Wednesday, October 26, 2022

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TODAY’S TOPICS
IN FOCUS Wilcon posted stellar earnings in Q3 wtih net income surging 78% YoY to
_____________
Php1.1B. This brought the YTD figure to Php2.96B, +58% YoY and already
84% of full year consensus.
According to Bloomberg, recent estimates place the Copper inventories at just
WLCON
P29.00, +1.75% 30,000 tons. The lack of inventory has seen spot prices for the red metal
climb to the highest premium over future deliveries in a long time.
The Hang Seng China Enterprises Index fell 7.3% last Monday with foreign
investors reportedly selling 17.9B yuan ($2.5B) worth of Chinese equities
through the Hong-Kong trading link.

the possibility that it will be slightly lower YoY. This will probably be a
negative surprise for the market. Stay UW.

: WLCON

Wilcon again posted stellar earnings in Q3 wtih net income surging 78% YoY to
Php1.1B. This brought the YTD figure to Php2.96B, +58% YoY and already 84% of
full year consensus. We discuss the details below and what this means for the share
price moving forward.

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 Wednesday, October 26, 2022

Drivers. One reason for huge jump last quarter was that the corresponding period
IN FOCUS last year was a relatively low base as lockdowns were again imposed in Metro
_____________ Manila and surrounding areas. The impact of the lockdowns are evident in the same
store sales growth (sssg) figure for Q3 which was at a whopping +23.5%. More

WLCON -house
P29.00, +1.75% brands (see chart above). Management has made this a key part of their strategy

39.4%, the highest ever and 11 percentage points higher compared to the 28.4% in
4Q17. Third,
being buoyed by a backlog of construction projects that were delayed by the
pandemic for two years. As a result, officials expect home improvement sales to
ramp up until the first half of next year.

Upgrades.

could reach the median forecast for 2023. Analysts are thus likely to further
upgrade estimates for both this year and next which are already up 17% and 11%
year-to-
revenue of Php24.7B is 76% of full year consensus which is not a significant beat.
s outperformance can be traced to margins. The median
forecast for gross margin this year is 38.2% whereas the actual is likely to be above
39.0%. For next year, consensus GPM is at 38.5% but WLCON is already on track to
be at least 100 bps higher. One advantage it has over other listed consumer names

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IN FOCUS This is because overseas purchases are denominated in RMB which has been nearly
_____________ as weak against the dollar this year. Mor
be signalling that it will tolerate a weaker exchange rate and the peso has actually
appreciated against the RMB by 3.4% since late September. If the latter continues to
WLCON weaken, this could become a tailwind for earnings going into next year.
P29.00, +1.75%

Valuations. WLCON is one of the best performing index stocks since the start of
2020 and it shows. Its forward P/E of 29.2x is the highest in the PSEi and it is the
second most expensive home improvement play in the region. Upgrades are
imminent and this will help valuations but the stock will still be pricey. We do believe
the premium, especially over its regional peers (see chart), is partly justified by the
very strong YTD results and expanding margins. The Philippines is also the only
large SE Asian country that is at the beginning of its demographic transition and this
will be a key differentiator versus its peers over the long run. Nevertheless, we
would prefer to wait for dips before buying. The number of foreign owned shares as
of end-Q3 was actually down compared to a year ago (although higher versus end-
Q2) and there may be further selling pressure down the road. And not withstanding
-
developer) home construction over the next few quarters. Buy on weakness.

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 Wednesday, October 26, 2022

IN FOCUS SIGNIFICANT DIGITS

_____________
10 days
million tons a decade ago. According to Bloomberg, recent estimates place the
Copper figure at just 30,000 tons or a drop of 97%. Many factors have contributed to the
steady decline in
PX slump, higher interest rates, a stronger dollar and liquidity issues at top copper
P2.41, -1.63% trader Maike Metals. The lack of inventory has seen spot prices for the red metal
climb to the highest premiu
AT in China where physical copper is in short supply. Globally, it is estimated that there
P3.27, +0.62% are only 10 days worth of the material. Some traders are thus speculating that when
the global economy takes its eventual turn toward the better, there could be a huge
Foreign Flows spike in prices as demand recovers. It may therefore be a good idea to put a small
bet on PX or AT and hold for about a year as they are the most leveraged to the price
of copper.

RANDOM THOUGHTS

1. The Hang Seng China Enterprises Index fell 7.3% last Monday with foreign
investors reportedly selling 17.9B yuan ($2.5B) worth of Chinese equities
through the Hong-Kong trading link. This pushed the YTD foreign activity to a
small drop which, if it holds, will be the first annual outflow since the stock
connect program was launched in 2014. According to a Bloomberg article, many
were disappointed at the lack of supportive policies during China's recently
concluded party congress. Others cited concerns about the possibility of one-
man rule on the mainland. Whatever the reason, should foreign selling continue,
the freed up funds will have to end up (at some point) in other equity markets.
Hopefully, a trickle finds it way here which could help the seemingly
directionless trade in the local market.

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2. MER will hold its 3Q briefing this Friday. Last month, September 14, we gave our
IN FOCUS
_____________
quarter results. First, we said that Singapore-based Pacific Light contributed

MER
P299.60, +2.04% shrink significantly Qo
changing with less coming from households (which have higher tariffs) and
more from the commercial segment (lower). This means the average
now that 100%-
-rate power supply
agreements with its parent. This has led to Php1.2B in losses for the unit in H1

inc
that it will be slightly lower YoY. This will probably be a negative surprise for the
market. Stay UW.

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Unit 2904-AEast Tower, Philippine www.mytrade.com.ph asc.research@abacus-sec.com.ph 8667-8900 (63.2) 634-5206

Stock Exchange Centre, Exchange
Road, Ortigas Center, Pasig city 1600

Wednesday, October 26, 2022

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