Trump tariff impact on PH companies ‘limited’ – Fitch unit

Manila, Philippines – Philippine companies could weather the 19 percent Trump tariff, a unit of Fitch Ratings said, given a range of tools at their disposal: buyers from other markets, cheaper imports as raw materials, or consumers bearing the brunt through pass-on costs.

CreditSights, a unit of Fitch Solutions, wrote in a note that it expects “the US tariffs to have a limited impact on the Philippine corporate $ bond issuers.”

It is keeping its recommendations on Philippine corporates under its coverage: AC Energy, Globe Telecom, Manila Water, Petron, PLDT, SMC Global Power, Aboitiz group, JG Summit, Ayala Corp., San Miguel Corp., ICTSI, and Jollibee.

“We do not deem the 19% tariff imposition by the US on good imports from the Philippines as material enough, given their very limited export exposure to the US - that does not warrant a change in our existing recommendations,” the Fitch unit said.

Listed power producers AC Energy and SMC Global Power, as well as oil giant Petron, utility firm Manila Water, and telco giants Globe and PLDT “are largely domestic-focused,” CreditSights pointed out.

“Energy distributor Petron may be compelled to source crude oil & gas from the US which would increase its cost base due to higher logistical costs, but Petron enjoys full market pass-through mechanism to protect its margins,” it said.

Food manufacturers Aboitiz and JG Summit run “export-heavy” businesses, but their outbound sales are spread across Asia not concentrated on the US, the Fitch unit said.

The zero tariff on imported US wheat benefits the Gokongwei food business.

“Aboitiz’s animal feed business may face increased competition from higher US feed imports. JG Summit’s snack foods business could see lower wheat input costs from higher wheat imports from the US,” Fitch’s CreditSights wrote.

Semiconductor chips and electronics are the Philippines’ top export product to the US with the Ayala group among the players.

But CreditSights pointed out that Ayala’s electronic manufacturing services unit’s US sales “contribute a very small portion of its total revenues” at approximately two percent of total.

It is the same narrative for conglomerate San Miguel Corp. (SMC) whose food and beverage exports to the US are limited to less than one percent of its topline.

Marcos’ trade negotiators on Thursday had said the zero tariff on US soy and wheat imports meant lower costs for domestic feed producers, and that they sifted through the list of industries in a way that the concessions won’t hit hard.

That’s an upside for Jollibee as the “Philippine domestic fast-food business could benefit from lower input costs of wheat and poultry, arising from higher US imports,” CreditSights wrote.

But the flipside does not favor the likes of SMC.

“We acknowledge SMC could face weakened domestic competitiveness and pricing for its poultry and animal feed units, given the US is a major supplier of chicken, pork, and animal feed to the Philippines,” CreditSights’ note read.

“That said, we deem the impact manageable, supported by SMC’s strong domestic brand equity, well-established presence and its diversified business portfolio,” it added.

Shortly after the 19 percent agreed tariff was announced, logistics shares rallied at the stock market – ICTSI of port magnate Enrique Razon included, as analysts forecast brisk port activity.

“ICTSI has limited direct trade exposure to the US. While it could see some throughput weakness at its Mexico port (~5% of total capacity and throughput), we take good comfort in ICTSI’s strong global geographical diversification and ability to preserve margins by hiking port fees,” the Fitch unit said.

“Increased imports of US goods into the Philippines could boost volumes at its Philippine ports,” it added.