PHL Firms Post Robust Earnings
The signs of an economy performing stronger in the months ahead are now clear. One of the data that serves as a harbinger of a faster gross domestic product (GDP) rate in the near term starting from the fourth quarter of this year includes corporate earnings.
Philippine conglomerates and other listed companies in the Philippine Stock Exchange have reported healthy corporate profits in the third quarter. Many posted double-digit growth incomes in the period, presumably boosted by strong consumer demand in a tame inflationary environment.
The strong third-quarter performances cut across the major sectors of the economy. This can only mean that healthy corporate earnings are broad-based. I can already imagine the increased capital expenditures that these companies will undertake in 2020 and the additional workers they will employ.
A much stable inflationary regime, lower interest rates and increased liquidity released by the Bangko Sentral ng Pilipinas after trimming further the reserve requirement ratios of banks will support the bigger capital expenditures.
Perhaps, one of the more impressive reports I saw on newspaper reports was that of budget carrier Cebu Air Inc. that operates Cebu Pacific airline.
Cebu Air booked a net income of P6.75 billion in the January-to-September period, up sharply by 143 percent from P2.78 billion in the same period last year, on increased passenger revenues. Passenger volume rose 10.4 percent to 16.7 million from 15.1 million last year after the airline bought bigger A321 aircraft to boost its fleet. Cebu Air’s strong financial performance reflects increased consumer spending. It is obvious that local tourism is doing well and that the spending power of Filipinos is rising.
Conglomerate Ayala Corp. nearly doubled its net income in the first three quarters to P46.2 billion from a year ago on the strong contribution from core businesses and the one-time gain from the sale of power assets. Units Bank of the Philippine Islands, Ayala Land Inc. and recently-beefed up AC Energy significantly contributed to the earnings. Another subsidiary, Globe Telecom Inc., registered a 20-percent growth in net income in the first nine months to P17.7 billion from P14.7 billion in the same period last year.
The strong profits of the property and telecom sectors indicate that GDP growth in the third quarter was sustained by strong consumer spending and brisk construction activities.
SM Investments Corp., which is also in the property business, banking and mall operations, booked a consolidated net income of P33.1 billion in the nine-month period, up 26 percent year-on-year. The strong financial performance of this conglomerate again leads me to believe that the GDP may have performed better in the fourth quarter and will continue to do so next year.
Conglomerates and other companies that booked handsome profits in the third quarter of 2019 will certainly lay out big expansion plans for next year to sustain their gains.
Philippine banks are also bullish on the prospects of the economy. They see the Philippine economy growing between 6 percent and 7 percent within the next two years despite the risks from domestic and external fronts, according to the results of the Banking Sector Outlook Survey (BSOS) for the first semester of 2019 that Bangko Sentral ng Pilipinas released last week.
“The banking industry remains optimistic on the country’s economic prospect amid global uncertainties and market volatilities…. Majority of the BSOS respondents projected the gross domestic product to grow between 6 percent and 7 percent within the next two years,” it said.
The outlook on the Philippine banking system also remained stable, with most of the BSOS respondents expecting double-digit growth in assets, loans, deposits and net income.
“The bullish outlook on the banking system indicates that banks will continue to provide an environment conducive to sustained domestic economic growth,” said the survey.
Even Japanese financial giant Nomura is upbeat. It expects the Philippine economy to achieve the low-end of its growth forecast of 6 percent to 7 percent this year. It said economic growth would be stronger at 6.7 percent in 2020 because another budget delay was unlikely.
“Compared to the 2019 budget which suffered a four-month delay and contributed to the growth slowdown in the first half of 2019, every step of this year’s budget approval process in Congress has been done much earlier, consistent with deliberate efforts to avoid a repeat of the 2019 budget delay,” said Nomura said in a report last week.