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This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
MCI (P) 126/02/2017 MCI (P) 069/06/2017
Issuer of report: The Hongkong and Shanghai
Banking Corporation Limited, Singapore Branch
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the Philippines
discretionary spending are sub-themes on consumption
GLO, MEG, TEL, PGOLD, SMPH, and URC
Playing the consumption theme in the Philippines
Private consumption remains the primary driver of the country’s economic growth, and
thus a recurring theme for the Philippines. The pillars supporting its strength – remittance
and Business Process Outsourcing (BPO) – remains solid despite some concerns over
slower growth or weakness. The dearth of consumer stocks in the market leads us to look
at various angles investors can play this consumption story.
the natural catchment. To this end, the number of shopping malls to be opened
per year is set to accelerate, with developers citing the ability of the metro to
support a higher number of outlets. SMPH, ALI, and MEG are names to play this.
spending has veered towards higher costing purchases. Housing pre-sales have
picked up this year, while car sales continue to set new records. ALI and MEG may
be the best way to invest in housing, while a proxy on cars may be the banks -- led
by the big 3, BDO, BPI, and MBT– is perhaps the best way to play the strong auto
sales trend.
membership stores, or demand for premium snacks/food are examples of the
move towards premiumization. PGOLD and URC would come under focus.
played through the telco sector, as the wallet spend of consumers goes towards
data. Globe Telecom may have the edge at this stage, though PLDT has a
similar proposition.
Fig 1: Philippines Valuations
Company Ticker Curr Rating
Closing
Price
Target
Price
Upside to
TP (%)
M Cap
(USD bn)
3m ADT
(USD mn)
EPS Growth (%)__ PE (x) __ _ PB (x) ___ _ ROE (%) _Div Yield (%)
2017e 2018e 2017e 2018e 2017e 2018e 2017e 2018e 2017e 2018e
Ayala Land ALIPHP Buy 43.65 49.00 12.3 12.6 10.6 17.5 14.8 26.0 22.6 3.9 3.5 15.0 15.5 1.3 1.5
Globe Telecom GLOPHP Buy 1,995 2,500 25.3 5.2 2.2 -13.3 9.6 19.8 18.0 4.1 3.9 20.7 21.8 4.6 4.6
Megaworld Corp MEGPHP Buy 5.27 5.70 8.2 3.3 3.6 9.7 11.0 13.6 12.2 1.3 1.2 9.3 9.6 1.1 1.2
Metrobank MBT PM PHP Buy 87.40 124.00 41.9 5.45 5.5 7.5 27.6 14.3 11.2 1.3 1.2 9.2 10.6 1.1 1.4
PLDT TELPHP Buy 1,680 2,130 26.8 7.1 6.2 -23.1 4.8 17.0 16.2 3.1 2.9 18.0 18.0 4.4 4.6
Source: Bloomberg, HSBC estimates. Data as on 13th September 2017.
15 September 2017
Ismael Pili*
Head of ASEAN and South Asia Equity Research
The Hongkong and Shanghai Banking Corporation
Limited, Singapore Branch
ismael.pili@hsbc.sg
+65 6658 0606
Jayant Parasramka*
Associate
Bangalore
* Employed by a non-US affiliate of HSBC Securities (USA) Inc,
and is not registered/qualified pursuant to FINRA regulations
Philippine traffic
EQUITY STRATEGY
ASEAN
Strait Talk
EQUITY STRATEGY ● ASEAN
15 September 2017Playing the consumption theme in the Philippines
In Manila these days, the talk of the town is less about politics, or the country’s strong economic
growth. It’s the traffic. A recent trip gave us a first-hand experience of why this is the case. From
NAIA 3, an app tells us that to cover the roughly 6km to the hotel would take 25 minutes despite
the fact that it had rained. However, fifteen minutes parked on the highway and seeing people
getting off buses to walk to their destination soon demonstrates that the ETA conveyed was
overly optimistic. A CFO of a company said his world now revolves around a 4km radius
between his home in Makati, office in Fort Bonifacio, and the Manila Polo Club, while another
bank president relays his typical 3-hour drive home. It is little wonder that economists typically
cite infrastructure development (aside from education) as their first recommendation in their
assessment of many emerging markets – one can only imagine the productivity gains a country
would have with good infrastructure.
