Happy Monday, Barkada --
The PSE lost 43 points to 6468 ▼0.7%
Thanks to
Will Cabangon, @
illeatworlds, and
draggy for letting me know that I forgot about a few additional delistings (EAGLE, UNI, and PCP), and to
grinsken and
Kristoffer Notario for having some fun with the meme. Thanks also to
Miguel R. Camus for recognizing that the Japanese anchor investor news that came out last week for Repower Energy Development was my first true "scoop".
It's the start of July. It's the start of Q3. It's the start of H2.
It feels like 2023 is flying by and crawling by all at the same time.
- COMING UP: The week ahead
- June inflation
- PCOR prefs listing
- QUESTION: Is delisting bad?
- Robinsons Land lists P15-B of bonds
- SM Investments plans to double its geothermal
- Inflation predictions from 7 economists
▌Main stories covered:
- [COMING_UP] A quick look at the week ahead... This week isn’t loaded with scheduled fireworks, but there’s enough happening out there to give this week some potential to be spicy. First up is the preliminary inflation data for June, which is important since the BSP just recently declined to act for a second meeting in a row. That happens on Wednesday. Then, on Friday, the Petron follow-on offering of preferred shares will list and we will get an update to the MB Underwriter League table.
- MB: In the background of all that is an American trading week that is chopped up by a holiday, so we might have a few days with less than the usual amount of foreign interest and attention. For better or for worse. The exchange has been range-bound for what feels like forever, and there doesn’t seem to be much on our calendar (or any other calendar for that matter) that looks capable of bringing better vibes to this tired party.
- [QUESTION] Is it bad that so many companies are delisting?... No, but it is a case-by-case situation. It’s healthy, in my opinion, for the PSE to initiate involuntary delisting procedures against companies like UNI and PCP, which have shown little interest in satisfying even the most basic of PSE registration requirements. I think we can all agree on that. It’s also logical for chronically undervalued conglomerates like Metro Pacific [MPI 4.77 ▲0.6%; 295% avgVol] to consider delisting as a way to maximize shareholder value. We might not agree on the tactics or the price of the delisting, but I think we can all agree that a company should be able to exit the market to explore optimization efforts like this. It’s much less healthy, in my opinion, to have companies attempting to leave the exchange to reduce vulnerability to political attack. The Duterte-era smash-and-grab approach to the stock market was noted by foreign investors, and the administration’s willingness to violate the capital markets for populist political gain was a source of trepidation from potential strategic investors that I spoke with during that time. Was the attempted delisting of Lopez Holdings [LPZ 14.12 unch; 363% avgVol] in early 2021 a response to that political vulnerability? Is there an element of this thinking in MPI’s desire to delist? After all, it was MVP who wondered aloud, in a letter to shareholders, whether the era of the publicly-traded utility was dead thanks to the Duterte administration’s political shenanigans.
- MB: It’s not a perfect analogy, but I think of a healthy stock market as an online message forum. To encourage great discourse, the forum’s moderators need to open the forum up to as wide an audience as possible, while also being quick to step in with a wide array of moderation tools to help keep the discussion on track and prune out unwanted spam and clearly-malicious posting. The moderators need to communicate clear and enforceable guidelines to the forum participants and use their moderation tools actively and consistently to resolve conflicts and keep posts productive. I feel like the PSE’s “moderation” of the PSE is not too different. I’d like to see the PSE distance itself somewhat from the role of market “gatekeeper”, and instead transition into an “aggressive moderator” role. In an alternate universe where the PSE is already operating in that mode, listing would be easier so we’d have more companies, but the banhammer would be quicker to strike on any company that stepped out of line, so we’d have an uptick in delistings, too. In the US, they average around 200-300 IPOs each year, which is about double the annual average number of companies that delist. Keep what works, but be quick to discipline what doesn’t, and don’t be afraid to remove anything that can’t seem to figure out how to make it work. With that approach, I think what happened to UNI and PCP was good and healthy. Better late than never.
- [NOTES] Quick takes from around the market...
- Robinsons Land [RLC 14.28 ▼0.8%; 44% avgVol] lists ₱15 billion worth of bonds as part of the second tranche of its ₱30 billion shelf-registered bond program. The shelf program is now exhausted. RLC reported that interest in the bonds was high, allowing it to “price at the tightest of spreads”. 3-year maturities pay 6.0972% interest, while 5-year maturities pay 6.1663% interest.
- MB Quick Take: The interest on a 3-year bond from a company with great credit like RLC shows why REITs have had to bend the knee to compete on yield. The safest REIT, AREIT [AREIT 34.70 ▼1.7%; 33% avgVol], basically pays right at 6% based on Friday’s closing price.
- SM Investments [SM 925.00 ▲1.0%; 166% avgVol] confirmed reporting that it plans to expand its geothermal capacity from 300 MW to 600 MW “via exploration projects” in Northern Luzon and Bicol. SM’s subsidiary, Philippine Geothermal Production Company (PGPC), said that it would invest “around ₱3 billion annually” to fund developments to achieve the stated capacity expansion.
- MB Quick Take: Geothermal power is a rare breed, in that it is considered a renewable and a source of baseload energy. Unlike coal, geothermal plants have a basically inexhaustible fuel that is not exposed to external pricing risk (like we saw last year with coal’s meteoric price spike), and at 600 MW of annual capacity, the SM plants won’t kill over 100 people per year to generate electricity like coal plants of a similar capacity would. They’re not cheap to build, though, and they take some time to spin up.
- Inflation likely eased to less than 6% for June according to economists surveyed by Philstar.com. Ruben Carlo Asuncion (UnionBank) predicted June inflation to come in at 5.8%, while Jun Neri (BPI) predicted 5.7%. Nicholas Mapa (ING Bank) and Robert Dan Roces (Security Bank) both predicted 5.5%. Domini Velasquez (China Bank) and Alvin Arogo (PNB) both estimated that we’d see June inflation at around 5.4%. The lowest prediction surveyed was from Michael Ricafort (RCB) at 5.3%.
- MB Quick Take: The Bangko Sentral ng Pilipinas (BSP), our central bank, predicted that June inflation would be in the range of 5.3% to 6.1%, and it’s notable to me that none of the economists surveyed even came close to the top end of that range. While that’s likely good news for the BSP and it’s lengthening “pause” on raising rates, it’s not much relief for those who are still feeling the heat of these high prices. The “lower” inflation readings are largely mathematic victories based on the (unfortunate) high bar of last year’s inflation spike. Month-on-month inflation is not falling so quickly, and on a long enough timeline, it’s possible for the BSP to achieve its policy inflation range by just kind of keeping prices as they are now.
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