Analysts project conglomerates to keep their growth momentum

LISTED conglomerates are likely to sustain their first-quarter earnings growth for the rest of the year as the economy recovers and as inflation is expected to further ease, analysts say.

Unicapital Securities, Inc. Senior Equity Research Analyst Carlos Angelo O. Temporal said in a Viber message that growth “is likely to be moderate in the coming quarters due to fading base effects and as the economy absorbs much of the impact of recent rate hikes.”

Still, he said growth would remain higher than normal for most conglomerates driven by easing inflation and sustained reopening.

“[It] may outweigh much of the negative factors and bolster the economy’s momentum towards the latter part of the year,” Mr. Temporal added.

Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said the factors that contributed to the conglomerates’ growth during the first quarter might continue.

“However, there are a number of risks that could impact earnings in the future, such as inflation, tight fiscal policy, and slowing global economic growth,” Mr. Arce added.

Inflation further eased to 6.1% in May from 6.6% in April — the slowest rate seen in a year or since 5.4% in May 2022.

For the first five months, headline inflation averaged 7.5%, still well above the Bangko Sentral’s 2-4% target and 5.5% forecast for the year.

“Despite the risks, the Philippine economy growing at a healthy — albeit slowing — pace is likely to continue to support strong domestic demand,” Mr. Arce said.

He added that the continued growth in consumer spending and private investments are likely to prop earnings for the remaining months of 2023.

TOP EARNERS“Most Philippine conglomerates outperformed in terms of earnings in [the first quarter] of 2023,” Mr. Arce said, adding that the strong performance of the Philippine economy was “driven by strong consumer spending, robust business investment.”

He said companies’ earnings during the first quarter grew by an average of 20% year on year, fueled by strong demand as well as by cost-cutting measures.

China Bank Capital Corp. Managing Director Juan Paolo E. Colet said that top conglomerates generally had a very good first quarter on the back of robust consumer spending in a fully reopened economy.

Both Mr. Colet and Unicapital Securities’ Mr. Temporal said two of the top earners during the three months were JG Summit Holdings, Inc. and GT Capital Holdings, Inc.

During the first quarter, JG Summit reported a net income of about P5 billion, a reversal of the P2.79 billion net loss in the same period last year.

The Gokongwei-led firm reported a top line of P82.26 billion, up 28% from P64.25 billion last year, supported by contributions from its business segments, including the return to profitability of its airline unit Cebu Air, Inc.

Meanwhile, GT Capital posted a 52% jump in net profits to P6.64 billion in the first quarter from P4.36 billion a year ago, propelled by its business units.

Its revenues during the period rose by 26% to P69.8 billion from P55.29 billion amid the growth registered by its automotive operations and equity in the net income of associates and joint ventures.

Mr. Temporal said what the companies have in common is “their significant exposure to either the banking sector, which benefited from rising rates and a significant surge in loan demand, or recovering sectors such as property, automobiles, and tourism — which experienced a significant rise in earnings due to a low base in [the first quarter of 2022] resulting from the imposed lockdown measures.” — Adrian H. Halili