Robinsons Retail and Robinsons Land 2023 Performance: Assessing the Health of the Philippine Consumer

  

The only way to make an economy richer per capita is by increasing per capita productivity, which means investing in productivity-enhancing research and technology and in needed infrastructure. Surging asset prices increase the wealth of individuals, but not of the system—Michael Pettis

 

In this issue:

Robinsons Retail and Robinsons Land 2023 Performance: Assessing the Health of the Philippine Consumer

I. Robinsons Retail’s 2023 Record Sales and Profit Margins Anchored on Negative Real Growth as Net Income Fell

II. RRHI’s Topline Performance in the Lens of the Consumer’s Health

III. RRHI Expands Leverage to Finance Increased Exposure to Banks as Liquidity Issues Emerge

IV. Robinsons Land’s 2023 Rental Revenues Soar to Historic Levels (Diverging from RRHI’s Performance)!

V. Record RLC’s Net Income Levels Despite Consumer Health in Question

VI. Robinsons Land’s Real Estate Sales Under Pressure; Increasing Leverage Means Escalating Fragility

 

Robinsons Retail and Robinsons Land 2023 Performance: Assessing the Health of the Philippine Consumer

Underneath the bullish headlines, the 2023 performances of Robinsons Retail and Robinsons Land unveil substantial signs of fragility.  

I. Robinsons Retail’s 2023 Record Sales and Profit Margins Anchored on Negative Real Growth as Net Income Fell

Figure 1

 

In 2023, one of the leading retail chains, Robinsons Retail Holdings [PSE: RRHI], reported an increase of 7.44% in revenues to a record PHP 192.13 billion, which was driven by a 3.71% store expansion. (Figure 1, topmost chart)

 

The 2023 revenue growth was less than half the pace of the 16.6% in 2022.

 

In 2023, its blended same-store sales registered at 3.91%, which was about a third of the 11.8% in 2022.

 

The thing is, with the annual CPI at 6%, the real revenue growth of 1.44% mainly came from new stores, as identical store sales registered a contraction. (Figure 1, middle window)

 

Interestingly, boosted by inflation, RRHI's profit margins reached a record high in 2023, which increased its buffers.

 

Nonetheless, its net income plunged by 28% in 2023 to Php 4.7 billion, or net income attributable to equity holders plummeted 29.9% to Php 4.1 billion "weighed down by foreign exchange losses, equitized losses from investment in associates and interest expense on loans," according to its annual report. (p.38) (Figure 1, lowest image)

 

II. RRHI’s Topline Performance in the Lens of the Consumer’s Health

 

Figure 2

 

In the context of the GDP, aside from benefiting from rising inflation through higher margins, the deceleration in household GDP resonated with the firm's sales per store and overall revenue growth. (Figure 2, topmost and second to the highest graphs)

 

However, the slowdown in RRHI's revenue growth was broad-based, with only the drug segment, the company's second-largest contributor after the supermarket, showing improvements in growth rates, i.e., from 10.6% in 2022 to 13.4% in 2023. (Figure 2, second to the lowest window)

 

Interestingly, the fluctuations in the CPI mirrored the fluctuations in RRHI's quarterly revenues. (Figure 2, lowest chart)

 

Said differently, the consistency of the relationship depicts causality.

Figure 3

 

And the brisk but peaking household credit boom (23.97% in 2023) appears to have contributed significantly to the slowing of its sales growth or the "law of diminishing returns".

 

Unsurprisingly, consumers increased their use of credit to offset the decline in their purchasing power, which allowed RRHI to boost its margins.

 

III. RRHI Expands Leverage to Finance Increased Exposure to Banks as Liquidity Issues Emerge

 

Curiously, RRHI increased its equity exposure in BPI to 4.4%, funded with a long-term Php 15.5 billion (Php 10.65 billion and Php 4.84 billion) loan (p.48).  (Figure 3, topmost diagram)

 

In January 2023, the Bank of the Philippine Islands merged the company's bank, Robinsons Bank, into its fold. (p.5)

 

RRHI increased its exposure to BPI to 6.5% with the recent share acquisition, which comprised about a tenth of the firm's Php 155 billion assets in 2023.

