MANILA, Philippines —If there’s a rising tide that lifts all boats, there may also come a time, no matter how rarely, that a tsunami may wreak havoc on anything on its path.
The coronavirus pandemic is one such cataclysmic event. While the human race is no stranger to pandemics, the world has never been as interconnected as it is today, which is why the scale and speed of contagion have been unprecedented.
We have seen how this contagion, which prompted the Philippine government to impose the longest and harshest lockdown protocols in the world, dragged the local economy to its worst recession in history, bludgeoned even some of the biggest and most stable enterprises and resulted in record job losses. Assuming an economic contraction of 10 percent in 2020, including the impact of foregone growth of at least 6 percent this year, the economic damage arising from COVID-19 this year will be a whopping P3.2 trillion.
Looking at the 30-member Philippine Stock Exchange index (PSEi), which represents the country’s most valuable and liquid companies, net profits attributable to equity holders of parent firm declined by an average of 38.4 percent year-on-year in the first nine months.
Within the basket, 22 index stocks suffered a year-on-year decline in nine-month earnings while three turned unprofitable. Only five index companies bucked the downturn.
Needless to say, most business leaders have written off 2020 — the year when the world waged war against an invisible enemy — the year when most businesses ground to a halt, when uncertainties rendered any long-term planning useless and when capital spending had to be tightened to conserve liquidity.
The good news is that despite unprecedented challenges seen this year, many of the country’s top companies are still managing to eke out profits, no matter how underwhelming compared to their preCOVID-19 performance. Aided by aggressive monetary easing by the Bangko Sentral ng Pilipinas and other central banks of major economies, those who needed funding have been able to raise money from the local and offshore markets.
Most of them have likewise shown sequential earnings improvement starting the third quarter, when the government started to reopen the economy by allowing more businesses to resume operations.
Sifting through the rubble of this challenging year, these are some of the industries that not only survived, but thrived during this pandemic despite the lockdown restrictions imposed by the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF) Resolution to curb COVID-19.
1. Food manufacturing
While being cooped up in their homes, people needed to eat. In the first few weeks of the lockdown, sourcing of food supply was quite challenging as only one household member was initially allowed to buy food and other essential household items. Amid uncertainties on how long the quarantine will be, consumers also started buying food that will last longer.
Among listed entities, one beneficiary of the essential food play was Po family-led Century Pacific Food Inc. (CNPF), which grew its third-quarter net profit by 15 percent year-on-year to P1.06 billion as consumers kept their stock of shelf-stable seafood, meat and milk products during the prolonged coronavirus pandemic. This brought CNPF’s net profit for the nine-month period to P3.3 billion, up by 26 percent from the level seen in the same period last year.
“The amount of uncertainty, alongside a heightened consciousness over health and safety, also has more people continuing to stay at home, gravitating toward brands they trust and consuming products that promote increased well-being and immunity. These emerging trends have shifted many consumer behaviors in our favor,” CNPF chief financial officer Oscar Pobre said.
CNPF’s business had expanded at a faster pace in the first semester as quarantined households mostly bought goods to consume at home given their limited mobility during the period. But lockdown protocols have since eased over the last few months. Nonetheless, CNPF continued its double-digit growth in business.
CNPF, a leading canned food producer, is the company behind flagship brands Century Tuna, 555 and Argentina. In milk, the company is an emerging player through heritage name Birch Tree, having launched a variety of dairy products under the brand. For the nine-month period, revenues from the branded business have increased by 28 percent year-on-year, outperforming CNPF’s consolidated revenue growth of 21 percent during the same period.
Gokongwei-led Universal Robina Corp. also grew its nine-month net profit by 7.2 percent year-on-year to P7.5 billion as households
focused their spending on basic food and beverage items. For the third quarter alone, URC’s attributable net profit rose by 5.35 percent year-on-year to P1.97 billion as lower input costs and tighter spending made up for flat sales.
URC, a unit of conglomerate JG Summit Holdings, benefited from lower cost of raw and packaging materials costs, manufacturing costs and direct labor costs while selling and distribution costs as well as general and administrative expenses also declined in the third quarter and during the nine-month period compared to their respective levels last year.
For the nine-month period, URC’s sales reached P99.8 billion, up by a modest 2 percent year-on-year. For the third quarter alone, however, sales were flat at P32.36 billion compared to P32.74 billion year-on-year.
