Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

A lack of transparency results in distrust and a deep sense of insecurity — Dalai Lama 

In this issue

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong

I. PSEi 30 Q2 2025: The Illusion of Resilience

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

IB. Structural Downtrend and Policy Transmission Breakdown

IC. Real Value Output in Decline, Political Optics and GDP Credibility

ID. Meralco’s Electricity Consumption Story: A Broken Proxy

II. Real Estate: The Recovery That Wasn’t

IIA. Overton Window vs. Market Reality

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

III. Retail and Food Services: Mixed Signals

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration

IV. Banking Revenues and Income: A Stalling Engine

IVA. Banking Sector: Credit Surge, Revenue Stall

V. The PSEi 30 Net Income Story

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation?

VB. SMC’s Financial Engineering? Escalating Systemic Risk

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

____

Q2–1H Debt-Fueled PSEi 30 Performance Disconnects from GDP—What Could Go Wrong 

Beneath headline growth lies a fragile mix of policy stimulus, rising leverage, and mounting stagnation—masking systemic fragility. 

I. PSEi 30 Q2 2025: The Illusion of Resilience 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on same year index members; may include revisions to past data

1B: Historical comparison; includes only members present during the end of each respective period; based on unaudited releases

IA. Q2 GDP at 5.5%: Headline Growth vs. Corporate Stagnation

Q2 GDP at 5.5%?   

On paper, that should have translated into strong corporate earnings—especially when juxtaposed with the financial pulse of the PSEi 30. 

Yet that headline growth masks a deeper dissonance: These firms, positioned as frontline beneficiaries of BSP’s easing cycle and historic deficit spending, should have reflected the policy tailwinds.

Figure 1

Instead, the disconnect is glaring: while nominal GDP surged 7.2% in Q2 and 7.4% in H1, aggregate revenues of the PSEi 30 contracted by 0.3% in Q2 and barely budged at 1.7% for the first half. (Figure 1, upper graph) 

IB. Structural Downtrend and Policy Transmission Breakdown 

More troubling, this isn’t a one-off anomaly. 

2025’s performance merely extends a structural downtrend that peaked in 2022—raising uncomfortable questions about transmission mechanisms, institutional fragility, and the real beneficiaries of expansionary policy. 

Consider this: Universal bank credit hit a historic high in June 2025, with 12.63% growth, the fastest pace since 2022. Yet PSEi 30 revenue growth in H1 limped to just +1.7%. The juxtaposition is telling. (Figure 1, lower window) 

Rather than fueling productive consumption or corporate expansion, credit appears channeled into asset churn and balance sheet patchwork—rolling debt, patching liquidity gaps, gaming duration mismatches. It’s a kinetic mirage, where velocity substitutes for vitality—hallmarks of overleveraging and diminishing returns. 

The very tools meant to stimulate growth now signal policy transmission failure, where liquidity flows but impact stalls. 

IC. Real Value Output in Decline, Political Optics and GDP Credibility 

Worst still, when adjusted using the same deflators applied to GDP, the PSEi 30’s real output doesn’t just stagnate—it slips into quasi-recession. Both Q2 and H1 figures turn negative, ≈ -2% and -.4%, exposing a structural rot beneath the nominal gloss. (Note 1)

Figure 2 

And this isn’t a statistical fluke. 

A full third of the index—10 out of 30 firms—posted revenue contractions, led by holding firms San Miguel, Alliance Global, and Aboitiz Equity. These aren’t fringe players—they’re positional market leaders. (Figure 2, upper table) 

As a side note, AGI’s revenue decline was partly driven by the deconsolidation of Golden Arches Development Corp, following its reclassification as an associate in March 2025 (Note 2) 

The gap is too wide, too persistent a trend, to be dismissed as cyclical noise. 

Was the PSEi 30 shortfall simply papered over by government spending, with a boost from external trade? 

Or was GDP itself inflated for political ends—to justify lower interest rates, defend the proposed Php 6.793 trillion 2026 budget (+7.4% YoY), and tighten the administration’s grip on power? 

Most likely, the truth lies in some combination of both. 

ID. Meralco’s Electricity Consumption Story: A Broken Proxy 

That’s not all. 

Meralco’s electricity sales volume contracted −0.33% YoY in Q2, dragging H1 growth down to a mere +0.51%. This isn’t just a soft patch—it’s historic: 

• First Q2 contraction since Q1 2021,
• First negative H1 since 2020, —both periods marked by pandemic-induced recession. 

More tellingly, Meralco’s quarterly GWh chart—once a reliable proxy for real GDP—has broken correlation. The divergence, which began in Q1 2024, has now widened into a chasm. (Figure 2, lower chart) 

To compound this, peso electricity peso sales shrank by 1.74% in Q2, and Meralco’s topline declines—both in pesos and GWh—dovetailed with the 8% sales slump in aircon market leader Concepcion Industries Corporation, as we discussed in an earlier post. (see references) 

When electricity consumption decouples from GDP, it raises uncomfortable questions: 

• Is real consumption being overstated? 
• Are headline figures engineered to justify policy optics—lower rates, ballooning budgets, and political consolidation? 

The numbers suggest more than statistical noise. They hint at a manufactured narrative, where growth is declared, but not felt. 

II. Real Estate: The Recovery That Wasn’t 

IIA. Overton Window vs. Market Reality 

There’s more. The public has recently been bombarded with official-consensus messaging about a supposed real estate ‘recovery.’ 

