Philippine Markets Newsletter

MONDAY MACRO: PSE-listed corporations have bounced back stronger in 2021 from prior-year lows according to this profitability metric

June 27, 2022

Even though COVID-19 cases were significantly higher in 2021 than in 2020, restrictions were looser and the economy began to slowly open up. Demand was climbing and businesses were able to operate to a certain capacity.

To see how Philippine businesses—PSE-listed corporations, specifically—have recovered from 2020 lows, we turn to this profitability metric viewed under the Uniform Accounting lens. 

Philippine Markets Newsletter: 
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It’s no surprise that 2020 was a terrible year for Philippine corporations.

The pandemic prompted the government to mandate lockdowns which, in turn, caused the demand for goods and services to plummet. The second quarter of the year was especially brutal as the country was placed under ECQ—the strictest level of quarantine.

As the lockdown restrictions were loosened, demand started to recover. Supply, on the other hand, couldn’t catch up fast enough. Global border and mobility restrictions, increased raw material prices, and labor shortages significantly disrupted supply chains.

Businesses had a rough time dealing with pent-up consumer demand considering the rampant bottlenecks in supply. Consequently, corporate profits took a major hit.

To illustrate, we’ll be looking at the aggregate return on assets (ROA) for Philippine corporations.

The ROA metric quantifies how well a company profits off of its investments. Great businesses are the ones with consistently high ROAs or ones that can improve from its current ROA levels.

In this case, though, we would be evaluating the aggregate ROA of all PSE-listed companies as opposed to evaluating them individually. 

This helps us get a clearer understanding of the Philippine corporate market’s performance as a whole, as well as gauge the economy’s health considering that the top corporations are significant contributors to the country’s GDP.

Looking at as-reported metrics, it can be concluded that while Philippine corporations are profitable in aggregate, they are still lagging behind the global corporate average of 6%—even with the recovery in 2021.

However, as-reported metrics fail to show the real profitability levels of the market, which is why we turn to Uniform Accounting to clean up the accounting noise. 

The adjusted numbers lead us to a different conclusion. While Uniform ROA was close to the global average from 2001 to 2009, Philippine corporations began outperforming—or at least matching—the global average return of 6% from 2010 onwards.

More importantly, while Uniform ROA hit previous lows of 4% in 2020 due to the pandemic, corporate returns have since recovered nicely to 6% in 2021 despite the additional lockdowns due to the spread of the Delta variant.

Although it wasn’t quite a full recovery, the previous year still saw many businesses reopen and restart the hiring process to accommodate the climbing demand. 

Furthermore, the government enacted laws and policies to support the recovery of the corporate market, with some of the heavy hitters including interest rate cuts and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

While businesses have not yet returned to previous aggregate Uniform ROA levels of 7%-8%, it is likely it will over the next few years as the pandemic settles down, the supply and demand rebalances, and the government initiatives continue to support corporate growth.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available. 

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data. 

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms. 

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful. 

Stay tuned for next week’s Monday Macro report! 


Angelica Lim 

Research Director
Philippine Markets Newsletter
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