BPI expects Philippine business climate to normalize in 2021

BPI Philippine business climate
BPI continues to support Filipino businesses amid the pandemic.

The Bank of the Philippine Islands (BPI) says the modest uptick in consumption and people mobility indicates that sluggish growth is here to stay for the remaining months of the year and that businesses may normalize only within the first half of 2021.

BPI Securities Corporation President Haj Narvaez says the easing of quarantine restrictions in the country still leaves a lot of uncertainty, but the gradual increase in economic activity shows how people and businesses are coping.

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“We are seeing signs of improvement. We saw a pick-up on activity when the government started easing the quarantine. But we are still operating 40 to 45% below the mobility levels prior the pandemic,” said Narvaez.

“I would argue that companies and businesses have kind of learned that there’s a way to operate and grow their businesses without using the traditional avenue for selling products. So a lot of people are focusing on e-commerce, a lot more people are buying goods online, and more people transferring money via their banking apps to pay for goods and services. So we see a lot of growth potential there,” he said.

Narvaez explained that foreign investors look at mobility levels as a gauge to assess the situation in the Philippines.

“We concede ‘yes there is an improvement in the data.’ But I think it’s important also to compare how we are versus other markets,” he added. “You can see that the likes of Indonesia, Thailand, and Vietnam are probably ahead of us in terms of the return to normalcy. I would say the mobility there is probably 20 to 30% below the levels prior to the pandemic. So that pretty much explains the concerns of foreign investors.”

But a noticeable improvement in the country’s mobility data is a good sign for recovery. “There are some sequential improvements in visits to malls and to restaurants. And this would probably show in the third quarter, in the form of a quarter-on-quarter improvement in revenues. But the third quarter would still see a significant year-in-year decline of earnings for property developers and restaurant operators,” explained Mr. Narvaez.

It’s still a positive outlook for manufacturing and telecoms, especially those with resilient shelf-staple demand. For telecoms, he noted that the sector is resilient overall due to uninterrupted demand for communication services, while third-player risk remains muted because of attractive dividend yields amid lower interest rates.

Positive Momentum

Despite the near-term neutral outlook, Mr. Narvaez said that there are still local stock picks that they regard as the “cream of the crop” these days. These include Century Pacific Food, Inc. (CNPF), PLDT, and Ayala Land’s recently launched AREIT.

“CNPF has done well of late. There has been a positive momentum on the back of the strong second quarter numbers that we saw. We still like PLDT. It still offers you a decent dividend yield of 5% for 2021. And I would say the valuations are fairly reasonable at 14 times the 2021 earnings.”

As for its new addition, Narvaez said that they see potential in Ayala Land’s subsidiary, AREIT. “We like the defensive characteristics of this name. Obviously, there’s a lot of concern probably about the retail sector, specifically about mall operations. But again, I should highlight AREIT pretty much represents a play on the BPO/ traditional office space. And we’ve seen a lot of resiliency here.”

He continued, “If you look at the second quarter numbers of most property companies, I would argue that the office segment posted the best performance. In fact, broadly speaking, rental rates were up and occupancy remained at high levels and I guess given the trends in the medium term, I would argue those figures will likely be sustained, at the very least, for the next one to two years.”

Here are BPI’s tips on digitalizing payments to save money for businesses.

Filipino entrepreneurs can also get BPI-PHILGUARANTEE business financing.

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