 The BSP even revised its property benchmark to show consistently rising prices—curiously, at a time of record vacancies. (see references) By that logic, the laws of supply and demand no longer apply. 

To reinforce the recovery echo chamber, authorities published modest Q2 and H1 NGDP/RGDP figures of 5.7% and 5.4%, respectively. 

IIB. Property Developer Falling Revenues, Debt Surge and Liquidity Strain 

Figure 3

Yet the hard numbers tell another story: stagnation gripped the top 5 publicly listed property developers—SMPH, ALI, MEG, RLC, and VLL—whose aggregate Q2 revenues grew by a paltry 1.23% YoY. (Figure 3 topmost image)

Adjusted for GDP deflators, that’s a real contraction. In effect, published rent and real estate sales may be teetering on the brink of recession.

The relevance is clear: these five developers accounted for nearly 30% of the sector’s Q2 GDP, meaning their results are a critical proxy for actual conditions—assuming their disclosures are accurate.

Yet, if there’s one metric that’s consistently rising, it’s debt.

Published liabilities surged 5.5% or Php 53.924 billion, reaching a record Php 1.032 trillion in Q2. Meanwhile, cash reserves plunged to their lowest level since 2019. (Figure 3, middle chart)

And yet, net income rose 11.15% to Php 35.4 billion—a figure that invites scrutiny, given flat revenues, rising leverage, and tightening liquidity.

In reality, developers appear forced to draw down cash to sustain operations and patch liquidity gaps, a fragile foundation to prop up the GDP consensus.

IIC. Downstream Demand Weakness: Home Improvement & Construction Retail

Worse, the sector’s downstream segment remains mired in doldrums.

Sales of publicly listed market leaders in home improvement and construction supplies—Wilcon and AllHome—fell -1.95% and -22.1% in Q2, respectively. Both chains have been struggling since Q2 2023, but the latest data are striking: despite no store expansion, AllHome reported a -28% collapse in same-store sales, while Wilcon’s growth lagged despite opening new outlets in 2024–2025, underscoring weak organic demand and the record vacancies. (Figure 3, lowest visual)

Strip away the official spin, and the underlying pattern emerges: insufficient revenues, surging debt, and shrinking liquidity. Overlay this with record-high employment statistics, historic credit expansion and fiscal stimulus—what happens when these falters? 

Consumers are already struggling to sustain retail and property demand. Yet, embracing the ‘build-and-they-will-come’ dogma, developers continue to expand supply, worsening the malinvestment cycle: supply gluts, strained revenues, debt build-up, and thinning cash buffers—a crucible for a future real estate debt crisis. 

III. Retail and Food Services: Mixed Signals 

IIIA. Retail: Consumer Strain Amid Policy Sweet Spot 

It’s not all bad news for consumers. 

Some segments gained traction from the “sweet spot” of easy money and fiscal stimulus—manifested in record bank credit and near all-time high employment rates. 

Figure 4

The most notable beneficiaries were non-construction retail chains, where expanded selling space (malls, outlets, stores) lifted revenues. The combined sales of the six listed majors—SM, Puregold, Robinsons Retail, Philippine Seven, SSI, and Metro Retail—rose 8.6% in Q2, their strongest showing since Q2 2023. (Figure 4, topmost graph) 

Still, signals remain mixed. In Q2, retail NGDP slipped to its lowest level since Q1 2021, while real consumer GDP bounced to 5.5%, its highest since Q1 2023. 

Company results reflected this divergence:

• SM: +8.9% YoY (best since Q4 2023)
• PGOLD: +12.3%
• RRHI: +5.9%
• SEVN: +8.6%
• SSI: −1.6%
• MRSGI: +6.6%

IIIB. Divergence Between Store Expansion and Organic Demand, Retail Growth vs. GDP Trends 

Interestingly, while Philippine Seven [PSE: SEVN] continues to boost headline growth via new store openings, same-store sales have operated in negative territory from Q4 2024 to Q2 2025. This divergence reveals how money at the fringes conceals internal vulnerabilities—weakening demand paired with oversupply. Once the benefit of new outlets erodes, excess capacity will magnify sales pressure, likely translating into eventual losses. (Figure 4, middle pane) 

Even as listed non-construction retail firms outpaced retail NGDP (6.8%) and RGDP (6.15%), their performance only partially resonates with the real GDP dynamic. 

Yet, the embedded trend across retail sales, consumer GDP, and retail NGDP remains conspicuously downward. 

IIIC. Food Services: Jollibee’s Dominance and Sector’s Growth Deceleration 

The food service industry echoes this entropy. Jollibee’s domestic sales grew 10.13% in Q2, pulling aggregate revenue growth of the four listed food chains—JFC, PIZZA, MAXS, FRUIT—to 9.6%, still below the 10.7% NGDP and 8.34% RGDP for the sector. The growth trajectory, led by JFC, continues to decelerate. (Figure 4, lowest diagram) 

Notably, JFC accounted for 86% of aggregate listed food service sales, yet only 54% of Q2 Food Services GDP—a testament to its PACMAN strategy of horizontal expansion—an approach I first described in 2019—enabled by easy-money leverage in its pursuit of market dominance (see references) 

Unfortunately, visibility on the sector is now diminished. Since AGI reclassified Golden Arches (McDonald’s Philippines) as a non-core segment, its performance is no longer disclosed. For reference, McDonald’s sales plunged 11.5% in Q1 2025. 