 

Consequently, the firm's interest expense soared to an all-time high of Php 3.122 billion, as the company's debt load also spiked to an unprecedented Php 21.4 billion. (Figure 3, middle chart)

 

Additionally, as the firm's cash reserves plunged from Php 17.8 billion to Php 13.2 billion, the gap between the short-term debt continues to narrow. (Figure 3, lowest chart)

 

The increasing burden of the firm's debt levels, supporting its non-retail expansion, coincides with mounting strains in credit-financed consumer spending. This suggests increasing uncertainty and risks.

 

Moreover, the retail industry appears to be undergoing an "investment boom" despite a slowdown in consumer spending, as evidenced by retail sales and income.

 

Such divergence or developing mismatches exemplify "malinvestments" resulting from the mispricing caused by inflation.

 

IV. Robinsons Land’s 2023 Rental Revenues Soar to Historic Levels (Diverging from RRHI’s Performance)!

 

Figure 4

 

RRHI's sister firm, Robinsons Land Corp [PSE: RLC], posted a 19.1% surge in rental income, the percentage share of the total soaring to 44.5%.  (Figure 4, topmost graph)

 

However, due to the 51% plunge in real estate (RE) sales, RLC's total sales growth contracted by 7.7%. (Figure 4, middle pane) 

 

Moreover, mall rental margins exploded to a record 70.5%, which powered its % share of the total significantly higher. (Figure 4, lowest two images)

 

These advances occurred even as the company's shopping mall occupancy rate was reported at 92% (or an elevated vacancy rate of 8%).

 

Once again, the soaring margins amidst rising CPI benefited big property firms like RLC, which have relied extensively on credit expansion for operations.

 

Figure 5

 

The lending growth rates of Universal Commercial Bank (UC) to the trade and real estate industry have paralleled RLC's debt growth. UC bank lending to these industries grew by 9% in 2023, while RLC’s debt expanded by 5.5%. (Figure 5, topmost image)

 

Additionally, the spike in credit card growth (30.1% YoY) has had a significant impact on RRHI and RLC's sales growth. (Figure 5, second to the highest diagram)

 

More pointedly, demand for the retail and real estate industries has been heavily reliant on bank credit.

 

V. Record RLC’s Net Income Levels Despite Consumer Health in Question

The substantial improvements in margins from the shopping mall rental and hotel businesses contributed the most to RLC's record net income levels (Php 13.4 billion) in 2023—on the back of easing growth rates. (Figure 5, second to the lowest and lowest graphs)

 

In any case, consumer conditions ultimately determine the feasibility of the retail industry and, subsequently, the leasing operations business of shopping mall operators, as well as real estate sales.

 

Unless supported by productivity growth or increases in real savings (production less consumption), credit-financed spending only draws from the future and is therefore unsustainable.

 

Worst, the crowding-out effect of the unproductive colossal government deficit spending only weakens private-sector consumption.

 

That is to say, if the retail industry struggles to increase or maintain its profit rates, this race-to-build supply or "build and they will come" precept, anchored in the assumption of unfettered consumer spending, will likely result in considerable vacancy rates and rising accounts of "white elephants."

 

VI. Robinsons Land’s Real Estate Sales Under Pressure; Increasing Leverage Means Escalating Fragility

Figure 6

 

Moving into the RLC's real estate operations, while their operations in China (Chengdu Xin Yao project) bore the brunt of the plunge in real estate sales, the slump also includes local operations, particularly the 38% cascade in the firm's horizontal projects (Robinsons Homes). (p.264) (Figure 6: highest and second to the top windows)

 

Although real estate margins soared in 2023, the decrease in sales led to a decline in its share contribution. (Figure 6: second to the lowest diagram)

 

Consistent with our earlier theme of credit-driven demand, RLC reported historic debt levels of Php 46.96 billion.