By business segment, sales of domestic and international branded consumer foods reached P77.4 billion in the first nine months, of which domestic revenues accounted for P46.5 billion, rising by just 1 percent year-on-year. URC reported growth in powdered beverages, snacks, biscuits and chocolates, offset by double-digit declines in candies, ready-to-drink beverages and the food service channel. URC nonetheless increased market shares in all key categories.
2. Grocery stores
As the IATF shut down shopping malls, the retail industry was badly hit, except for groceries and supermarkets as these were allowed to continue operating to serve consumers’ need for essential items, subject to shorter operating hours and limited food traffic. Big retailers like SM Retail and Robinsons Retail Holdings Inc. have been dragged down by the nonfood components of their businesses, but those with purely nondiscretionary retail play bucked the earnings drag this year.
The index representative is Puregold Price Club, whose net profit rose by 10.9 percent year-on-year to P5.05 billion. Consolidated net sales increased by 10.1 percent year-on-year to P121.14 billion, driven by sustained growth in sales from old and new stores opened during the period. Puregold has a fast-food business component, but this comprised just a very small portion of the business.
As of end-September, the Puregold group had a total of 455 stores nationwide. These included 393 Puregold stores, 20 S&R membership shopping warehouse and 42 S&R New York Style fast-food restaurants. Nine-month consolidated net sales increased by 10.1 percent year-on-year to P121.14 billion, 75 percent of which was attributed to the Puregold Stores network.
Counting only sales from stores that were existing during the same nine-month period last year, sales grew by 4.5 percent for Puregold while same-store sales expanded by 6.4 percent for S&R. This was driven by robust consumer spending and pantry-loading prior to the COVID-19 quarantine as well as the continued store operations even during the enhanced community quarantine.
It’s also due to this nondiscretionary retail play that emerging tycoon Edgar “Injap” Sia successfully brought his family’s new grocery business under MerryMart Consumer Corp. to public hands last June. It was the first company to brave the stock market during this challenging year and was amply rewarded by the cash-awash market. From its initial public offering (IPO) price of P1 a share, MerryMart is now trading more than six times higher.
MerryMart’s nine-month net profit rose by 26.42 percent year-on-year to P14.5 million with the rollout of new stores this year. Consolidated revenues for the first nine months reached P2.42 billion, an increase of 28.35 percent year-on-year. It now has 18 operating branches to date and expects to open seven more within this year.
The small store format that MerryMart intends to scale up to a thousand outlet by 2030 is called the Merrymart Store, which combines the mini-grocery, pharmacy and health/beauty lines in a single outlet. Occupying an average footprint of about 250 to 300 square meters, the three-in-one concept is seen to result in operational cost efficiencies.
More recently, MerryMart launched a new retailing format called MerryMart Market that offers live seafood, fresh farm produce and gourmet food options.
3. Telecommunications/broadband service
The inevitability of work-from-home arrangements during this pandemic has made telco/broadband internet service an essential for households or businesses, whether for entertainment, education or professional use.
“When things are going rough, ask yourself, do I really need to buy or get this service? If yes, that’s in a defensive industry. But if you can defer and wait for better times, that’s not,” Jaycob Yedra said in the recent Bonds and Stocks Conference organized by financial advocacy group The Global Filipino Investors Inc. (TGFI).
“During this pandemic, [telco] companies which provide data and communications are considered essential. Can you survive without data? Sure, you will probably live, but it will be hard to do pretty much anything now without internet connection,” Yedra said.
Indeed, the telco/broadband sector has outperformed other defensive industries like power/electricity and water segments. Lower prices at the Wholesale Electricity Spot Market and reduced industrial demand curbed the earnings of the power sector. Water utilities were similarly affected by the decline in industrial demand.
In terms of earnings performance, the winners during this pandemic have been PLDT and newly listed Converge ICT.
PLDT’s nine -month attributable net profit rose by 23 percent year-on-year to P19.69 billion on the back of revenues that rose by 7 percent to P133.22 billion. For the third quarter alone, net profit surged to P7.41 billion from P3.8 billion a year ago.
Converge, a fast-growing fiber internet and service provider, grew its nine-month net profit by 57.6 percent year-on-year to P2.19 billion due to continued improvement in subscriber count and higher average revenue per user.
Leading online stock brokerage COL Financial noted that PLDT’s nine-month core revenues, which rose by 8 percent year-on-year to P20.96 billion, outperformed expectations on higher subscriber count.
Meanwhile, COL noted that Globe Telecom’s nine-month core income, which declined by 12.6 percent year-on-year to P15.61 billion, missed their expectations as service revenues declined on weaker mobile data revenues, which had long since been the driver of its wireless business.
