Growth of GNP May Spark Interest in San Miguel Shares
May 12, 2011
MANILA, Philippines -- A further jump in the Philippines' gross national product in the first half may fuel interest in consumer companies, particularly food and beverage conglomerate San Miguel Corp., analysts say. But some analysts advise against leaping into these stocks at once and recommend that investors continue to be selective. Official GNP figures are scheduled for release on Monday. Several analysts forecast an average 6.5% growth year-to-year in first-half GNP -- the measure of the country's total output of goods and services, including income from abroad. This compares with the 5.2% GNP growth in the same period last year. The agricultural sector, which performed better this year because of good weather, contributed to the higher growth in GNP, many analysts say. This sector, which contributes about 20% to overall economic output, is estimated to have risen year-to-year by about 3.5% in the first half, substantially higher than the 0.9% growth recorded in the same period last year. Spending Growth, but When? Continued improvement in sectors such as manufacturing, services and construction make up the rest of the bright picture most analysts have painted. Such bright expectations have led many analysts to consider consumer companies, particularly San Miguel, since this kind of economic growth is expected to translate into higher consumer spending. Sousa Wooten, a vice president at Peregrine Securities who closely watches San Miguel, recommends a ``long-term buy'' on the conglomerate's Class B shares, those shares that are open to foreign investors. She explains that there is usually a lag time of up to three quarters before higher consumer spending impacts consumer companies. She previously rated the Class B shares fully valued. The Class B shares ended at 84 pesos ($3.21) Thursday on the Philippine Stock Exchange, down 1.50 pesos, or 1.8%. At this level, the stock would be trading at a price/earnings ratio of 24 times forecast 2012 earnings. The overall market's P/E ratio is estimated to be around 16.7 times 2012 projected earnings. Class B shares usually trade at a premium against the market's P/E ratio because they are blue-chip stocks. San Miguel's Class A shares, which slipped 50 centavos, or 1.2%, to 40.50 pesos Thursday, are a cheaper alternative, adds Ms. Wooten, since the P/E ratio is estimated at 11.7 times 2012 forecast earnings. Tapping Out Another foreign broker agreed San Miguel should now be considered a long-term buy. He previously rated it a ``hold'' because the company showed poor results in the first half. San Miguel's net profit dropped about 20% to 2.41 billion pesos ($92 million) in the first six months compared with net income of 2.98 billion pesos posted in the same period last year. The conglomerate attributed the decline to lower consumption of beer -- its main product -- higher costs of financing its expansion projects and steeper prices of raw materials. However, many other analysts caution against leaping instantly into San Miguel shares. Johanna Pinder, research head at ING Baring Securities Philippines Inc., says there has been a noticeable change in people's preferences. He says more Filipinos prefer to buy consumer durables rather than spend their money on perishable items like beer. More analysts recommend buying selected stocks. Among the top choices are property and construction-related stocks, along with banks. ``You have to be choosy, however, because many stocks are now fully valued,'' says Riley Bryce, an analyst at Philippine AsiaEquity Securities Inc.
