Further rate cuts by the central bank are expected to support corporate profitability, potentially driving growth in key sectors, according to Unicapital Securities Inc.
In an investors note released on Monday, Unicapital said conglomerates, consumer, energy, real estate investment trust and property are expected to benefit.
Unicapital sees the Philippine Stock Exchange index (PSEi) hitting 8,000 by next year.
The stockbroker said this will translate to a price to earnings (PE) ratio of 13x with corporate earnings likely to grow by 10 percent.
“Our EPS (earnings per share) growth estimate stems from earnings forecasts for the index constituents,” Unicapital said.
The stockbroker said should geopolitical risk take steam, the PSEi could only manage to rise to 7,000 at for a PE ratio of 11.5x.
“In a bull case, the PSEi could reach 8,250 with 13.5x PE, leaving room for upside if sentiment improves,” it said.
Unicapital said the optimistic outlook for the PSE is driven by slowing inflation, seen falling below the Bangko Sentral ng Pilipinas’(BSP) 4 percent target ceiling, and the projected growth of 6.3 percent next year.
“We are confident there are opportunities for the Philippines despite the risks. We have seen similar circumstances in the past but with the government stepping up to ensure measures are in place to boost the equity market, everything will fall into place and yield positive results. The government’s signing of the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating Economy (CREATE MORE) law is timely in further institutionalizing actions that will enhance corporate profitability,” said Jaime Martirez, Unicapital Group chief executive officer.
Martirez said CREATE MORE’s provisions — reduced corporate income tax (CIT) rate to 20 percent from 25 percent and value-added tax zero-rating on local purchases and essential services by export-oriented consumer companies — will create room for companies to open more jobs and fuel economic activities.
“Lower inflation and an increase in the employment rate will ultimately lead to growth in household spending, which is a key growth driver for consumer companies,” he said.