 

With a rising debt stock and higher-for-longer rates, the firm's financing costs, like its retail counterpart, also hit an all-time high at Php 1.91 billion. (Figure 6, lowest graph)

 

All of these factors have evidently been overlooked by the consensus. Essentially, increased reliance on leverage translates to weaker future demand and greater credit risks.

 

And given the interconnectedness of everything, mounting sectoral fragility translates to escalating systemic risks

___

References:

Robinsons Retail Holdings, 17-A Annual Report, PSE.com.ph, March 27,2024

Robinsons Land Corporation 17-A Annual Report, PSE.com.ph, March 25, 2024 

How Market Manipulation in the Philippine PSE Magnifies the Risks of a "Black Swan" Event

  

Dubious practices, fraud and embezzlement are common during financial bubbles, which are usually created by central banks’ loose monetary policies and by a poor supervision of the financial sector—Dr. Marc Faber

 

In this issue

How Market Manipulation in the Philippine PSE Magnifies the Risks of a "Black Swan" Event

I. BSP Chief: Black Swans from Risky Investments Based on the Rosy Scenario

II. Parabolic ICT as the Single Benefactor of the March 21st Massive End-Session Pumps!

III. The Rotational Pump from ICT to the Financial Sector

IV. How Market Manipulation Amplifies Systemic Fragility

V. January-February 2024: PSEi 30’s Returns Outperform as Volume Slumped!

VI. Negative Market Breadth, Rising Risks of a Black Swan Event from Sustained Capital Consumption

 

How Market Manipulation in the Philippine PSE Magnifies the Risks of a "Black Swan" Event

 

The BSP Chief recently warned about "Black Swan" events resulting from the market's risky behavior. However, frequent pumps and dumps at the PSE could be examples of such events.

 

I. BSP Chief: Black Swans from Risky Investments Based on the Rosy Scenario

 

We'll open with an excerpt from a recent speech of the BSP Governor covering the publication of the 2023 Financial Stability Report (FSR) [bold added],

 

You have heard of "black swans" indicating highly unlikely surprises or "the butterfly effect" to describe how small things can lead to far-reaching consequences. These are the things we worry about. Indeed, financial market participants often make risky investments based on rosy scenarios. The more widely shared the scenario, the more dangerous it is. When something goes wrong in these scenarios, it sometimes leads to mass panic. There is a rush for the exits, causing massive investments to collapse… We remember the crisis, but we often forget the rosy scenario that led to it.  (Eli Remolona, 2023)

 

The default or mechanical response of almost every political authority or expert is to blame economic volatility on the marketplace.  But they hardly reveal the source of funding and incentives of market participants that lead to such 'market failures.'

 

Besides, abstract attributions like "make risky investments based on rosy scenarios" don't cause boom-bust cycles.  

 

Instead, the fountainhead of increased economic and financial fragility stems from a deepening of the politicization of the economy, channeled through policies that lead to the excesses in the aggregation of many variables like systemic overindebtedness, a massive misallocation of resources, intensive mispricing of markets, and hyperbolizing economic and financial conditions via inflated statistics.

 

If so, have authorities not been a focal point in this "rosy scenario" that breeds "black swan" events?

 

II. Parabolic ICT as the Single Benefactor of the March 21st Massive End-Session Pumps!

 

Let us help in identifying one avenue for a potential "contagion."

 

Though fragrantly evident to the public, the establishment remains remarkably taciturn to the relentless "rigging" of the Philippine equity benchmark, the PSEi 30.

Figure 1

 

An example is the dominance of pre-closing dumps and pumps (Marking the Close—MtC) in three of the week's five trading sessions. (Figure 1, topmost graph)

 

The aggregate volatility from these MtCs totaled about 1.95% of the weekly close of March 15th.  That's about double the .87% advance posted by the PSEi 30 this week (March 22nd).

 

To achieve their end-session target for the PSEi 30, the collaboration by index managers typically involves bidding up/selling down several top-tier issues (at least 5).

