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. 

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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

 

 

PLDT’s ‟Budget Overrun‟ Boomerang: Net Income Takes a Dive in Q4, Weighs on Annual 2022 FS as Costs Soared; Ominous Transparency Issues

 

A collective abdication of risk management is the precursor to most crises. At peaks in sentiment, not only do we fail to scrutinize, but we feel prudence is unnecessary, if not counterproductive. As a result, we take our greatest risks while paying the least attention—Peter Atwater 

 

PLDT’s ‟Budget Overrun‟ Boomerang: Net Income Takes a Dive in Q4, Weighs on Annual 2022 FS as Costs Soared; Ominous Transparency Issues 

Aside from the ethical and legal ramifications of PLDT's controversial "budget overrun," its income also plummeted in 2022.  Yet, Q4 may have signified a pivot in the firm's fundamentals.

PLDT’s Episode Showcases the Need for More Transparency in the Published Financial Statements of Listed Firms 

Inquirer.net March 23: MANILA –PLDT Inc. saw its net income plunge by 60 percent to P10.49 billion last year after incurring a P48-billion budget overrun, which the telecom giant attributed to “over orders” of 5G technology. Total revenues, meanwhile, were up 6 percent to P205.25 billion for the period. Service revenues climbed by 4 percent to all-time high P190.1 billion last year. 

 

The PLDT's controversial "budget overrun" provides one critical lesson: published Financial Statements by listed firms may neither be transparent nor reliable.  Since the controversy occurred in 2019, that signified four years of warped or distorted data—understated costs and overstated income. 

 

And though the largest telco firm declared that the incident involved "no fraud or bad faith," it signified a critical lapse in risk management.   

 

The lack of scrutiny or the absence of the exercise of prudential controls showed that the management exposed shareholders and other stakeholders (suppliers, lenders, employees, and others) to unnecessary financial and economic risks.   

 

Transparency issues from the unfortunate imbroglio may also cloud or taint the integrity of the capital markets. 

 

While the laxity of controls may be a symptom of the prevailing environment from the BSP’s easy money regime—as likely exhibited by the frequent marking-the-close incidents in the PSEi 30 index—it also demonstrates the snowballing fragility in the financial and economic system. 

 

And so, even if authorities have turned a blind eye to the revelation of possible corporate malfeasance, the firm has been slapped with a class action lawsuit abroad.  

 

Since actions have consequences, aside from the legal ramifications, out-of-budget expenditures have emerged to impact the firm's financial statement. 

 

The "Budget Overrun" Boomerang; The Story Behind PLDT’s Revenue Growth 

 

 Figure 1 

 

Nonetheless, as reported by the media, the largest telco firm endured a 60% plunge in net income to Php 10.74 billion in 2022. (Figure 1, higher pane)   

 

And because the firm disclosed that its 9-month earnings reached Php 27.632 billion, this extrapolates to Php 16.9 billion loss in Q4! 

 

As it turns out, Q4 2022 was pivotal to the annual activities of PLDT.  It could mark a turning point in their operations. 

 

It altered the "growth" momentum—a theme left out by the consensus. 

 

Naturally, the firm and the media looked for a silver lining in their 2022 annual report.  

 

So they brandished PLDT’s revenue performance.  Indeed, peso revenues reached their highest level ever.  (Figure 1, lower chart)  

 

However, the growth rate appears to have peaked and has been slowing since 2020. 

 

Of course, there is a story behind it.  

 

The industry benefited immensely from the stay-at-home or 'gulag' policies imposed by authorities in response to the pandemic.  The policy forced a shift in demand from the office to the households, which generated its "growth" at the expense of other industries. 

 

Though authorities allowed the "normalization" of economic activities since 2021, the firm reported a brisk demand from households via broadband and data services (think Tiktok) in 2022. 

 

Industry sales also flourished from the historic liquidity injections by the BSP and the banking system. Bank-fueled credit expansion in 2H 2021 throughout 2022 also contributed to this transition.  Hence, excess liquidity and the "reopening" delivered the topline for PLDT (and other telco firms). 

 

The thing is, a spike in the 2022 total cost prompted profit margins to collapse, consequently, net income plummeted.  

 

Figure 2 

 

The firm seems to have charged its "budget overrun" through depreciation and amortization expenses, which jumped by 89% to a record Php 98.7 billion from Php 52.2 billion a year ago.  Meanwhile, total cost surged by 38.2% in 2022. (Figure 2 upper chart) 

 

The growth rate of this expense category, ironically, started to pick up in 2019, when the "budget overrun" affair supposedly began.  Coincidence, perhaps?   

 

The Q4 2022 Pivot: Revelation of the Budget Overrun and the BSP Rate Hikes 

 

Q4 data exhibits the "pivot" in action.  Powered by the 306% YoY growth surge in depreciation and amortization expenses, Total Cost growth spiked by an eye-popping 86.8% to Php 73.8 billion! Gross margins turned negative (-41%) as a result. (Figure 2, lowest chart) 

 

But there is more.  

 

The widespread perception is that income has led been the growth center of the company.  Yet through the years, debt has outgrown income. 

 

Figure 3 

In 2022, PLDT’s total debt deflated by a scant 1.18% to Php 249.6 billion from Php 252.6 billion in 2021. (Figure 3, topmost chart) 

 

Despite this contraction, financing costs soared to Php 11.77 billion, an All-Time high! Financing costs accounted for 5.7% of revenues, also a record. (Figure 3 second to the highest pane) 

 

By quarter, PLDT's debt levels surged to a milestone of Php 282.2 billion in Q2 2022 but dropped to Php 249.6 in Q4 2022.  Such uncharted debt levels prompted financing costs to jump by 14.8% YoY in Q3, exacerbated by a further 16.9% spike in Q4 2022. (Figure 3 second to the lowest chart) 

 

The BSP commenced its interest rate hike campaign in May 2022.  Thus, rising rates have also been instrumental in pushing up their financing costs in the 2H of 2022. (Figure 3, lowest chart) 

Figure 4 

 

Further, the dwindling cash reserve—since 2018—extrapolates to diminishing liquidity, which means increased challenges for PLDT in servicing its liabilities. (Figure 4, upper diagram) 

 

In the end, the toxic mix of elevated debt load and rising rates compounded their "budget overrun" dilemma that eroded whatever benefits from the subsidies the BSP has provided. 

 

Once rising rates hit the consumers and the economy, it should bite on PLDT's tenuous position, given that their sales growth rate has already been headed south after reaching its acme in Q2 2021.  (Figure 4, lower chart) 

 

Or with the smoothing out of the distortions from the pandemic economy to the reopening, PLDT's topline has been dependent on credit expansion, which rising rates could overturn. 

 

The excess budget controversy, as I previously wrote, 

 

It likely represents a pivotal sign of reversal from the era of speculative mania, financial excesses, operational and legal complacency, and market overconfidence.  

 

Instead of a renascence, it signifies a persistent deterioration of the financial system and the economy. 

 

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Reference

 

Prudent Investor, PLDT’s "Budget Overrun" Issue in the Eyes of Historian Charles Kindleberger, December 27, 2022; substack, blogger