Philippine Markets Newsletter

MONDAY MACRO: Seeing how this industry has performed, it makes sense how it could potentially have 2021’s two largest IPOs

August 9, 2021

Although the Philippine stock market has remained volatile this year with investors concerned about the economic impact of lockdowns, we’re still seeing companies applying for their initial public offering (IPO).

Aside from the incoming real estate investment trusts, the Food, Beverage, & Tobacco industry was set to see two major IPOs, with one recently postponing its launch. Nonetheless, it would be interesting to see how the industry has performed and what could incite such optimism or pessimism.

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Despite the ups and downs that the Philippine stock market has experienced this year, the market saw its largest-ever IPO with Monde Nissin Corporation (MONDE:PHL) going public and raising PHP 48.6 billion in June.

According to Monde Nissin’s CEO, Henry Soesanto, majority of the proceeds from the public offering will be devoted to growing instant noodles sales in Asia, as well as boosting production of their alternative meat business.

Aside from Monde Nissin, the stock market was also set to see another major IPO in the Food, Beverage, & Tobacco industry.

Del Monte Philippines, popular for their canned pineapples and tomato sauce products, originally planned to conduct their PHP 44.1 billion IPO today, which would have been the second largest IPO in 2021.

However, parent company Del Monte Pacific Limited (DELM:PHL) decided to delay the IPO due to the elevated market volatility.

With Del Monte’s pessimistic outlook, investors might be concerned about the company’s—and its peers’—current performance. However, the industry has actually performed quite well during the pandemic, compared to the rest of the Philippine stock market.

Theoretically, the Food, Beverage, & Tobacco industry is generally resilient to economic downturns, especially during a pandemic. Excluding restaurants, industry demand is relatively unaffected since groceries and supermarkets remain open.

With a constant stream of demand for essential products, companies in this industry are able to steadily generate revenues. As a result, profitability of companies in the Food, Beverage, & Tobacco industry generally outperforms other sectors during recessionary periods.

Meanwhile, during periods of economic expansion, the industry can still see ROAs improve as the general population—its customer base—is prospering.

For years, the Philippine Food, Beverage, and Tobacco industry had been struggling to produce ROAs above the cost of capital. It was only in 2010 when returns massively improved thanks to the push from the global economic recovery and the renewed focus on local goods that resulted in the fastest GDP growth to date.

Specifically, Uniform ROAs expanded from a low of 2% in 2008 to a peak of 13% in 2018, before fading to 12% in 2019 and further dropping to 8% in 2020.

Companies in the industry like San Miguel Food & Beverage (FB:PHL) and Universal Robina Corporation (URC:PHL) were able to manage input costs and improve operational efficiencies. Meanwhile, Jollibee Foods Corporation (JFC:PHL) was able to deliver higher growth through international expansion.

In addition, the past decade saw the public listing of already profitable companies like Emperador (EMP:PHL) and Century Pacific Food (CNPF:PHL).

Compared to the Uniform ROAs of the overall Philippine stock market, the Food, Beverage, & Tobacco industry has been equally profitable or more profitable than Philippine corporates since 2009, excluding a 2011 underperformance.

Even during the pandemic, the industry recorded an 8% Uniform ROA, while the entire Philippine stock market generated only 4%.

With this in mind, it is not surprising that Monde Nissin chose to go public even at this time.

As for Del Monte, it’s not unusual for companies to delay their IPOs to wait until market conditions improve. Yet what seems apparent is that the market volatility the company is concerned about will likely not impact its peers at a similar degree.

About the Philippine Markets Daily
“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 Daily
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