 

But Thursday (March 21st) signified a historical event.  The cabal of index managers directed their actions to the share prices of a single firm, ICTSI [PSE: ICT].

 

ICT segued into the 5-minute pre-closing float period up by 2.16%—only to reopen during the runoff-closing period with a shocking spike of 9.28%—a massive pump equivalent to 7.12%! (Figure 1, middle pane)

 

Ironically, there were only 119 trades conducted during the runoff period, with a single institutional broker accounting for 68% of the total!  Only about 16 brokers participated in the massive bid-up, some of which were retail. 

 

In short, a few participants "forced up" ICT share prices in the closing period!

 

Consequently, ICT's free float share of the market cap stunningly flew to an all-time high (ATH) of 9.22% last Thursday!  ICT toppled SMPH for the third-largest PSEi 30 firm! (Figure 1, lowest chart)

 

Because of the intensity of the ICT's advance, PSEi 30 resonated with it: it jumped by .9% to close the session by 1.55%! Incredible.

 

III. The Rotational Pump from ICT to the Financial Sector

 

The next day, though ICT gave up all Thursday's MtC gain and more, index managers rotated their support of the PSEi 30 by propping the financial components, which cushioned the PSEi 30s decline to only 1.17%.

Figure 2

 

The financial index not only gained by 3.34% WoW, but the "full" market share of the big three PSEi 30 banks surged to an unprecedented 18.5% last Friday! (Figure 2, topmost and middle diagrams)

 

As of March 21st, the top 5 market cap heavyweights (SM, BDO, ICT, SMPH, and BPI) accounted for a staggering record 50.98% share! (Figure 2, lowest image)

 

When accounting for the next five largest market caps, their cumulative share of the market increases to 73%!

 

That's right.  Only five to ten components drive the PSEi 30!

 

Beyond that, the mounting concentration of gains not only reflects the intention to artificially prop up the index, it also indicates INCREASED CONCENTRATION RISKS.

 

IV. How Market Manipulation Amplifies Systemic Fragility

 

Further, political policies fuel the distortive effects of market manipulation, as noted back in 2017: (bold original)

 

These growing incidences of vertical price movements have not been isolated from the progressing entropic developments at the PSEi as a result of massive manipulations.

 

Most will be rationalized from a demand shock—new information that alludes to G-R-O-W-T-H regardless of the validity of its premises.

 

In reality, both market manipulation and vertical prices are symptoms of the mortal sins of unabated credit expansion or currency debasement. (Prudent Investor, 2017)

 

Because only a few issues have fueled the upside performance of the headline index, the sustained shortfall in volume points to the unsustainability of its momentum. 

 

Yet, without an increase in disposable incomes or "real" savings, this requires a sustained and intensified increase in inflows from foreign savers.

 

As fund manager John Hussman explained, (bold mine)

 

All securities are essentially a way to trade current saving for a claim on future output. The value of all the securities in the economy derives from the claim on future output that this stock of real and intellectual capital can generate over time. During speculative bubbles and periods of malinvestment, saving is invested in unproductive projects that essentially result in unintended consumption rather than accumulation of productive assets. This means that the stock of outstanding securities is essentially “backed” by a smaller stock of productive capital to service those securities over time. (John Hussman, 2015)

Figure 3

 

Volume spikes rather than sustained increases have characterized the PSEi 30's race to 7,000. Ironically, the pesos’ mainboard volume remains below the Q3 levels! (Figure 3, upper chart)

 

Furthermore, market breadth has barely supported the .87% weekly advance by the PSEi 30 as the advance-decline distribution has been almost neutral for the PSE (490-491) and the PSEi components (15-14 and one unchanged).

 

Though the character of the 'rosy scenario' presented by the upswing of the PSEi 30 has been starkly different from a generalized boom phase of a full-fledged credit bubble as exemplified by India's case, this imperative to force upon a bull market cosmetically and inorganically shares a similar outcome: capital consumption that leads to a bubble bust. (Figure 3, lower visuals)

To sum it up, the intensifying vertical price actions of a few PSEi 30 heavyweights, backed by rotational pumps, are likely indications of mounting desperation to foster a bull market.  However, its inability to sustain such momentum could indicate buyer exhaustion and a potential (secular) reversal.

