MARCELO EBRARD: THE NEGOTIATOR
Marcelo Ebrard, the appointee of Sheinbaum to defend the review of the T-MEC.
We have the roadmap for the T-MEC review and for investments: Marcelo Ebrard. The Secretary of Economy stated that consultations for the review of the treaty, which will take place in 2026, will begin in the second half of next year; he anticipates it will be a "success." "Regarding the treaty review, (...) we will begin consultations in the second half of 2025. We face a different level of difficulty than we did in 2018; it's about the protectionism seen in the United States. We are aware of it, but it doesn't truly surprise us because it was already present in the previous negotiations. There is now a much stronger competition between China and the United States than there was a few years ago, and we already have a design for the path we will follow." Expansion
Marcelo Ebrard is preparing a Council to analyze infrastructure. The Council will include representatives from the Secretariats of Economy, Finance, the SAT, Customs, CFE, Agriculture, and CONAGUA. "Why did the president request this? Because she said, well, if we are going to follow up on investment but don't know where it is and haven't done the work to identify what is needed, then it's just a statement. On the other hand, if you have information on what investments are present in each federal entity, for example, it's not the same as just industrial parks. We asked those in charge of the industrial parks, which are several groups, to inform us about the investments they have planned for the coming year." Milenio
"One of the current government's priorities is to invest and combat informality: Marcelo Ebrard. The Secretary of Economy assured that the current administration is aware of the need to leverage nearshoring and address challenges such as the lack of incentives for innovation. MVS
"We're waiting for November 5": Samuel García Questions Tesla's Arrival in Nuevo León. Elon Musk mentioned a few weeks ago that the project to build the Gigafactory in Santa Catarina would be paused until the U.S. elections between Donald Trump and Kamala Harris are decided. The governor of Nuevo León, Samuel García, stated that Tesla's investment to establish a Gigafactory in the state has not yet been confirmed, as the U.S. elections in November are still being resolved.
Ternium Calls on Sheinbaum for Clear Rules for Investors: "Mexico Should Specify Where It Wants Private Investment" Máximo Vedoya emphasizes the importance of the Mexican government focusing efforts on improving the country's infrastructure, starting with the transmission of renewable energy. The CEO of Ternium, who emphasized his optimism about Sheinbaum's transition to power, stated that to take advantage of nearshoring, the government must invest in energy transmission. Vedoya also asserted that, regardless of who wins the U.S. presidential elections next month, nearshoring will continue to progress. El Financiero
BYD Aims to Sell Up to 100,000 Cars in Mexico by 2025. By the end of the year, the Chinese automaker will announce in which city it will build its first factory in Mexico, according to the company's CEO in the country, Jorge Vallejo. The company is seeking an extension of the tariff exemption for electric vehicle imports in Mexico, following its entry into the market last year through imports. Forbes
Iberdrola Mexico Allocates $1 Billion to Renewable Energy During Claudia Sheinbaum's Administration. Iberdrola Mexico, led by CEO Katya Somohano, announced an investment of $1 billion in renewable energy projects in Mexico during the early years of Claudia Sheinbaum's administration. The company aims to generate 1,000 megawatts (MW) of clean energy, with an estimated investment of $1 million per MW, primarily focusing on wind and solar photovoltaic technologies. Global Energy
Mexico Will Host the World's Largest 'Superchip' Plant; Will Manufacture Semiconductors for Nvidia. The GB200 superchips, which will be produced in Mexico, are a key component of the new generation of AI processors. Foxconn, the world's largest contract electronics manufacturer and known as Apple's main iPhone assembler, announced the construction of the largest chip manufacturing plant in the world in Mexico for Nvidia, according to executives from the Taiwanese company.
VECTOR SALES AND TRADING DESK
AMXB/MEGACPO: CFE Telecom Accused of Unfair Competition: CFE Telecom offers mobile services at such low prices that small operators cannot compete. Thanks to an agreement with Altán Redes, the state-owned company does not pay for the use of infrastructure, while others must invest in it. A new reform could give CFE Telecom more power, raising concerns that this will negatively impact their businesses, especially in remote areas where they are the only option.
GRUMAB: Local newspaper wrote today. COFECE led by José Manuel Haro concluded that Gruma must sell the plants in Veracruz, Chalco, Celaya, Culiacán, and Río Bravo, as well as its sales forces and distribution fleets.
This order, which still needs to be discussed by the Plenary of Cofece, caused a 7.57% drop in the shares of the group headed by Juan Antonio González Moreno, resulting in a loss of 10 billion pesos in its value. The five plants, or some of them, could be acquired by Minsa, which holds 17% of that market; Minsa is owned by Altagracia Gómez Sierra, the newly appointed coordinator of Sheinbaum's Business Advisory Council.