“During the lockdown, Globe subscribers availed of lower data denomination packages that were bundled with free data promotions addressing their higher data requirements. As such, the softness in mobile data revenues was not able to offset the drop in mobile voice and SMS revenues, resulting in a 9.6-percent year-on-year decline in Globe’s third quarter 2020 consolidated mobile service revenues. Nevertheless, Globe’s management expects mobile data revenues to slowly rise moving forward as mobility restrictions ease, allowing people to become more mobile,” COL said.
4. Sin products: Liquor and tobacco
One surprising outperformer in the market is the “sin” product industry. These are not the essential items that people consume but for those who can afford it, the pandemic is not stopping them from taking an alcohol and/or cigarette break. In fact, one can argue that with people locked down in their homes and unable to go to their usual watering holes, drinking alcohol may be a way of keeping themselves sane. Despite the liquor ban imposed by some local governments during the early stages of the lockdown, there were people who were able to keep an ample stash of alcohol and consume them while meeting virtually with their friends.
In the case of tycoon Andrew Tan-led liquor-maker Emperador Inc., international sales of whisky products boosted the business during this pandemic. January-to-September net profit rose by 11 percent year-on-year to P5.9 billion. For the third quarter alone, net profit surged by 26 percent to P2.5 billion.
“The success of our international expansion boosted company earnings, bringing stability and growth at a time when the Philippines wrestles with the impact of the coronavirus. Emperador’s global business saw double-digit growth as it adapted well to new consumption trends,” Emperador president Winston Co said.
The company reported that Fundador, Tres Cepas and Emperador brands had been growing consistently, particularly in the United States, Canada, Italy, Spain, United Kingdom and China. In Spain, brands owned and produced under Grupo Emperador España S.A. continued to dominate the brandy market with a 40-percent market share.
Fundador has also shown spectacular performance even in North America. In the United States alone, Fundador achieved a 23-percent year-on-year growth during the first nine months of the year. In Canada, sales tripled during the first nine months as Fundador Light has been made available in Alberta, Canada.
Meanwhile, in the United Kingdom, Fundador grew its business by 185 percent year-on-year during the first nine months while it recorded a 15-percent growth in Italy during the same period. Mexico’s brandy performance, on the other hand, grew by 8 percent during this period.
“We are glad that the company was able to deliver solid performance in the first nine months of 2020 on the strength of its international business that we have developed in the past five years. The highest international growth comes from China, which is expected to more than double from last year, which will be driven by the premium single malt brands and brandy. We are confident that this will pave the way for further growth in the future for Emperador,” Emperador International chief executive officer Glenn Manlapaz said.
Leading local gin-maker Ginebra San Miguel was initially affected by the lockdown, but business immediately rebounded in the third quarter as soon as quarantine protocols were eased. Nine-month net profit rose by nearly 13.3 percent year-on-year to P2.06 billion. For the third quarter alone, net profit surged by 63 percent year-on-year to P816.8 million.
Revenues in the first nine months grew by 20 percent to P21.43 billion, outpacing the 7-percent growth in advertising, promotional and overhead expenses.
Meanwhile, the tobacco business shored up the earnings of tycoon Lucio Tan-led LT Group Inc. There was a decline in cigarette volume as consumers adjusted to price increases when higher excise taxes were passed starting August 2019. Premium product Marlboro gained market share as customers shifted from mid-priced brand Fortune, thus allowing the business to post higher profits.
The tobacco business booked a net income of P12.17 billion for the nine-month period, 27-percent higher year-on-year. The sales volume of PMFTC Inc. fell by 14 percent year-on-year versus the entire tobacco industry, which declined by 11 percent as consumers adjusted to the price increases. The lockdowns in key regions—the enhanced community quarantine (ECQ) implemented in Luzon starting March 17 and in other select cities thereafter up to end-May 2020, as well as the reinstatement of the Modified ECQ in the National Capital Region and select provinces for two weeks in August 2020—also curbed volumes alongside rising illicit activities.
President Duterte signed Republic Act No. 11346 in July 2019, increasing further the excise tax on tobacco starting January 2020. From P35 a pack in 2019, the tax increased to P45 a pack in 2020 and will increase by P5 a pack annually from 2021 to 2023, then increase by 5 percent annually thereafter.
Buoyed by contribution from the tobacco business, which accounted for 75 percent of total earnings, LTG’s attributable net income amounted to P16.1 billion, 9.4-percent higher year-on-year.