Losing this datapoint is regrettable, given McDonald’s is Jollibee’s closest competitor and a critical indicator of industry health. 

IV. Banking Revenues and Income: A Stalling Engine 

IVA. Banking Sector: Credit Surge, Revenue Stall 

Finally, despite all-time high loan volumes, bank revenues slowed sharply in Q2—an unexpected deceleration given the credit surge. The top three PSEi 30 banks—BDO, BPI, and MBT—posted a modest 7.02% revenue increase, dragging 1H growth down to 7.99%. For context, Q1 2025 revenues rose by 9%, while Q2 2024 saw a robust 21.8% jump. Full-year 2024 growth stood at 20.5%, making Q2 2025’s performance less than half of the prior year’s pace. 

We dissected the worsening conditions of the banking sector in depth last week (see reference section) 

V. The PSEi 30 Net Income Story 

VA. Earnings Breakdown: SMC’s Income Dominance, Accounting Prestidigitation? 

For the PSEi 30, if revenue stagnation already stands out, net income tells a similar story.

Figure 5 

Q2 2025 net income rose by 11.5% (Php 28.7 billion), pulling down 1H income growth to 13.8% (Php 68.6 billion). While Q2 gross net income was the highest since 2020, its marginal increase and subdued growth rates marked the second slowest since 2021. (Figure 5, upper chart) 

The devil, of course, lies in the details. 

The biggest contributor to the PSEi 30’s net income growth in Q2 and 1H 2025 was San Miguel Corp. Its net increase of Php 18.7 billion in Q2 and Php 53.19 billion in H1 accounted for a staggering 65.2% and 77.54% of the total PSEi 30 net income growth, respectively—despite comprising just 8.5% and 11.8% of the index’s gross net income. (Figure 5, lower table) 

In effect, SMC was not merely a contributor but the primary engine behind the index’s earnings rebound.

Yet this dominance raises more questions than it answers.

Despite a sharp revenue slowdown and only marginal improvements in profit margins—still below pre-pandemic levels—SMC reported a substantial jump in cash holdings and a deceleration in debt accumulation. But this apparent financial strength stems not from operational resilience, but from non-core gains: fair value revaluations, FX translation effects, and dividends from associates.

The result is a balance sheet that appears healthier than it is, with cash levels inflated by accounting maneuvers rather than organic surplus.

VB. SMC’s Financial Engineering? Escalating Systemic Risk

Beneath the surface, SMC’s debt dynamics resemble quasi-Ponzi finance—borrowing Php 681 billion to repay Php 727 billion in 1H 2025, while plugging the gap with preferred share issuance and asset monetization. The latter includes the deconsolidation and valuation uplift of its residual stakes in the Ilijan power facility and Excellent Energy Resources Inc. (EERI), as well as the $3.3 billion LNG deal with Meralco and AboitizPower in Batangas. Though framed as strategic partnerships, these transactions involved asset transfers that contributed heavily to the surge in reported profits.

The simulacrum of deleveraging—from Php 1.56 trillion in Q4 2024 to Php 1.506 trillion in Q2/1H 2025—appears to be a product of financial engineering, not structural improvement. This disconnect between reported profitability and underlying liquidity mechanics raises concerns about transparency and sustainability.

In a market where banks, corporates, and individuals hold significant exposure to SMC debt (estimated at 4.3% of June 2025’s total financial resources), the company’s accounting-driven cash buildup may signal escalating systemic fragility—a risk that the recent equity selloff seems to be pricing in ahead of the curve.

Stripped of SMC’s potentially inflated income, Q2 and H1 net income for the PSEi 30 would rank as the second-lowest and lowest since 2021, respectively—underscoring the fragility behind the headline performance.

At the same time, and with curious timing, SMC announced its intent to undertake large-scale flood control across Metro Manila and Laguna—"at no cost to the government or the Filipino people". Whether this reflects a genuine civic gesture or a strategic bid to accumulate political capital remains unclear. But the optics are unmistakable: as SMC’s earnings distort the index’s headline strength, it simultaneously positions itself as a public benefactor.

Yet, is this narrative groundwork for a future bailout, or a preemptive reframing of corporate rescue as national service?

VI. Debt and Liquidity: The Structural Bind

VIA. Mounting Liquidity Stress: Soaring Debt and The Deepening Leverage Trap 

Finally, let us move on to the PSEi 30’s liquidity metrics: debt and cash. 

If there’s one structurally entrenched dynamic in the PSEi 30, it’s borrowing.

Figure 6

Published short- and long-term debt of the non-financial PSEi 30 surged to an all-time high of Php 5.95 trillion in 1H 2025—up 7.66% year-on-year. (Figure 6, topmost chart) 

The net increase of Php 423 billion amounted to 74.7% of the gross net income and a staggering 617% of the YoY net income increase. 

Including the bills payable of the four PSEi 30 banks—Php 859.7 billion, excluding bonds—total leverage rises to Php 6.8 trillion—with net borrowing gains of Php 760.5 billion, overshadowing declared net income of Php 566.7 billion. 

In short, the PSEi 30 borrowed Php 1.34 to generate every Php 1 in profit—assuming SMC’s profits are genuine. 

And this borrowing binge wasn’t isolated. Among the 26 non-financial firms, 18 increased their debt in 1H 2025. 

