After the Frantic Pumping, 14 PSEi Firms Show Net Income Performance Below CPI Rates!
FOURTEEN of the PSEi 30 firms published their financial performance for both the second quarter and the first half of this year.
What makes the series of disclosures remarkable has been the sharp contrast between actions at the PSEi and the financial performance of its composite issues.
Based on Earnings Per Share (eps), SIX of 14 issues or 43% posted earnings CONTRACTION. Three recorded less than 10% growth while 5 had over 10% growth.
So far, eps shrinkages have edged out the outperformers.
What’s more, accounting issues and nonrecurring income were mainly behind some the issues which shined.
About 72% of TEL’s gains were from other income.
ICTSI likewise registered significant “one-time gain from reimbursement of costs” from a sub-concession agreement which had been terminated and from the recognition of income tax credit.
In short, nonrecurring and non-core revenues have partly magnified the overall earnings output, so far.
The average earnings per share (EPS) growth of these 14 issues has only been 5%, yet the average equity return had been a striking 16.28% or more than twice the average earnings growth!!!
Amazing.
Such is the reason why the Phisix has been one of the priciest equity benchmarks in the world – practically there has been little relevance between output and returns!
And the average PER based on 1H annualized eps is 19!
It is more than just the current set of numbers. How these numbers have been shaped represents the crux of a company’s business paradigm. Like SMPH, current revenues and earnings growth principally depend on debt financed capacity expansion. Such debt driven paradigm is simply unsustainable.
EPS is computed from the net income attributable to shareholders divided by the outstanding shares. So other factors such as stock rights offering (e.g. BDO) and profits from discontinued operations (e.g. GTCAP) influence eps and thus may register differences with net income.
Based on net income alone, the cumulative growth for the 14 firms has been at a paltry 2.2%! Considering that the average CPI for the said period was 3.1%, then real net income actually signified a LOSS - a negative (-.9%)!
Mass pumping in the face of NEGATIVE real net income! Just awesome!
Nevertheless, such signifies more evidence of the brewing disconnect between prices and the real economy.
And the curious thing here is that given banking loans grew at a monthly average of 18% interest income of PSEi listed banks have failed to match the velocity of the banking system’s credit expansion.
As such, eps growth has been marginal. For instance, BPI’s net interest income was insufficient to neutralize the huge hole in its trading performance such that the company endured an eps deficit in the 1H.
Have PSEi 30 banks been responding to the flattening yield curve? Or have such banks been more defensive in dishing out loans to the public perhaps due to rising credit concerns?
But if you look at shares of banks, they have mostly been rocketing! Along with the properties, the bank financial index has been at a landmark high. Year-to-date returns for the same index as of Friday had been at 20.09%! So what gives? Speculative juices? Turbocharged greed?
I expect that the remainder of the PSEi 30 to report by next week.
GDP Week: Will There Be Wild Pumps Ahead? 2Q GDP Could Have Slowed
And it’s not just earnings; the coming week is the much-touted GDP week.
Extensive volatility has usually accompanied GDP week.
Two to three days or sometimes a week before the announcement, the Phisix encounters massive pumping. So unless insider tips or expectations will be for lower GDP, then I expect the same dynamic to take hold.
Of course, other issues such as North Korea may counterbalance the forces behind the GDP week.
So far since 2015, eight of 10 GDP pre-announcements had been accompanied by pumps, one had a dump, and there was little change in one occasion.
Nevertheless, some clues on the possible outcome of 2Q GDP.
Government revenue growth has been down sharply (Tax and Non-tax 2Q: +3.54%; BIR + BoC 2Q: +5.51%).
Based on the performance of major cement manufacturers - HLCM, CHP and Eagle which topline were significantly lower – extrapolates to slower construction activities.
Net income, EPS and gross revenues of listed firms have lagged previous performances.
Car sales have materially slowed in the 2Q (although this jumped back to 23.3% last July).
2Q external trade grew by 7.18% about half the rate in 2016 at 15.19%. In line with exports, manufacturing conditionshave substantially cooled.
With General Retail Prices and the CPI in considerable deceleration, perhaps consumer spending could be lower.
Most importantly, money supply growth has been moderating. 2Q M3 growth was at 11.9% down from 12.03% in 1Q and 12.73% in the 4Q of 2016. M3 has coincided with real GDP (RGDP).
So GDP should be mostly lower, if not at the current rate.
But remember, GDP is a government construct mostly anchored on surveys. So political considerations may have a hand in determining the GDP. The government can produce whatever numbers they wish for the public to see, since hardly anyone would question the validity of the numbers. And or surveys can be vastly optimistic.
As the SY Group Saved the Phisix, Huge Deterioration Has Surfaced in the Market’s Breadth!
Here’s a final note on the developments behind the headline index.
The Phisix was little change (-.06%) this week. But that was largely a result of the incredible thrust to elevate the major bellwether.
Once again, mass pumping on SM group of companies fundamentally neutralized declines of the other issues.
SM Investments closed the week at a fresh record. Friday’s magnificent +1.16% mark-on-close pump contributed to a third of SM’s fabulous weekly (+3.69%) gains!
SM’s BDO also carved a new high this week. Despite the decline in 1H eps and a stagnant net income, BDO ended the week steeply up or by a fascinating 2.0%!
Considering that the two Sy owned issues accounted for 18.35% share of the PSEi, the substantial weekly gains had been enough to counteract on losses by the others. Nevertheless, TEL (+6.75%) and SECB (+9.75%) provided flanking support to the two Sy companies.
What’s interesting has been the deterioration of breadth in the broader markets.
While the PSEi had a narrower differential (advancers 12: decliners 18), decliners led the broader market by the largest margin (decliners 589 vis-a-vis advancers 358; margin -231) since the middle of December of 2015.
An enormous decay in market breadth usually occurs during steep selloffs. In contrast, the corrosive effects have transpired at market highs. And faltering volume and trade turnover has accompanied this.
Current developments have been very interesting because of the escalating divergence. Apparently, such discrepancies embody the unnatural effects of gaming of the market or from artificial props on the Phisix.
We have come to the point where many have come to think that the fundamental laws of economics have been vaporized to suit their conveniences and personal interests.
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