencyremainsariskgivenpersistentcurrentaccountdeficit.Ourconcernsoverthetwindeficits-thecurrentaccountandthebudgetdeficit-alsoremain.Onapersectorbasis,thekeydownsiderisksforbanksincludeweaker-than-expectedloangrowthandhigher-than-expectedcreditcost.Thepropertysectorcouldfeelthepinchofweakersalesduetohighercostofdebt,aswellasanoversupplyintheofficesegment.Theconsumersectorcouldseedownsideriskfromweakertop-lineduetotheabsenceofthetaxexemptionboostandpricepass-onfrominflationandstructurallyhighercosts(i.e.labour,freight)whichcanputpressureonmargins.Earningsrisktotelcosandutilitiesareregulatoryinnature,involvingtheentryofathirdforPowerandUtilities.9PhilippinesMarket5AugustUpsideGDPboostfromconsumptionandThePhilippinesregistereda5.6%GDPgrowthin1Q19,lowerthanwhatwehadexpectedgiventhedelayinpassingthenationalbudget.Thebudgetdelaycausedgovernmentconsumptionexpendituretogrowbyjust7.4%in1Q19comparedto13.6%inthesameperiodlastyear.Thegovernmentsaysitintendstoincreaseitsspendingcloserto15%inthenextfewquarters,expecting2019growthtobeclosertothe15%levelforthefullyear2019.WeforecastGDPgrowthtoslowto6.1%in2019,drivenbysteadyprivateconsumptionandrobustpublicinfrastructureinvestment.WeexpectpersonalconsumptiontoreboundasinflationtapersoffandOverseasFilipinoWorker(OFW)remittanceandBusinessProcessOutsourcing(BPO)revenuescontinuetostrengthen.Weexpectasteadyrecoveryinconsumerconfidence,whichcouldlendsupporttoeconomicgrowthandcorporateearnings.Akeysupportforgrowththisyearwillcontinuetobeinfrastructurespendingunderthegovernment’s‘Build,Build,Build’infrastructureprogram.Thegovernmenttargetsanincreaseininfrastructurespending,to4.7%ofGDPin2019,from4.6%ofGDPin2018and3.5%in2017.Thegovernmenthasincreasedfocusonraisingexpenditure.SpendingforinfrastructureandothercapitaloutlaysinAugust2018grewby70.5%toP68.4bn,fromP40.1bnin2017.Theincreaseinspendingin5AugustUpsideGDPboostfromconsumptionandThePhilippinesregistereda5.6%GDPgrowthin1Q19,lowerthanwhatwehadexpectedgiventhedelayinpassingthenationalbudget.Thebudgetdelaycausedgovernmentconsumptionexpendituretogrowbyjust7.4%in1Q19comparedto13.6%inthesameperiodlastyear.Thegovernmentsaysitintendstoincreaseitsspendingcloserto15%inthenextfewquarters,expecting2019growthtobeclosertothe15%levelforthefullyear2019.WeforecastGDPgrowthtoslowto6.1%in2019,drivenbysteadyprivateconsumptionandrobustpublicinfrastructureinvestment.WeexpectpersonalconsumptiontoreboundasinflationtapersoffandOverseasFilipinoWorker(OFW)remittanceandBusinessProcessOutsourcing(BPO)revenuescontinuetostrengthen.Weexpectasteadyrecoveryinconsumerconfidence,whichcouldlendsupporttoeconomicgrowthandcorporateearnings.Akeysupportforgrowththisyearwillcontinuetobeinfrastructurespendingunderthegovernment’s‘Build,Build,Build’infrastructureprogram.Thegovernmenttargetsanincreaseininfrastructurespending,to4.7%ofGDPin2019,from4.6%ofGDPin2018and3.5%in2017.Thegovernmenthasincreasedfocusonraisingexpenditure.SpendingforinfrastructureandothercapitaloutlaysinAugust2018grewby70.5%toP68.4bn,fromP40.1bnin2017.TheincreaseinspendinginAugustbroughttheeight-monthexpenditureforinfrastructureandothercapitaloutlaystoP505.6bnin2018,50%higherthanP337bnin2017.Cumulativecapitaloutlaysreached3.5%ofGDPasofAugust2018,comparedto2.7%and2.8%duringthesameperiodin2016and2017,registereda5.6%growthinFigure17:GDPgrowthslowedto5.6%in1Q19asgov’texpenditurewasimpactedbybudgetdelay Figure18:Increasedinfrastructurespendingwillserveaskeysupportforgrowth InfrastructureSpend%ofRealGDPYoYGrowthInfrastructureSpendYoYGrowthSource:CEIC,CreditSuisseSource:CEIC,CreditSuisseInflationsettofallInflationcouldfallfurtheronlowerpricesoffood.TheheadlineinflationrateforJune2019deceleratedto2.7%YoY,ordown53bpvsMay's3.2%YoY,accordingtothedatafromthePSA.ThisiswellwithinBSP's2.2-3.0%targetrangeandisalsoslightlylowerthantheconsensusestimateof2.8%YoY,basedontheBloombergsurvey.SeasonallyadjustedCPIalsodeceleratedby0.17%MoM(vs0.33%MoMinMay).TheresultingaverageheadlineinflationYTDhasnowreached3.4%,whichremainswellwithinthegovernment's2-4%targetrangefor2019.Meanwhile,thecoreinflationratewasalsolower,at3.3%YoYvs3.5%inMay2019.FoodwasthemaindriverofthedecelerationinJuneas'rice'(~9.6%ofCPI)postedadeclineof1.7YoYand0.5%MoMasstockinventoryhitrecordhighlevelsafterthearrivalofprivatesectorimportsinMay.Non-foodinflationwasdrivenfurtheronlowerofPhilippinesMarket5Augustbylower'transport'(i.e.