On average, debt now accounts for 27% of assets—or total liabilities plus equity. 

SMC, once the poster child of corporate borrowing, ceded the title this period to Meralco, Ayala Corp, and Aboitiz Equity Ventures. (Figure 6, middle table) 

Notably, MER and AEV’s borrowing spree coincides with their asset transfer deals with SMC. Whether this reflects strategic alignment or a quiet effort to absorb or ‘share’ SMC’s financial burden to deflect public scrutiny—such optics suggest a coordinated dance. 

If true, good luck to them—financial kabuki always yields to economic gravity. 

VIB. Transparency Concerns, Desperate Calls for Easing, Cash Reserves Under Pressure 

The thing is, transparency remains a persistent concern, especially in periods of mounting financial stress or pre-crisis fragility. 

First, there’s no assurance that published debt figures reflect full exposure. Some firms may be masking liabilities through other liabilities (leases, trade payables) or off-balance sheet arrangements. 

Second, asset valuations underpinning declared balance sheets may be unreliable. Accounting ratios offer little comfort when market liquidity evaporates—see the 2023 U.S. bank crisis or China’s ongoing property implosion. 

Despite historic borrowing and declared profits, PSEi 30 cash reserves barely budged—up just 0.96% YoY, with a net increase of Php 14.07 billion following two years of retrenchment. Cash levels have been on a steady decline since their 2020 peak. We suspect that recent upticks in cash are not in spite of borrowing, but because of it. 

This growing debt-income-revenue mismatch explains the establishment’s increasingly desperate calls for “MOAR easing” and declarations of a real estate “recovery.” 

VII. Conclusion: The Illusion of Resilience: As the Liquidity Tide Recedes, Who’s Swimming Naked? 

The PSEi 30’s revenue stagnation belies the optics of headline GDP growth. Even in the supposed “sweet spot”—BSP easing, FX soft-peg subsidies, and record stimulus—consumer strain cuts across sectors.

Stimulus may persist, but its marginal impact is fading—manifesting the law of diminishing returns. The disconnect between policy effort and real economy traction is widening.

Q2 and H1 income growth seem to increasingly reflect on balance sheet theatrics driven more by financial engineering and accounting acrobatics than by operational reality.

When earnings are staged rather than earned, the gap between corporate performance and macro reality doesn’t just widen—it exposes a deepening structural mismatch. 

Deepening leverage also anchors the PSEi 30’s fundamentals. On both the demand and supply sides, debt props up activity while cash thins. The same fragility echoes through the banking system and money supply mechanics. 

This is not resilience—it’s choreography. And when liquidity recedes, the performance ends. 

As Buffett warned: "when the liquidity tide goes out, we’ll see who’s been swimming naked" We might be hosting a nudist festival. 

___ 

Notes: 

Note 1 While GDP measures value-added and corporate revenues reflect gross turnover, applying the same deflators provides a reasonable proxy for real comparison. 

Note 2: Alliance Global 17 Q August 18, 2025: Effective March 17, 2025, GADC was deconsolidated and ceased to be a business segment as it becomes an associate from that date, yet the Group’s ownership interest over GADC has not changed p.2 

References 

Prudent Investor Newsletter, Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum, June 01, 2025 (Substack) 

Prudent Investor Newsletter, Concepcion Industries Cools Off—And So Might GDP and the PLUS-Bound PSEi 30 (or Not?) July 28, 2025 

Prudent Investor Newsletter, The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility, July 13, 2025(Substack) 

Prudent Investor Newsletter, Jollibee’s Fantastic Paradigm Shift: From Consumer Value to Aggressive Debt-Financed Pacman Strategy March 3, 2019 

Prudent Investor Newsletter, Philippine Banks: June’s Financial Losses and Liquidity Strains Expose Late-Cycle Fragility, August 17, 2025 (Substack)

  

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

 

Bulls of 1929 like their 1990s counterparts had their eyes glued on improving profits and stock valuations.  Not a thought was given to the fact that the rising tide of money deluging the stock market came from financial leverage and not from savings-Dr. Kurt Richebacher 

In this issue:

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

I. An Extension of 2024's Fiscal-Monetary Interplay

II. Debt-Led Growth: Fragile Foundations

III. Revenue Growth: Record Highs, Diminishing Returns

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

V. Net Income Surge: A Paradox of Profitability

VI. Sectoral Performance: Diverging Trends

VII. Top Movers: Individual Firm Highlights

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage

IX. Transparency and Accuracy Concerns

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

Debt-fueled profits mask deeper signs of strain across retail, real estate, and consumer sectors—even as policy easing and fiscal expansion continue.

I. An Extension of 2024's Fiscal-Monetary Interplay 

The PSEi 30’s Q1 2025 performance is largely a continuation of the trends established throughout 2024 and the past decade. 

Fundamentally, it reflects the model of "trickle-down" economic development, underpinned by Keynesian debt-financed spending. This model is anchored primarily on the BSP’s policy of "financial repression"—or sustained easy money—combined with fiscal stabilizers. It has manifested through the persistent "twin deficits," driven by a record-high "savings-investment gap," and rests on the “build and they will come” dogma. 

Q1 2025 also marks the initial impact of the BSP’s first phase of monetary easing, with Q2 expected to reflect the effects of the second round of policy rate and reserve requirement (RRR) cuts. 