But it also pointed to Cargill, led by Marcelo Martins, as well as Harinas Omalli, directed by Gonzalo Palacio, Hari MASA under Alberto Morales, and Del Campo, headed by Diego de Ley, all competitors of Gruma. Tortillas are a staple food for Mexicans: 98.6% of the population consumes corn tortillas, and 68% consume them daily; they also represent nearly 6% of household food spending. Nixtamalized flour, like that produced by Gruma and Minsa, accounts for almost half of the production cost of corn tortillas that are not made directly from masa. The Cofece resolution comes at a time when the antitrust body has the sword of Damocles hanging over it, as there is a proposal in Congress to eliminate it. However, Sheinbaum's administration has put that discussion on hold, opening the door to reconsideration, especially due to the strong pressure being exerted by the United States. Not only has the Director of Administration at IMSS, Borsalino González, already left, but they are also preparing to let go of Eduardo Thomas, Karina Sarmiento, and Jorge de Anda. This involves the head of the Administration Unit, the head of the Technical Coordination of Planning and Supply, and the coordinator of Supply Control. Additionally, Javier Guerrero, Director of Operations and Evaluation, is also implicated. They are accused of promoting direct regional purchases of medicines and health supplies at inflated prices. We informed you yesterday that this practice favored companies like Arcar, Vanquish, Disur, CIMSA, and a couple more, Medivida and Maremi, which at one point received support from now-senator Adán Augusto López. The purge in the institute still led by Zoé Robledo is set to trigger a true trade war. El Heraldo
Fitch Ratings Sees Improvement in Pemex Rating. Fitch Ratings is evaluating three different scenarios for PEMEX's rating after the Mexican government expressed intentions to reclassify the company as a public company. The reclassification could lead to tighter oversight by the Ministry of Finance on it is operations and financial strategies. This increase oversight might affect PEMEX’s debt issuance activity but could also make it easier for the company to secure funding from the government. Each scenario has different implications for PEMEX's rating, with the first scenario being the most likely due to its ease of implementation and minimal impact on the country's fiscal metrics.
Reclassification Only: The first scenario, which considers reclassification only, could result in an increase in the scoring of the "Decision-Making and Oversight" subfactor, one of the four components that comprise the Overall Support Score (OSS). This revision could increase the OSS from 25 to 32.5 per Fitch's “Government Related Entity Criteria”. This change would, in turn, trigger a shift in the approach to notching from the current bottom-up plus five approach to top-down minus two. Consequently, the Issuer Default Rating (IDR) would be upgraded to ‘BB’ from ‘B+’.
Reclassification and/or Debt Guarantee: The second scenario considers reclassification and the guarantee of PEMEX's debt by more than 75% of its total financial debt. According to Fitch's GRE criteria, this would result in the corporate rating being equalized to that of the sovereign, leading to a four-notch upgrade to ‘BBB-’ from ‘B+’.
CEMEXCPO: Gained +3.24%, after Street Analyst Upgraded the stock to Sector Perform vs Underperform. “Cemex looks more attractive from a risk/reward standpoint, following credit rating upgrades and asset divestments.”
LABB: Surged +5.68%. Recently, the company led by Marco Sparvieri announced that the Federal Commission for the Protection against Sanitary Risks (Cofepris) granted the Good Manufacturing Practices (GMP) certification for its topical liquids, oral liquids, and tablet coating production lines at its Toluca plant. This certification allows the company to produce and sell all OTC products in Mexico, representing positive news for Genomma Lab's medium-term performance and profitability.
OMAB/ASURB: Both names lost -1.8%. Yesterday, both airport operators published their traffic reports for September, revealing that ASUR's passenger traffic decreased for the third consecutive month (-1.5% year-on-year), while OMA's traffic fell by 5.2% compared to the same period last year. This performance is attributed to the accelerated inspections of aircraft with GTF engines, which significantly reduced the airlines' fleet.
GAPB: Approval of a 60% Increase in GAP's TUA Hits Vallarta and Los Cabos. Recently, the SICT, led by Jesús Esteva, and the AFAC approved the new Master Plan for GAP. This endorsement of the firm led by Raúl Revuelta, which operates 12 airports, has been met with discontent from the hotel industry and particularly the aviation sector. The increases in the Airport Use Fee (TUA) at terminals like Puerto Vallarta and Los Cabos reach up to 60%, despite the lack of modernization projects to justify such hikes. This will further inflate costs in these tourist destinations, especially at a time when there is a push to control inflation. A clear lack of analysis is evident in this decision.
Aeroméxico Faces Potential Risk Due to Boeing 737 Alert. Aeroméxico, led by Andrés Conesa, may soon encounter issues with its fleet. U.S. authorities have identified potential safety risks in the rudder system of the Boeing 737, prompting an alert issued in India yesterday. Aeroméxico operates a fleet of 107 aircraft, of which 42 are Boeing 737s. In contrast, Volaris, led by Enrique Beltranena, and Viva, managed by Roberto Alcántara, are unaffected, as they utilize Airbus aircraft.