Pandemic-resilient
There are sectors that have been affected by the lockdown but still showed big improvements in the third quarter. For instance, work-from-home arrangements boosted demand for appliances and kitchen upgrading equipment, allowing listed home improvement retailers Wilcon Depot and AllHome Corp. to rebound strongly after the shutdown of stores in the second quarter. Outside the publicly listed companies, vendors of computers and gadgets have benefited from higher demand for devices needed to pursue work-from-home or online schooling requirements.
There are also pockets of opportunities in the property segment outside of the shopping mall, hotel/tourism sub-segments, which had been badly hit by the pandemic.
Despite all the concerns on the exodus of Philippine offshore gaming operators, office and warehouse leasing activities have continued to generate revenues for property developers. As business process outsourcing companies were allowed to operate during the pandemic, landlords continued to generate income without having to offer the same relief given to tenants of shopping malls.
The prolonged pandemic has also spawned strong demand for alternative residences among lockdown-weary affluent folks, perking up property prices across seaside leisure estates outside Metro Manila such as Tali Beach, Kawayan Cove, Peninsula de Punta Fuego and surrounding areas, based on a recent study by leading real estate services firm Leechiu Property Consultants. Property values in these neighborhoods have risen by 46 percent in Tali Beach and by 20 percent in Kawayan Cove and Punta Fuego, with many transactions done in cash.
Wealthy buyers are seeking healthier environments away from Metro Manila, the local epicenter of the pandemic. Property transactions in major business districts in the metropolis have correspondingly slowed down due to the COVID-19 contagion.
Similarly, property developers with big businesses outside Metro Manila are also faring well. An increase in leasable space boosted DoubleDragon Properties Corp.’s nine-month net profit by 61.12 percent year-on-year to P5.03 billion in the first nine months, while Cebu Landmasters Inc.’s nine-month net profit of P1.51 billion was not too bad compared to P1.65 billion in net profit in the same period last year.
Within the banking space, a sector that tracks the economic cycle, the main story has been the race to put up loan-loss provisions in anticipation of an increase in bad loans arising from the pandemic. However, there were a few banks that bucked the earnings downturn seen this year, among them China Bank and East West Bank, which grew their nine-month net profits by 23.1 percent and 27.7 percent, respectively, from their previous year’s levels.
Overall, however, all eyes are on the expiration of the loan moratorium mandated by the Bayanihan 2 Law by year’s end. Only after this will banks have a better visibility on defaulting borrowers and the extent of credit losses they have to write off.
In the industrial segment, if local pharmaceutical firm Unilab were a listed company, it must be reporting good profits alongside retailers such as Mercury Drug.
Digital platform providers, whether for financial services like Paymaya and GCash, online marketplaces like Lazada, Shopee and Zalora and transport providers like Grab and Lalamove, must be generating much higher business volumes. Mobility constraints, after all, compelled even the most tech-averse consumers to consider using digital platforms, whether in financial transactions or everyday shopping. As such, it’s a good time for technology providers supporting digitalization initiatives.
“The COVID-19 pandemic is expected to last until 2021, at the very best,” PSE president Ramon Monzon said during TGFI’s Online Bonds and Stocks Conference.
“As a result of the pandemic, we’ve also seen how different companies have adopted to the new normal. A lot of the companies are now selling their products online. A lot of the restaurants are relying on delivery services and even [retail giant] SM has been relying on delivery services. This seems to be the new normal as people are scared to go to the malls,” Monzon said.
Asked which sectors will likely continue perform well during the prolonged pandemic, Philippine National Bank president Wick Veloso said: “It’s the same sectors that we’ve expected to have continuity in terms of cash flow: telcos, distributors of food, distributors of medicine. They are part of those which are nonvulnerable and are resilient. Human health and social work activities, private general hospital activities, retail selling in supermarket and manufacturing of food products, most of them are doing well.”
ING Philippines country chief Hans Sicat observed: “We’ve seen those industries in the basic food and food distribution as necessary so obviously they continue to do business. Those who are in the restaurant business, especially the formal dining, is probably suffering quite a bit. Logistics services have been an important part of the logistics group, whether it’s transportation or basic delivery of goods and services, so these are critical and key. Unfortunately, you see big transport [providers], like airlines, receiving the worst end of this pandemic.”
“I’d say that the financial sector, depending on what the focus is, has had a mixed review. First of all, there’s a lot of liquidity in the financial sector that you’ve enticed approximately $8 billion to $8.5 billion fund-raising [by Philippine borrowers], maybe the first $4 billion to $4.5 billion had been done by financial institutions. They have access and investors believe they can weather the storm.”
