Philippine Markets Newsletter

PH MONDAY MACRO: Even with inflation concerns, Philippine companies still look good in terms of their aggregate credit health

September 5, 2022

Historically high inflation, weaker Philippine peso, smaller businesses struggling to survive… These are some reasons why Filipinos continue to be wary about the country’s economic recovery post-pandemic. It does not help consumer confidence either that the national debt is at nearly PHP 13 trillion—another record high.

Talks of global recession have once again hounded investors, especially as supply chain issues and elevated prices of goods persist.

However, as we’ve said multiple times in the past, recessions preceded by credit events are the ones we should be concerned about. True, a ballooning Philippine national debt in recent years can be worrisome if taken as is, but that does not automatically translate to problematic corporate debt.

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In the past few months, we’ve seen Philippine annual inflation rate hit new highs, beginning with a 40-month high of 4.9% in April 2022. As of July 2022, the annual inflation rate is at 6.4%.

The usual suspects continue to contribute to the higher prices of goods.

High fuel costs are a concern, and the countless increases and rollbacks have made it difficult for consumers to properly plan their expenses. Raw material costs, especially for daily essentials like sugar, also rose amid demand and supply issues. Because of that, food businesses have had to either charge more or offer less per serving just to remain profitable.

Then there’s the additional daily cost to families as face-to-face classes resumed in August. With the August inflation rate figure coming out soon, we’ll have a rough idea of whether or not the Bangko Sentral ng Pilipinas (BSP) will need to once again raise rates to manage inflation.

Recall that one of the BSP’s tools in its arsenal to maintain price stability is interest rate. The central bank can raise rates to encourage savings when inflation is too high. It can also cut interest rates to encourage spending in a low-inflationary environment in order to spur economic growth.

Assuming the BSP continues to do its job well, we shouldn’t be concerned about another recession… at least not in the next few months.

However, if the Philippines does fall into another technical recession, there is still no reason to worry about the country’s economic health—Philippine corporates continue to show healthy credit profiles.

Taking a look at the aggregated Credit Cash Flow Prime of the listed corporations in the country, we see that Philippine companies are at no risk of being unable to service their financial obligations.

Gross cash earnings alone are enough for companies to meet their debt payments. Particularly, companies will have no issues servicing their interest payments, and outstanding debt can be refinanced. Additionally, companies can always opt to postpone any additional capex spending and dividend payments to maintain a comfortable level of available cash.

The chart above is enough reason for us to continue to remain optimistic about corporate Philippines. With their relatively healthy balance sheet during the pandemic, companies can be expected to perform better barring anymore black swan events.

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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