VECTOR RESEARCH
WALMEX The CEO expresses concern about the analysis process being carried out by COFECE regarding antitrust behavior.
After a resolution against GRUMA was announced yesterday, which was stricter than expected by COFECE, Ignacio Caride, the General Director of Walmex, expressed concern about the analysis being conducted by the antitrust authority during a press conference today.
The market expects that the resolution will involve some monetary penalty, which, based on references from past processes, would not be material. However, following yesterday's events, it is believed that it is more likely that the amount could be higher, or that divestments or significant changes in the company's operations may be required, potentially affecting its strategy to offer the lowest prices to consumers.
Alberto Sepúlveda, Executive Vice President of Legal and Prevention for Walmart Mexico and Central America, noted that the measures determined by COFECE could even include the possibility of affected third parties filing lawsuits for damages if violations of the law are confirmed. COFECE could prohibit Walmex from negotiating with its suppliers for payment upon the opening of new stores, a common practice in the self-service sector, which, according to Sepúlveda, would create market distortions.
According to the executives, while the resolution may take weeks or days, it is expected to occur before the end of October.
We recommend caution in the name until there is more clarity on the process.
Continued Impact from Airbus Aircraft Suspension
The suspension of Airbus aircraft due to engine inspections is ongoing, and the risk of a potential economic slowdown could further affect traffic performance. Passenger traffic results for airport groups and airlines in September 2024 continued to show year-on-year declines, primarily due to reduced capacity stemming from the suspension of Airbus operations linked to engine issues that are currently under review by the manufacturer.
As we move into the remainder of the year, we believe the risk of a possible economic slowdown in both Mexico and the U.S. will be a crucial factor to consider in traffic estimates for the upcoming months. Below are the results by company:
Grupo Aeroportuario del Sureste, S.A.B. de C.V. (NYSE: ASR; BMV: ASUR): Overall traffic for the concessions managed by the company decreased by 1.5% year-on-year (YoY), although this was better than the anticipated decline of 0.6%. This was primarily due to weak results from its Mexican concessions, which recorded an 8.1% YoY drop in traffic, although this was also less severe than the 3.6% decrease we expected. These concessions accounted for 56.2% of the total passenger traffic (TTP) managed by the company. In Puerto Rico, traffic decreased by 0.8%, which was below our estimate by 4.9%, mainly due to a contraction in domestic traffic. This concession represented 15.9% of TTP. In Colombia, traffic increased by 14.7% YoY, thanks to a favorable comparison after declines observed in 2023 due to the suspension of two ultra-low-cost airlines early that year. However, these results were 1.8% below our estimates. These concessions represented 27.9% of TTP. We reiterate our fundamental BUY recommendation with an intrinsic value (IV) target of MXN 608.00.
Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE: PAC; BMV: GAP): Total traffic for the concessions managed by the company fell by 3.9% YoY, slightly better than the anticipated decline of 3.8%. Available seats decreased by 7.8% YoY due to reduced capacity from the issues affecting Airbus GTF engines. For its Mexican concessions, total traffic decreased by 3.6% YoY, which was better than our forecast of 4.5%, and represented 90.3% of TTP. Traffic at Jamaica's Montego Bay airport (MBJ) contracted by 11.5% YoY, though it exceeded our estimates by 0.8%. The MBJ airport accounted for 6.6% of TTP. Conversely, traffic at Kingston airport (KIN) rose by 4.1% YoY, but fell short of our projections by 7.7%. Our fundamental BUY recommendation with an IV target of MXN 409.00 remains unchanged.
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (BMV: OMA; NASDAQ: OMAB): Reported a decline of 5.2% YoY, which was better than our estimate of 2.6%. Excluding results from Acapulco airport, which was impacted by Hurricane Otis last October, traffic would have decreased by 3.6% YoY. The result reflects the contraction in domestic traffic. Our fundamental HOLD recommendation with an IV target of MXN 177.00 remains unchanged.
Volaris (NYSE: VLRS; BMV: VOLAR): The number of passengers transported fell by 9.0% YoY, though this was 1.1% better than our estimate. Results continue to show the effects of the significant capacity reduction due to issues with Airbus aircraft. Our fundamental BUY recommendation with an IV target of MXN 26.00 remains unchanged.
Orbia* is attempting to stabilize above the 50-day moving average at 20.35. If it manages to break through the resistance at 21, it would confirm a significant upward signal. The momentum indicators support the recovery scenario and show good potential for further gains. Should it surpass 21, it could rise to the price resistance at 24 or even reach the 200-day moving average resistance at 25.5 pesos.
INTERNATIONAL DAY
October 9 is recognized as World Post Day, which celebrates the postal service and its contributions to global communication. It is also the birthday of the Universal Postal Union, established in 1874.