At the same time, the all-time high Q1 fiscal deficit—relative to previous first quarters—was clearly reflected in the PSEi 30’s performance. 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on current index members; may include revisions to past data

1B: Historical comparison; includes only members present during each respective period; based on unaudited releases

 II. Debt-Led Growth: Fragile Foundations

Figure 1

In Q1 2025, non-financial debt among PSEi 30 firms surged by 7.6% to a record Php 5.87 trillion, with a net increase of Php 413 billion, marking the third-highest quarterly rise since 2020. (Figure 1, upper window)         

In context, this debt level accounted for about 17.12% of total financial resources (bank and financial assets), up from 16.92% in 2024, reflecting increased leverage in the financial system 

In addition, bills payable for the top three PSEi 30 banks soared by 117.5%, rising from Php 393 billion to Php 854 billion, a net increase of Php 461 billion, excluding bonds payable. 

This dramatic increase in the bank’s short-term borrowing likely stems from a sharp decline in the banking system’s liquidity metrics—specifically, the cash and due-from-banks-to-deposits ratio and the liquid assets-to-deposits ratio. 

III. Revenue Growth: Record Highs, Diminishing Returns 

Gross revenues for the PSEi 30 rose by 3.92% to a record Php 1.78 trillion in Q1 2025. However, the net revenue increase of Php 67 billion was the smallest in the past four years, signaling a clear deceleration in growth momentum. (Figure 1, lower image)

Figure 2

This revenue softness partly reflected disinflationary trends, as the Consumer Price Index (CPI) fell to 2.3%—marking its third consecutive quarterly decline. (Figure 2, topmost chart) 

This occurred despite the economy operating near full employment, with the average unemployment rate at 4%, all-time high Q1 fiscal deficit, and amid record levels of bank credit growth, particularly in consumer lending. (Figure 2, middle graph) 

Nonetheless, the validity of the near-full employment narrative appears questionable. Our estimates suggest that approximately 32% of the workforce remains 'functionally illiterate,' raising concerns about the accuracy of PSA labor market data. 

Yet, the paradox is telling: even with aggressive fiscal stimulus and sustained easy money policies, economic returns appear to be diminishing. 

The PSEi 30’s revenue slowdown closely mirrored real GDP growth of 5.4% in Q1 2025, reinforcing the broader downtrend. (Figure 2, lowest diagram) 

Nevertheless, the PSEi 30 revenues accounted for 27% of nominal GDP in Q1 2025, underscoring their substantial footprint in the Philippine economy. Broadening the scope of PSE-listed firms in national accounts would likely magnify this contribution—while simultaneously highlighting the risks posed by mounting economic and market concentration and the fragile underpinnings of "trickle-down" economic development. 

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

Figure 3

Consumer sector stress was evident in the performance of PSE-listed firms. While retail nominal GDP grew by 7.9% and real consumer GDP by 4.9%, Q1 2025 sales revenue growth for the six largest non-construction listed retail chains—SM Retail, Puregold, SSI Group, Robinsons Retail, Philippine Seven, and Metro Retail Group—slowed to 6.8%, down from 8% in Q4 2024. This deceleration occurred despite aggressive supply-side expansion, underscoring deteriorating growth dynamics. (Figure 3, upper pane) 

Since peaking in 2022, both statistical (GDP) and real indicators (sales) have undergone significant depreciation. Downstream real estate consumer publicly listed retail chains, Wilcon Depot (WLCON) and AllHome (HOME), continue to grapple with substantial challenges, as rising vacancies further deepen the ongoing sales recession. (Figure 3, lower image) 

For example, WLCON reported a 2% quarter-on-quarter increase in store count, but only a 1.2% increase in sales YoY—highlighting excess capacity amid softening demand.

Figure 4

The food services sector also showed signs of strain, despite posting 10.3% revenue growth in Q1 2025—outpacing both nominal and real GDP. (Figure 4, topmost visual) 

Jollibee’s domestic operations, which accounted for 80% of total group sales, led the sector with a 14% gain. 

In contrast, McDonald’s reported an 11.5% sales contraction despite its 'aggressive store expansion' strategy, which includes plans to open 65 new outlets in 2025. This disparity underscores uneven, yet broadly weakening, performance across major retail chains. (Figure 4, middle chart) 

Even electricity consumption has recently deteriorated. Meralco’s electricity consumption growth slowed to 1.5% (in GWh), diverging from historical GDP correlations. This downturn signals weakening underlying demand, despite near-full employment and record-high bank credit expansion. (Figure 4, lowest graph) 

V. Net Income Surge: A Paradox of Profitability

Figure 5

Despite revenue challenges, the PSEi 30’s net income amazingly surged by 16.02% to a record Php 290.6 billion in Q1 2025, with an absolute increase of Php 40.12 billion, the second-highest since 2020. (Figure 5, topmost diagram)

This was driven by a significant increase in net income margin, which reached 16.3%, the highest since 2020, possibly due to asset sales (e.g., SMC’s divestitures). (Figure 5, middle window)

Excluding SMC’s asset sales, PSEi 30’s net income would have stood at Php 269.3 billion—reflecting only a 7.6% increase. This equates to a net profit rise of Php 19.12 billion, rather than the reported Php 40.12 billion

The record Q1 fiscal deficit likely bolstered incomes, both directly through government contracts (e.g., infrastructure projects) and indirectly via increased consumer spending. However, this came at the cost of record public debt and systemic leverage, which reached Php 30.7 trillion. Public debt hit an all-time high of Php 16.683 trillion. (Figure 5, lowest image)

The PSEi 30’s debt-to-net income ratio revealed that Php 1.42 in net debt additions was required for every peso of profit generated. In terms of absolute gains, Php 10.3 in new debt supported each peso of profit increase, highlighting deepening debt dependency.

