PhilippineEquityStrategyTestingthebullmarketstrengthPhilippineEquityStrategyJeanetteYutanAC(63-2)878-1188jeanette.g.yutan@jpmorgan.comJ.P.MorganSecuritiesPhilippines,Inc.Seetheendpagesofthispresentationforanalystcertificationandimportantdisclosures,includingnon-USanalystdisclosures.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.AsiaPacificEquityResearchJuly2019DanielAndrewTan(63-2)5542413danielandrew.o.tan@jpmorgan.comJ.P.MorganSecuritiesPhilippines,Inc.ASEANEquityStrategyRajivBatra(65)6882-8151rajiv.j.batra@jpmorgan.comJ.P.MorganIndiaPrivateLimited2PhilippineEquityStrategyAgendaSummaryMacro:BalancinggrowthandcurrencystabilityFiscalpolicy:OutlookforthesecondhalfofDuterte’stermStockViews:TopPicks&AvoidsSectorViewsEarnings&valuations:DownsideriskstoStreetEPSexpectations3PhilippineEquityStrategySummaryStockViews:TopPicks&AvoidsSource:J.P.Morganestimates,Bloomberg.Valuationsasof19July2019.PHequitiesareofficiallyinbullmarketterritoryafterbreakingoutfromthe7400-8100rangetoreacha15-monthhighofcloseto8400.Twomajordriversbehindthesharprun-up:(1)WideninggrowthdifferentialbetweenPH’sdomestic-centricGDPgrowthandtherestoftheworld,(2)positiverealinterestrates.Alongwithalightinvestorpositioning,theseledtoareversaltonetforeigninflows.Keydriversthatwilltest/supportthebullmarketstrength:(1)GDPgrowthcoulddeceleratein1H19duetothegov’tbudgetimpasseandriskstonettrade(2)OurmarketEPSgrowthof11%/12%islowerthanstreet(3)Twinstimulifromexpansionaryfiscalandmonetarypolicies.Quickinflationdecelerationprovidesmoreroomforaccommodativemonetarypolicy–weareexpecting2more25bpscutin2H19.PHisatitsbestfiscalhealthindecades–weexpectgov’tspendingtoreaccelerateitsmomentumin2H19.(4)persistentstructuralCAD(~2%ofGDP)amiddampenedoutlookonexternaltrade,slowdowninBPOandOFWflows,and...
