APS Daily Market Insights July 28

 Eastern Visayas Leads Growth in Household Spending. According to the data released by the PSA, Eastern Visayas posted the highest per capita household final consumption expenditure growth for 2016 at 8.1%. Among the top 5 are Central Luzon, Davao, Ilocos, and Central Visayas Regions. To add to that, the population growth of Eastern Visayas slowed down, but the economy of the region still grew by 12.4% during that period, proving that the growth in consumer spending bolstered growth. This is positive for RRHI (HOLD, P91.60) and PGOLD (HOLD, P49.40), but most especially from MRSGI (BUY, P4.80) since they have a strong brand equity in the area.

 Cement Battle Cuts CHP profit. CHP reported a -46% drop in earnings for 1H17, accounting for only 16% of full year Bloomberg consensus estimates. CHP attributed this to weak demand and pricing challenges during the period. However, CHP expects demand to recover in 2H17 as economic activity picks up, guiding a +3% volume growth in 2017 (+12% volume growth in 2H17 for this to happen). At the closing price of P 6.30, CHP is trading at an EV/EBITDA of 7.5x, compared to HLCM (7.9x) and EAGLE (9.4x). Recommendation to avoid the stock for now as we think earnings will take time to recover.  EAGLE 2Q17 Results Preview. EAGLE said their 2Q17 revenues grew by around +6%, a significant slowdown from 1Q17’s +19%. While this can be viewed as positive since revenues of HLCM (- 21%) and CHP (-12%) both had a steep drop in 2Q17, we are now expecting EAGLE’s earnings growth to taper from 1Q17’s 30% to single-digits for 2Q17. We reiterate our expectations that EAGLE will outperform other local manufacturers in terms of market share, volume and revenues. But at this point, we are more inclined to think that cement stocks have to bear the negative sentiment in the coming months unless there is an improvement in supply dynamics (and pricing) which will be more beneficiary to sector earnings, rather than keeping expectations that there will be an uptick in construction activity by 2H17.