 

Figure 6 

Paradoxically, despite record borrowing and improved net income, net cash reserves fell to 2022 levels, raising more concerns about systemic liquidity. (Figure 6, upper chart)

VI. Sectoral Performance: Diverging Trends 

By sector:  (Figure 6, lower table) 

Debt: The industrial sector recorded the largest percentage increase at 48.9%, but holding companies led in absolute peso gains Php 165.644 billon, followed by industrials Php 151.4 billion. 

Revenues: Banks achieved the highest percentage revenue growth at 9.8%, but industrials led in nominal terms with Php 17 billion in gains. 

Net Income: Holding and property sectors posted the largest percentage increases at 31% and 7.6%, respectively, with holding firms leading in peso terms Php 33.8 billion. 

Cash: The services sector saw the largest increases in both percentage (30.9%) and peso terms (Php 56 billion). 

VII. Top Movers: Individual Firm Highlights

Figure 7

By firm: (Figure 7, upper table) 

Debt: Ayala Corp, San Miguel Corporation (SMC), and Aboitiz Equity Ventures (AEV) recorded the largest peso increases at Php 74 billion, Php 70 billion, and Php 62 billion, respectively. LT Group (LTG) showed a substantial reduction of Php 24 billion. 

Interestingly, SMC reported a reduction in total debt—from Q4 2024’s record Php 1.56 TRILLION to Php 1.511 TRILLION in Q1 2025—despite substantial capital and operating requirements. This decline coincided with a surge in income, primarily driven by Php 21 billion in energy asset sales (San Miguel Global Power Holding LNG Batangas facility). Even excluding one-off gains, core profits rose by 31% to Php 19 billion. The company also strengthened its cash position, with cash reserves increasing by Php 57 billion year-on-year. How did this happen? (Figure 7, lower graph) 

Revenue: GT Capital (GTCAP) and Meralco posted the largest revenue increases at Php 15.6 billion and Php 9 billion, while SMC recorded the largest decrease at Php 31.8 billion. 

Net Income: SMC led with a Php 34 billion increase, driven by asset sales, while JG Summit (JGS) reported the largest decline at Php 7.2 billion. 

Cash: ICTSI and SMC posted the largest cash expansions at Php 79.9 billion and Php 57.6billion, while LTG (due to debt repayment) and AEV had the largest reductions at Php 38.2 and 15.015 billion 

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage 

Consider the potential impact on the PSEi 30, the broader PSE, and GDP when: 

-Bond vigilantes demand fiscal prudence, pushing interest rates higher

-Heavily leveraged consumer adopt austerity measures.

-Malinvestments from "build and they will come" industries, such as over saturation in real estate (26% residential condominium and office condominium vacancy rates and 22% per Colliers Philippines), and trade sectors, could lead to rising unemployment. 

These risks, compounded by diminishing stimulus effectiveness, threaten the sustainability of PSEi 30 performance and GDP growth. 

For instance, SMC’s business model has become increasingly reliant on recycling its borrowings or asset sales, making it wholly dependent on the sustainability of cheap money to refinance its rapidly growing debt. Neo-Keynesian economist Hyman Minsky famously characterized this as 'Ponzi finance.' (Minsky,1992) 

In essence, the structural risks are real—and growing more visible in each earnings season. 

IX. Transparency and Accuracy Concerns 

As previously stated: 

"The credibility of this analysis rests on disclosures from the Philippine Stock Exchange and related official sources. However, questions persist regarding the possible underreporting of debt and the inflation of both top-line and bottom-line figures by certain firms." (Prudent Investor, May 2025) 

These concerns underscore persistent governance challenges—particularly if elite-owned firms are engaged in systematically underreporting liabilities and overstating revenues or profits. Such practices not only contribute to the distortion of market signals but also foster moral hazard, eventually eroding investor confidence and undermining regulatory integrity. 

___ 

References 

Hyman P. Minsky, The Financial Instability Hypothesis* The Jerome Levy Economics Institute of Bard College May 1992 

Prudent Investor, The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts, Substack May 25, 2025

 

 

Jollibee’s 2023 Record Sales and Income in the Lens of Consumer Health, Inflation and the Economy

 

Because credits springing from fiat inflation provide an easy financial edge, they have the tendency to encourage reckless behavior by the chief executives. This is especially the case with managers of large corporations who have easy access to the capital markets. Their recklessness is often confused with innovativeness—Jörg Guido Hülsmann

 

In this issue:

 

Jollibee’s 2023 Record Sales and Income in the Lens of Consumer Health, Inflation and the Economy

I. Measuring Consumer Health: An Alternative View of Jollibee’s Record Sales

II. Q4 2023 Domestic Sales Growth Rate Fell to a 2.5-Year Low!

III. JFC Sales Slowed More than the Food Service GDP (Q4 and 2023)

IV. Slowing Sales Growth in the Face of Record Employment Rate and Historic Consumer Credit Growth? JFC’s Pacman Strategy Redux

V. As a Primary Beneficiary of the BSP’s Inflation, JFC Widened Margins Pushed Net Income to Record Highs

VI. Despite Lower Debt Levels, Higher Rates Increased JFC Debt Servicing Costs

VII. Rising PER and Increasing Free Float Share of the PSEi 30; Conclusion

 

Jollibee’s 2023 Record Sales and Income in the Lens of Consumer Health, Inflation and the Economy

 

Inflation and market concentration boosted Jollibee's 2023 record revenues and income despite the deterioration in consumer health.