Despite this growing issue, this has not prevented the Philippines from posting the strongest
growth in ASEAN in the most recent quarter, with forecasts slated to see the fastest growth rate
in Southeast Asia.
Fig 1: GDP Growth Forecast for ASEAN (%)
2015 2016 2017f 2018f
Indonesia 4.9 5 5.2 5.3
Malaysia 5 4.2 4.6 4.3
Philippines 6.1 6.9 6.5 6.5
Singapore 1.9 2 2.5 1.9
Thailand 2.9 3.2 3.2 3
Source: HSBC
The pillars supporting its strength – remittance and BPO – remain solid despite some concerns
over slower growth or potential weakness.
Philippine traffic
the Philippines
discretionary spending are sub-themes on consumption
MEG, TEL, PGOLD, SMPH, and URC
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15 September 2017
Fig 2: Philippines GDP breakdown
Source: CEIC, World Bank, HSBC
Fig 3: Overseas RemittanceFig 4: BPO revenue
Source: CEIC, HSBCSource: CEIC, IT and Business Process Association of the Philippines,HSBC estimates
On remittance, a higher base will inevitably lead to slower growth, and remittance at USD27bn
as of 2016 reflects a sizeable base. Remittance though has proven to be historically resilient,
and we expect the roughly 10% of the Philippine population residing overseas and the high
transfer income culture will allow growth, albeit potentially less to continue.
Fig 5: Private Consumption as % of GDP
Source: CEIC, HSBC
74
1125
28
-37
-100
-5050
100
150
200
2013201420152016
% of GDP
PrivateGovernmentInvestmentExportsImports51525
30
04050607080910111213141516
Remittance in USD bn
0.0
5.0
10.0
15.0
20.0
25.0
30.0
456789101112131415e16e
BPO Revenue USD bn
55
74
38
46
64
30
35
40
45
50
55
60
65
70
75
80
2010201120122013201420152016
IDMYPHSGTHVN
EQUITY STRATEGY ● ASEAN
15 September 2017Meanwhile, we downplay concerns over the BPO sector. Megaworld ((MEG PM, Buy, TP:
PHP5.70) the biggest BPO office space provider) estimates that a seat in Manila is roughly a
fourth of that in the US, while the faster growth of non-voice (vs voice) outsourcing as well as a
potentially new source of locators in the form of the POGOs (Philippine Online Gaming
Operators) may take up any slack that may arise. The IT-Business Processing Association of
the Philippines remains upbeat on the BPO industry, as it believes BPO revenues can hit
USD40bn by 2022, create 7.6m direct and indirect jobs, and account for 15% of the total global
outsourcing market by the end of that year.
Fig 6: Companies share of BPO Gross Asset Value (GAV)
CompanyBPO as a % of GAV
Ayala Land* 7
SM Prime Holdings 9
Megaworld 30
Robinsons Land 21
Source: HSBC Estimates, *includes corporate offices (13% of its 7% share)
Fig 7: BPO supply Gross Leasable Area (GLA)
Office/BPO (sqm) 2013 2014 2015 2016 2017e 2018e
Ayala Land 561,000 611,000 715,000 836,000 926,000 1,083,420
SM Prime 95,911 121,912 194,163 234,014 232,130 311,542
Robinsons Land 193,000 275,000 310,000 331,000 404,000 518,000
Megaworld 509,000 621,000 737,000 851,000 1,009,000 1,219,000
Vista Land 60,790 66,869 80,243 110,281 114,693 118,950
Filinvest Land 207,465 207,465 274,971 311,778 423,005 541,031
TOTAL 1,627,166 1,903,246 2,311,377 2,674,073 3,108,827 3,791,943
Source: Company Data. HSBC
Spending like there’s no tomorrow
Consumption remains the primary driver of the c