Outlier: Demand for consumer products boosts URC during lockdown

grocery supermarket 092419 - Outlier: Demand for consumer products boosts URC during lockdown

Increased demand for shelf-stable food products and expectations of their sustained demand during the Luzon-wide enhanced community quarantine (ECQ) led investors to buy shares in Universal Robina Corp. (URC).

A total of 10.11 million URC shares worth P1.03 billion were traded last week, data from the Philippine Stock Exchange (PSE) showed.

Shares in the Gokongwei group’s food manufacturing arm closed at P103 apiece on Friday, up 5.1% from P98 per share a week ago. The stock has declined 27% since the start of the year.

“Given the general market sentiment is weak amid the COVID-19 (coronavirus disease 2019) concerns, URC is one of those stocks maintained in the watchlist [last] week as investors expect that the company will receive consistency in demand for its product portfolio,” Charlene Ericka P. Reyes, officer-in-charge of trading and research at First Resources Management and Securities Corp., said in an e-mail.

“Consumers stocking up common staples, with URC having instant coffee, noodles and snacks among others, while the ECQ in Luzon is being implemented, is a clear driver of the company’s resiliency during the current situation,” she added.

Despite the temporary suspension of most commercial operations in Luzon, Ms. Reyes noted that URC will be able to continue its food production and distribution.

“The company ensured business continuity with their sufficient inventory and constant communication with suppliers to avoid supply disruptions, in addition to the eased quarantine rules of the DTI (Department of Trade and Industry) and IATF (Inter-Agency Task Force on Emerging Infectious Diseases) for the logistics of food manufacturers,” she said.

Jeff Radley C. See, analyst at Mercantile Securities Corp. was of the same view: “Consumer stocks are the ones at play right now, especially URC where the company is not that affected as people continue to buy its products.”

“There won’t be an impact in their (consumer stocks) financials as demand is bigger in times like these,” he said in a text message.

Since March 16, the entire island of Luzon has been placed by President Rodrigo R. Duterte under ECQ to contain the spread of COVID-19, limiting commute to grocery stores. Households have been stocking up on shelf-stable food items as well as local government units for their food relief packs.

Outside Luzon, Davao City has also been placed under a 15-day ECQ since April 4.

In a statement, URC has assured the public that their supply of its food and beverage brands, namely, Great Taste coffee, Nissin Cup Noodles, Magic Crackers, C2 Green Tea, Robina Farms meat and eggs, Baker John bread, and its agro-industrial products and commodities are sufficient.

Analysts noted that URC shares are on a bargain, as the COVID-19 crisis places a general downward pressure on local stocks.

“URC joined the list of most actively traded stocks [last] week as bargain hunters picked up its heavily battered shares upon visiting oversold levels,” Timson Securities, Inc. Trader Darren T. Pangan said in an e-mail.

In a separate interview, China Bank Securities Corp. Senior Research Associate Rastine Mackie D. Mercado said: “URC, along with other companies, are likely to be adversely affected by the ECQ. Moreover, expectations of slower consumer spending may place downward pressure on consumer companies’ profitability for the year, but those in the business of food and drinks may be less affected compared to others.”

First Resources’ Ms. Reyes said that URC’s growth prospects for the year remain intact despite the COVID-19 crisis. She expects URC’s 2020 net income to record a “high single-digit growth” as supported by the low inflation rate environment.

“With URC poised to take advantage of domestic demand from consumers, this should provide continued recovery in their domestic branded consumer foods (BCF) segment which should overshadow the weakness in their international BCF, including its exposure in China with their manufacturing facility catering to Chinese market and other countries in the region,” she said.

URC reported a 2.9% growth in its attributable net income to P7 billion in the nine months to September last year from P6.8 billion in 2018. Revenue from its branded consumer foods, commodity food, and agro-industrial units reached P99.8 billion as of end-September, up 4.8% from P95.2 billion in 2018.

This week, First Resources’ Ms. Reyes expects URC’s price to remain between P95 and P108.

“As long as its support at P95.00 holds, a quick rally is a possibility, as bullish momentum is still in play with the PSE index above 5,000,” she said.

Timson’s Mr. Pangan sees the stock’s immediate support level at P95 while its immediate resistance level at P120. 

“If support holds, then we may see it move closer to its resistance level in the coming weeks,” he said.

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