Tuesday, August 23, 2022

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TODAY’S TOPICS
IN FOCUS
We provide our thoughts on the recent $PGOLD briefing and their outlook for
_____________
the rest of the year.
One global remittance company is reporting strong remittance growth for last
PGOLD month basically from all points of the globe. The company estimates that the
P35.75, +0.28% month-on-month increase from June to July was at least 10%.
We note down the changes in the FTSE Russell index and the impact to the

We reiterate our call to switch from $FLI to $MEG

occupancy rate is expected to further worsen from the current 68% to 55% by
end-2022.

FOCUS: PGOLD

Possibly the last company to hold its earnings call for the 2Q22 earnings season is
PGOLD which just occurred yesterday. While we have known about its earnings
results for the quarter in the past weeks, there are still some things to discuss that
would help give more visibility for its results and outlook for the rest of the year.

Tuesday, August 23, 2022

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 Tuesday, August 23, 2022

IN FOCUS Improved sentiment. The last time we wrote about PGOLD was when the company
_____________ initially released its 2Q22 earnings on August 2. Since then, investors seem to have
liked what they saw with share price rising nearly 20% over the past three weeks
along of course, the improved sentiment of the market, in general. A part of the
PGOLD better sentiment may have to do with the better than expected US inflation data
P35.75, +0.28% which some may expect the toppish indicator to be true as well for the Philippines.
Should the latter be true, this may be a good indicator for PGOLD as high inflationary
periods tend to be less attractive for the consumer sector.

Margins and Strategy. We did mention margins the last time we wrote about

management took time to discuss. First, management acknowledged lower

consolidated margins which can be attributed to several factors such as higher input
costs, higher prices from suppliers, and the unfavorable foreign exchange rate
particularly for S&R. But the company is seeing consumer trends, given the high
inflationary environment, that customers are purchasing less per trip and are
beginning to trade down certain products. PGOLD's strategy remains to be the same
for both of its brands and that is to maintain its growth, which the company is doing
by absorbing some of its costs to retain its sales and will not fully pass on the costs.

relatively lower compared to the margins it showed in 1H22. Lastly, for its Puregold
brand, its expansion in the near term is mostly located outside of Metro Manila that
would give more importance to its pricing strategy for affordability but in turn could
slightly dampen margins.

Source: Company

Tuesday, August 23, 2022

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Traffic. The company attributed much of its topline growth to the returning foot
IN FOCUS traffic after the omicron wave in Q1. Despite the discussion above, topline and
_____________ bottom line growth have improved in 1H22 with the improved foot traffic that is
likely to be further boosted by the resumption of face-to-face classes and return to
office arrangements. Although traffic did appear better for S&R, same store net
PGOLD traffic was down and this was said to be caused by consumers preferring to go to
P35.75, +0.28% the newer stores that are closer to their homes. Nevertheless, we also expect foot
traffic to continue to improve in 2H22 as mobility restrictions remain to be at the
minimum and should be a positive development for Puregold and S&R.

Outlook. Management also provided a bit of color on early Q3 numbers in which they
are expecting better numbers compared to Q2. To recall, Q2 was actually a strong
quarter with topline growing 14% YoY and on a quarter-to-quarter basis. So what
this could mean is a much improved 2H22, with the return of face-to-face classes
and the holiday season, compared to the first half and likely to pose strong numbers
against 2H21. The higher costs for both its brands could dampen margins but its
strategy of pursuing growth could pay dividends for the company. Currently,
PGOLD is trading at around 12 - 13x forward P/E and its 1.5 - 2 standard deviation
below its 10-year mean P/E. In other words, the stock continues to be cheap relative
to its earnings that may even see a bump later on. Our recommendation remains to
accumulate especially if it sees some correction after its recent run.

Tuesday, August 23, 2022

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 Tuesday, August 23, 2022

SIGNIFICANT DIGITS
IN FOCUS
_____________ +10%. Official BSP data for July remittances growth won't be out until almost four
weeks from now, but at least one global remittance company is reporting strong
remittance growth for last month. The Philippine Star quotes an official from World
Remittances Remit saying that the company has seen a spike in remittances to the Philippines
from all points of the globe. The company estimates that the month-on-month
Consumer increase from June to July was at least +10%, and that this is a rather fast m-o-m
Spending pace for the company. Indeed, total cash remittances based on BSP data during pre-
pandemic years typically rose m-o-m in May or June only by mid to high single
digits (this was before some schools moved their school opening date nearer to
August). The official goes on further to say that this spike started in June and only
peaked this August, whereas previous school expense-related remittance growth
increases typically last for only one month. This supports what we wrote last week
about how remittances is likely to prop up consumer spending in the 2H.
Additionally, the peso value of remittances in June was boosted to +16% (see chart
below) by the exchange rate depreciation that month, which was 11.3% year-on-year.
The exchange rate was just as weak in July, depreciating -11.9%, which means this
boost would most likely be repeated for July as well.

Tuesday, August 23, 2022

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RANDOM THOUGHTS
IN FOCUS
_____________ 1. for Q2
recently (see Short Takes dated August 18) but the briefing yesterday provided
more color on the company. As expected, malls led the growth on the back of
FLI improving foot traffic and gradual lifting of rental concessions, while residential
P0.93, 0.00% revenues was relatively more resilient than peers due to continuous

MEG segments should continue to improve in the second half, the drag would come
P2.57, -3.02% e deteriorated since end-2020
mostly due to POGO preterminations (see chart below). Its occupancy rate as of

55% by end-2022 due to expected preterminations from minor traditional

tenants, and new properties set to finish construction in the period. As of end-
June, POGOs still occupy 7% of office gross leasable area (GLA). The weak outing

Q2 indicate

are located. As we expect significant downgrades in full-year earnings estimates

for FLI, we thus reiterate our view to switch to MEG.

Tuesday, August 23, 2022

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IN FOCUS 2. FTSE Russell announced changes to their Global Equity Index Series. For
_____________ Philippine stocks, the most significant change was the addition of EMI to their
All-World Indices, the main ones that include large and mid cap companies, and
the deletion from the same category of FB, which failed their liquidity
EMI requirements. For their micro cap indices, ABA, ALLHC, CREIT, FILRT, MARC,
P21.50, +4.37% and WEB were added, while AB, MAXS, INFRA, and PNB were deleted. For the
deletions, we expect weakness from now until the implementation date on
FB September 19 (Monday). For the additions, the announcement enabled EMI to
P44.00, -2.65% buck the overall downward market trend yesterday, while it was more of a mixed
bag for the micro cap additions, as there is significantly less following for the
ABA smaller cap indices. We expect this same dynamic up to the implementation date.
P2.17, -1.36%

3. We invite you to our upcoming back-to-back live events happening this

ALLHC
Wednesday and Thursday, August 24 25, 2022, on the upcoming SPNEC SRO.
P3.66, -0.54%
Kindly register down below if you are interested to know more about the latest
updates and the offering:
CREIT
P2.39, 0.00%

FILRT
P6.48, +4.18%

MARC
P1.44, -2.70%

AB
P8.14, -0.12% Registration Link: https://bit.ly/3c8XpD0

MAXS
P5.70, -1.89%

INFRA
P1.04, -0.95%

PNB
P18.18, -1.73%

WEB
P3.23, +1.89%

Tuesday, August 23, 2022

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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

Tuesday, August 23, 2022

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