 

I. Measuring Consumer Health: An Alternative View of Jollibee’s Record Sales

 

Malaya Business Insights, March 13: Jollibee Foods Corp. (JFC) grew its profit by 22.4 percent last year to P8.98 billion from P7.34 billion the prior year. Revenues rose 15.2 percent to P244.11 billion from P211.9 billion, over systemwide sales (SWS) of P345.32 billion, up 16.3 percent from P296.82 billion. “Our full year 2023 results reflect the strength of our execution and resiliency of our brands. We achieved an all-time high revenue of P244.1 billion, a 15.2 percent increase year-over-year which translated to a new record operating profit of P14.4 billion, up by 45 percent compared to full year 2022. Year-on-year, we improved gross profit and operating profit margins each by 120 basis points (bps), reinforced by our cost efficiency initiatives and our ability to control non-inventory-related costs,” said Ernesto Tanmantiong, Jollibee chief executive officer.

 

Based on the published financial performance of 2023, the Philippine economy has been flourishing, according to the headlines.

 

Jollibee's [PSE: JFC] record sales and income levels is an example.

 

Because JFC is the undisputed market leader in the domestic retail food industry, its health gives a vital insight into consumer conditions.

Figure 1

 

In 2023, international sales have anchored JFC's historic peso revenues of Php 244 billion.  Because of the low base, JFC grew by 84% from the pre-pandemic high in 2019.  [Figure 1, upper chart]

 

In contrast, 2023 domestic sales signified 17.4% above the same period.  The firm's unprecedented total revenue was 35% above the former 2019 record.

 

JFC's domestic sales (15.9%) outgrew its international sales (13.7% YoY), but these numbers were down in the last two years: 20.3% in 2021, and 39.5% in 2022 for the local sales vis-a-vis 17.4%, and 35% for international sales.  

 

In total, 2023's sales grew by 15.2%, lower than 38% in 2022 and 18.8% in 2021.

 

And so, a relative comparison of growth rates reveals JFC's tangible slowdown.

 

Nevertheless, JFC previously backed up the truck on globalization.  It lavished on overseas capex and asset growth over the past years until the post-pandemic 2021-2023. [Figure 1, lower pane]

 

Yet, the company seemed to have recalibrated its business strategy.  

 

Despite being designated as the "fastest-growing restaurant brand in the world," domestic sales continue to anchor its sales.  The % share of domestic sales has been recovering marginally since 2020.

 

The lack of impact from their overseas investments may have prompted a shift in their directional or strategic approach.

Figure 2

 

And despite the headlines, sales per store growth has been declining since 2021, with the cargo tilted towards overseas stores. [Figure 2, upper image]

 

Or, from the JFC's scorecard, domestic system-wide sales (SWS) growth slumped from 44.6% in 2022 to 17.6% in 2023, while overseas SWS fell from 34% to 14.4%.

 

Domestic same-store sales growth also plummeted from 40.6% in 2022 to 13.9% in 2023, while international identical store sales fell from 7% to 5.3%. 

 

Store expansions and closure also provide some clues.

 

The JFC Group opened 658 new stores in 2023: 123 in the Philippines and 535 overseas (101 in China, 19 in NA and 40 in EMEAA. The JFC Group’s coffee and tea brands, SuperFoods, CBTL, and Milksha continued to drive the growth in store network with the opening of 192, 138 and 45 stores, respectively. A total of 225 stores were permanently closed in 2023: 69 in the Philippines and 156 abroad. (Jollibee, 2023)

 

The JFC Group opened 542 new stores in 2022: 123 in the Philippines and 419 overseas (86 in China, 25 in NA and 35 in EMEAA. CBTL, SuperFoods, and Milksha opened 103, 137 and 33 stores, respectively. A total of 259 stores were permanently closed in 2022: 58 in the Philippines and 201 abroad. (Jollibee, 2022)

 

Though more stores opened in 2023, the closure of more domestic stores in 2023 compared with 2022 further points to the weakness of Jollibee's main clients—the local mass market.

 

In a nutshell, signs of developing weakness have surfaced in JFC's domestic and overseas markets.

 

II. Q4 2023 Domestic Sales Growth Rate Fell to a 2.5-Year Low!

 

But there's more.

 

The firm's quarterly activities, its comparison to the economy, and the influence of inflation provide a more trenchant observation of its financial health.

 

Measured in quarterly performance, Q4 2023 domestic sales growth of 7.8% signified the lowest since the pandemic lockdown days of Q2 2021!  [Figure 2, lower diagram]

 

And that was a period marked by holiday spending!  Interestingly, the slowdown in quarterly sales growth emerged from Q2 2023.  Incredible.

 

In essence, Q1's 34% growth delivered the gist of the 15.2% annual revenue increase.  The sharply reduced growth rate in the succeeding quarters reinforced the downtrend of the annual topline growth.

