Philippine companies beat 2022 consensus revenue estimates by the widest gap in at least nine years. Profit, however, lagged behind projections, as high interest rates and inflation hurt margins.
(Bloomberg) — Philippine companies beat 2022 consensus revenue estimates by the widest gap in at least nine years. Profit, however, lagged behind projections, as high interest rates and inflation hurt margins.
Sales topped consensus by an average 5.2% for 24 companies in the 30-member Philippine Stock Exchange Index. That’s a record based on data going back to 2014. Net income trailed by 2.2%, the most in two years and a reversal from the highest ever beat of 7% in 2021.
The mixed results suggest the need for a cautious approach this year, said First Metro Investment Corp. strategist Cristina Ulang, noting that the annual results were buoyed by better-than-expected earnings in the first nine months.
“The fourth quarter is a seasonally strong period and should have been further boosted by holiday spending and salary bonuses,” Ulang said “Yet, the results were weaker, indicating elevated inflation is already eating into consumer spending and margins.”
The 2022 revenue beat reflected increased consumption during a post-pandemic recovery that was helped by national election spending, Ulang said, predicting a slow down in economic growth this year. The effect of successive interest rate hikes and elevated inflation will be seen in this year’s earnings, she said.
Overall, net profit growth in 2022 was 19.8%, with 10 of the 24 companies beating consensus. The pace is unsustainable, Ulang said, noting that she’ll be parsing the first quarter gross domestic product print due next month to gauge the earnings outlook.
For the year, utilities, industrials and banks exceeded net income estimates. Consumer staples and discretionary sectors, communications and real estate lagged behind as inflation and rising interest rates cut spending and increased costs. All except communications companies topped sales estimates.
In the high interest rate environment, “banks will be a winner,” said Jacqui de Jesus, a strategist at Maybank ATR Kim Eng Securities Inc., citing that 60% of lenders’ loan books carry variable rates. Inflation means consumer companies could underperform, she said, as they’ll be saddled with higher costs that they can’t pass on.
This year will probably be “a continuation of 2022 but in a good way,” said de Jesus. Price increases will slow toward the end of the year, implying “more subdued” rate hikes and “a more stable peso” supporting overall earnings growth of 13%, she predicted.
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