More than a year into the pandemic that dragged the economy last year to its worst recession since World War II, corporate Philippines is finally regaining some growth momentum despite the reimposition of tough lockdown protocols and the resurgence of COVID-19 cases arising from the more contagious Delta variant.
During the second quarter corporate earnings reporting season, the majority of publicly listed companies either met or exceeded the earnings expectations of stock market analysts.
For the first semester, earnings mostly grew year-on-year compared to the contraction seen in the previous year and for the whole of 2020, when the pandemic-induced lockdowns were at their longest and harshest.
The hefty year-on-year earnings growth in the April to June period, in particular, was largely due to the very low base seen in the same quarter last year at the peak of local mobility restrictions. Nonetheless, the rollout of vaccines—despite the much slower pace compared to neighboring countries—has allowed business activities to pick up even as mobility restrictions remained. At the same time, companies benefited from the reduction in corporate income tax rate from 30 percent to 25 percent starting July 2020.Forecast
Overall, businesses are starting to deal with COVID-19 as an endemic—something that will be here for the long haul, like dengue or malaria—rather than a pandemic. A research note from JP Morgan issued in September said Philippines’ corporate earnings recovery mostly trended in line with expectations. A pool of companies tracked by JP Morgan showed a 373-percent year-on-year growth in aggregate net profits and a 30-percent growth in revenues in the second quarter. These numbers fared well versus
consensus forecast of a 369-percent growth in aggregate net income and 26-percent growth in revenues for these companies.For leading online stock brokerage COL Financial, 35 percent of its 57 monitored companies outperformed its expectation in the second quarter, although the same number underperformed, said April Lee-Tan, vice president for corporate strategy at COL. Another 30 percent performed in line with COL’s expectations, which meant that 65 percent either met or beat its forecasts.
Other stock brokerage and investment houses also showed a bigger tally of monitored companies that either met or exceeded their expectations compared to those that underperformed.
Equity research
Looking only at the 30 components of the Philippine Stock Exchange index (PSEi), Dionill Jamill, head of equity research at local fund management firm ATR Asset Management (ATRAM), estimated that second quarter core earnings per share had surged by 335 percent year-on-year. He expected this given the strictest quarantine restrictions and the lowest operating capacity across different sectors that happened during the comparative period last year.
“We saw earnings dip by 80 percent in second quarter 2020, so just to get back to the base level, earnings needed to recover five-fold, so we’re still short of that,” Jamill said.
“The good news was that we saw quarter-on-quarter sequential improvements in a couple of sectors despite the reversion to MECQ (Modified Enhanced Community Quarantine) in mid-March,” he said. The lower tax regime under the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) law has been generally good for corporate Philippines, Jamill said, much more so to those who were paying close to or above 30 percent, such as the telecommunications firms.
“In our estimates, CREATE will add 3 to 5 percent to the aggregate PSEi earnings growth figure this year and in 2022,” he said.
Based on Bloomberg’s weighted average, the 30-member PSEi basket posted a sum of P94.03 earnings per share (EPS) in the second quarter, slightly down from P93.47 in the first quarter as the government reimposed quarantine protocols at end-March to most of April.
Compared to the low EPS base of P65.84 in the second quarter of 2020, the period when corporate earnings bottomed out, second quarter PSEi earnings this year rebounded by an average of 42.82 percent.
Earnings
This bought the combined EPS of PSEi firms to P187.50 for the first semester, 23.8 percent better than P151.41 last year, although this was still 24.6 percent below prepandemic levels (based on first half 2019 numbers). For the whole of 2021, COL’s Lee-Tan said market consensus was expecting earnings to grow by an average of 32.5 percent from last year.
In 2020, the combined EPS of PSEi companies amounted to P298.40, down by 38 percent from P481.65 in 2019.
To recall, at the peak of quarantine measures in the second quarter of 2020, even some of the country’s blue chips like SM Investments, BDO Unibank, Jollibee Foods Corp. and San Miguel Corp. incurred losses.
Largely due to disruptions caused by the pandemic, the 9.6 percent drop in Philippine gross domestic product in 2020 was the worst seen since the government started recording yearly output in 1946 or after the Second World War.
