We turn incrementally positive on Philippine developers. We think risk reward is attractive given 11% YTD relative underperformance, light foreign investor positioning, and close to trough valuations. We think downside from rising mall vacancies, residential purchase cancellations, and a collapse of physical property prices are tail risks; these are tempered by the strong liquidity buffer following BSP’s aggressive loosening of monetary policy. Property names have benefited via stronger financial position. ALI is our top OW on its compelling long termvalue proposition. We upgradeFLI to OW as we see it as a beneficiary of resilient end-user housing demand. We see the POGO exodus as a clearing event but keep MEG at N on corporate action concerns. We close our UW on SMPH and RLC. 

 Ample system liquidity tempers key risks.BSP’s accommodative policies released close to Php1.9trillion in the banking system, or 9.6% of GDP. This allowed developers to raise funds at competitive interest rates(sub-4%, Table 7). BSP also hiked real estate loan cap, unleashing ~Php500bn of available credit.The additional liquidity buffer provides flexibilityto extend favorable payment terms to manage resi cancellations and mall rent relief to avert significant increase in vacancies. Accessible funding for committed launched projects also lowers risk to physical property prices. 

 Valuations more palatable. Property names lagged the PSEi by 11%/4% YTD/3M, with the sector suffering heavier net foreign selling at 1.5-3%pts. vs. broader market’s 0.5%pt. Downward earnings revisions acceleratedpost2Q20 results (-15% for 2020E/21E in last 3M), leaving Street expectations at more reasonable levels today. ALI and FLI are trading near trough P/Es, pricing in weak resi demandand POGO exit. We see downside earnings risk for SMPH and RLC next year (JPMe 17%/31% lower vs. Street), as the Street remains bullish and expects a quick mall rent normalization. Our base case, which assumes vaccine availability next year, is for mall rents to reach 2019 level by 2022. 

 Upgrade ALI and FLI to OW, SMPH and RLC to N. We double upgrade ALI to OW from UW. We see a strong case to own the quality, country bellwether name given: 1) rising liquidity condition renders resi price and equity risks as tail risks, 2) it is positioned to benefit from stable secular housing demand amid favorable demographics, and 3) it trades at trough valuations of 11.7x FY22E PER withzero value ascribed to its 12k-hectare landbank. We expect FLI to deliver faster sales take-up recovery with its end-user positioning, while we see the POGOs’ exit as a clearing event. We keep MEG as N despite distressed valuations due to nagging overhang from its corporate actions (purchase of parent shares, pending debt-equity swap). We upgrade SMPH and RLC to N. SMPH is our preferred mall operator with its proven operational track record, while RLC stands to benefit from its China residential exposure and earnings windfall from local JVs. We are not OW given earnings downside risk from extended mall rent relief.