+1.6%YoYinJunevs+3.5%inMay;-1.5%MoM)onaccountofpumppricerollbacksforthemonth(i.e.down~7%MoM).'Utilities'alsodeceleratedafterMeralco'sannouncedrollbackofpowerrates.Figure19:Inflationhascontinuedtodeceleratefromlate-2018 7Figure20:Webelievethatmostofthishasalreadybeenpricedin 1625344325160-May-7Nov- May- Nov- May- Nov- May- Nov- May-5Augustbylower'transport'(i.e.+1.6%YoYinJunevs+3.5%inMay;-1.5%MoM)onaccountofpumppricerollbacksforthemonth(i.e.down~7%MoM).'Utilities'alsodeceleratedafterMeralco'sannouncedrollbackofpowerrates.Figure19:Inflationhascontinuedtodeceleratefromlate-2018 7Figure20:Webelievethatmostofthishasalreadybeenpricedin 1625344325160-May-7Nov- May- Nov- May- Nov- May- Nov- May-Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Mar-19May-PCOMPYoYGrowthSource:TheBLOOMBERGPROFESSIONALservice,CEIC,CreditSuisseSource:CEIC,CreditSuissetrendofinflationcouldandslidebelow2%Wethinkthemonthlytrendofinflationcouldcomfortablydriftlower,andslidebelow2%inthesecondhalfoftheyear.Thebaseeffectonfood,togetherwithfurtherimprovementsinthesupplychainbroughtaboutbytheremovalofimportrestrictionsonrice,shouldkeepfoodinflationincheckinthenearterm,despitetheimpactofElNinoonproduction.TheDepartmentofAgriculturecontinuestodownplaytheeffectofthedryspellafteritsannouncementthisweekoncroplossesreachingP5.05bn,whichisonlyequivalentto0.6%and1.2%oftargetproductionforriceandcornthisyear,respectively.Recallthatinflationwasamajorproblemlastyearandwasthecauseofmostconsumercompaniesmissingconsensusearningsestimatesduetomargincontraction,mostlycausedbyhigherinputcosts,wages,andfreightcosts.Monetaryeasingcycletocontinue,FXtotradeAsheadlineinflationislikelytodeceleratefurther,BSP'sMonetaryBoard(MB)mayseethisasanopportunewindowtocutitspolicyratesasearlyas8August.WenoticedthattheBSPhaskeptadovishtone,evenafterpausinganyeasingactionduringitsJuneMBmeeting,asitalsoannouncedthatithaslowereditsownheadlineinflationandglobaloilpriceestimates.Werecentlyopined(Pricinginpolicyeasing;steepeningcurvepositiveforbanks,20June)thatfurtherratecut/sbyBSParealreadybeingpricedinaswenotedasharpdownwardshiftintheshort-endofthePHPyieldcurve.FurtherwideningoftheBOPsurplussofarthisyear(i.e.MayhitasurplusofUS$928mn,tobring2019YTDsurplustoUS$5.2bn)couldjustbethedatapointtosupportBSP'sdovishstance.NotealsothatthisbringsfinalgrossinternationalreservestoUS$85.4bn,or7.4monthsofimports.Wethinkthisispositive,asfallinginterestratesandrisingliquiditycouldhelplowerbanks'fundingcostsandlendingrates.declininginflationastocutitspolicyratesasearlyas8AugustPhilippinesMarket5AugustFigure21:WeexpecttheCentralBanktocutratesbyanother25bpthisAugust Figure22:Webelievedecliningbondyieldsareyettobereflectedinmarketvaluations 827364554637218089Jun-Oct-16Feb-17Jun-17Oct-17Feb-Jun-18Oct-18Feb-Jun-Jun-09Jun-10Jun-11Jun-12Jun-13Jun-Jun-15Jun-16Jun-17Jun-18Jun-10YBondYieldsReverseRepurchaseHeadlineSource:CEIC,CreditSuisseSource:TheBLOOMBERGPROFESSIONALservice,CEIC,CreditSuisse5AugustFigure21:WeexpecttheCentralBanktocutratesbyanother25bpthisAugust Figure22:Webelievedecliningbondyieldsareyettobereflectedinmarketvaluations 827364554637218089Jun-Oct-16Feb-17Jun-17Oct-17Feb-Jun-18Oct-18Feb-Jun-Jun-09Jun-10Jun-11Jun-12Jun-13Jun-Jun-15Jun-16Jun-17Jun-18Jun-10YBondYieldsReverseRepurchaseHeadlineSource:CEIC,CreditSuisseSource:TheBLOOMBERGPROFESSIONALservice,CEIC,CreditSuisseAconfluenceoffactorsishelpingtheAconfluenceoffactorsishelpingthePesostrengthen.Thetaperingoffoftheinflationprinthashelped.ComingfromP53.99/US$inSeptember2018,thePesohitanaverageofP51.75/US$inJune2019.ThegovernmentexpectstheFXtotradesidewaysattheP51-53/US$levelonaverage.Notethattherearestillconcernsoverthewideningtradegap.ThePhilippinecurrentaccountbalanceturnedtoa3.0%deficitin3Q18(vsa2.5%surplusin2015)whichcouldkeepthePesoontheweaksideagainsttheUSDin2019.However,notethatthecountry'sforeignexchangereserves,loweroilprices