 

V. January-February 2024: PSEi 30’s Returns Outperform as Volume Slumped!

 

To expand our insights on the local market structure, let's analyze the first two months of PSE/PSEi 30's performance in 2024.

Figure 4

 

Sure enough, it's impressive that the PSEi 30 reached 6,900 in February, but the gross volume, which includes block trades and cross sales, tumbled to levels last seen in 2011!  (Figure 4, upper chart)

 

Put another way, while the PSEi 30 vaulted by 7.7% from end-December through February 2024 to shatter the decaying returns over the long term, this occurred in the face of sputtering volume.  That is, the PSE's gross volume plummeted 26.4% YoY! Amazing! (Figure 4, lower graph)

Figure 5

That's a measure of the general performance.  As a share of the total, the first two months saw a rebound in the volume of the holdings (2 years) and the property sector (from last year) compared to the slowing Financials (YoY).  (Figure 5, topmost diagram)

 

In contrast, the peso volume of industrials and services, which include the "Fly Me to the Moon" ICT, resumed their downward trek (in the last 2 and 3 years respectively).  Remarkable. (Figure 5, middle image)

 

The pecking order of peso volume by sector share in the first two months of 2024: Holdings, Industrials, Financials, Property, and Services. (Figure 5, lowest window)

Figure 6

 

Paradoxically, the financial index, which stormed towards its 2018 All-time high (ATH), saw its peso volume contract by 30.5% YoY! (Figure 6, upper chart)

 

Since the BSP's unprecedented rescue of the banking system in 2020, Financials have outperformed.

 

Specifically, the PSEi 30 banks have been responsible for most of the gains in the Financial Index. Apart from the ICT sector, rotational pumps into PSEi banks have contributed significantly to the PSEi 30's advances.

 

VI. Negative Market Breadth, Rising Risks of a Black Swan Event from Sustained Capital Consumption

 

It is not just volume but market breadth remains in stagnation.  Despite marginal improvements (from 2020), the advance-decline spread remained negative. (Figure 6, lower image)

 

The volume slump and poor market breadth reveal the lack of participation from the general public.

 

The genuine bull market climaxed or culminated in 2013, after which the rest of the index performance was primarily characterized by strategic maneuvers.

Figure 7

 

Let us unpack this.

 

The deficiency of the PSE’s trading volume didn't emerge out of a vacuum. These can be traced back to the diminishing liquidity in the banking system (expressed by the cash-to-deposits downtrend), which has, in part, been exacerbated by the swelling of the government’s deficit spending.  (Figure 7, top and middle graphs)

 

Bluntly put, diminishing volume is a symptom of capital consumption.

 

In the end, what have the authorities done to decrease the odds of an outbreak of (future) economic volatility or a "black swan" event resulting from (today's) market manipulation or "risky investments based on rosy scenarios?"

 

What will they do to diminish its impact?  

 

Do they even know? Have they been "asleep at the wheel?"

 

Or have 'risky investments' become too politically entrenched to perpetuate their refinancing and credit expansion to fund malinvestments, which have been peddled to the public under a statistically 'rosy scenario'? (Figure 7, lowest chart)

 

"Market failure," really?

___

References

 

Eli M Remolona, Governor of Bangko Sentral ng Pilipinas:  Message during the release of the 2023 Financial Stability Report, 13 February 2024, Bank of the International Settlements, March 22, 2024

 

Prudent Investor Newsletter, BW-SSO Price Actions and Market Manipulations Signify as Twin Symptoms of the Raging Credit Bubble! February 13, 2017

 

John P. Hussman, Ph.D Stock-Flow Accounting and the Coming $10 Trillion Loss in Paper Wealth Hussman Funds, April 6, 2015