 

III. JFC Sales Slowed More than the Food Service GDP (Q4 and 2023)

 

How did JFC's domestic sales growth perform relative to the sector's GDP?

Figure 3

 

Real food services GDP growth slowed from 18.5% in Q3 to 17.4% in Q4.  It peaked in the reopening of Q2 2021 and has been southbound since. [Figure 3, upper diagram]

 

JFC's "real" or inflation-adjusted revenues may have grown by only 4.1% in Q4, lower than the 10.7% in Q3.

 

In annual terms, JFC's "real" revenue growth could be at 10% compared with the "real" 18.8% growth of the Food Services GDP in 2023. [Figure 3, lower graph]

 

The sharp difference between JFC's revenues and the Food Services GDP means that despite its unchallenged market leadership, SMEs grew substantially faster than JFC, or the gap may reflect an overstatement of the sector's GDP.

 

But this (Food GDP-JFC sales) chasm would hardly be the case since JFC's market leadership exhibits deepened market concentration.  

 

In 2019, we discussed JFC's shift to a leveraged "Pacman Strategy,"

 

Firms with liberal access to credit can buy out competing firms, and therefore, result in the concentration of the industry. (Prudent Investor, 2019)

 

IV. Slowing Sales Growth in the Face of Record Employment Rate and Historic Consumer Credit Growth? JFC’s Pacman Strategy Redux

 

That isn't all.

Figure 4

Remember, the government bragged about the record-high employment rates last December (also Q4)? What happened to this labor windfall? [Figure 5, upper pane]

 

That's right.  Jollibee's materially slowing quarterly sales, especially in Q4, dispute the alleged increased consumer spending capacity. 

 

It strengthens our case about statistical anomalies or inaccuracies (deliberate or not).

 

The brisk growth rate or the historic increase in peso levels of consumer credit may have also been instrumental in JFC's unprecedented peso sales in 2023. [Figure 5, lower image]

 

Concisely, JFC's 2023 feat must have been a product of credit-financed deficit spending and aggressive growth in consumer credit rather than productivity improvements.

 

For this reason, inflation has played a substantial role in JFC's overall financial performance.

 

V. As a Primary Beneficiary of the BSP’s Inflation, JFC Widened Margins Pushed Net Income to Record Highs

 

With its predominant market position, JFC became a principal beneficiary of the BSP's monetary inflation—its profit margin soared along with inflation rates! 

Figure 5

 

JFC benefitted either from its price pass-through effect on consumers or managed to control input costs through different channels ("cost efficiency initiatives and our ability to control non-inventory-related costs," shrinkflation, value deflation, etc.?) or from a combination thereof, resulting in its record profit (in pesos) despite the slowdown in its growth rate.

 

In 2023, profit margins widened to 18.9%, a hair breath away from 2017's pinnacle of 19%. [Figure 5, upper illustration]

 

Profit margins increased in the first wave of inflation in 2015-2017 and the recent second wave in 2020-23.

 

But even then, JFC's published net income grew by 22.4% in 2023, lower than the 38.4% in 2022—which may be a sign of struggling consumers. [Figure 5, lower chart]

 

Still, net income (in peso levels) was at an all-time high in 2023.

 

Or, JFC's record sales and income levels in 2023 were significantly boosted by inflation!

 

Given the backdrop of the softness of consumer spending, we await the publication of the annual reports to see how JFC's performance affected its smaller rivals.

 

VI. Despite Lower Debt Levels, Higher Rates Increased JFC Debt Servicing Costs

 

Figure 6

To be sure, after reaching a zenith in 2020, JFC has been reducing its debt level marginally. [Figure 6, upper window]

 

From 2020's pinnacle of Php 63.8 billion, it was down by 19% to Php 51.5 billion in 2023.  

 

Despite that, the company's debt servicing cost continues to rise amidst rate hikes by the BSP (and the Fed—for FX debt). [Figure 6, lower visuals]

 

JFC proposes to raise Php 8 billion in preferred shares "mainly to refinance maturing obligations."

 

So, akin to other PSEi 30 issues, fund-raising has mainly been about refinancing existing debt, which subject firms to heightened interest rate volatility and risks. 

 

VII. Rising PER and Increasing Free Float Share of the PSEi 30; Conclusion

 

Since its fall in 2019, market participants of the PSE have pumped JFC shares (end of the year) to raise its year-end price-earnings ratio, exhibiting price multiple expansion rather than improvements in "fundamentals."  March 15th's close signified a 15.6 PER (2023 eps).

Figure 7

 

Trend-following activities have also pushed JFC's free float market cap higher to 3.55% at the close of 2023.  It was 3.42% last Friday.  JFC ranked 9th in the 30 elite members of the PSEi 30.

 

To sum up, the world's transition towards de-globalization and increasing focus on deficit spending elevates critical risk factors such as inflation, interest rates, etc., intensifying the fragility of a highly leveraged consumer-dependent environment.  JFC's 2023 performance only validated these escalating vulnerabilities.

 

 ___

 References:

Jollibee 17-A 2023 Annual Report, PSE.com.ph P.79

Jollibee 17-A 2022 Annual Report PSE.com.ph P.76

Prudent Investor Newsletters, Jollibee’s Fantastic Paradigm Shift: From Consumer Value to Aggressive Debt-Financed Pacman Strategy, March 3, 2019