Mexico Equity Research: 2Q25

Another quarter with soft conditions; a slowdown across most industries is expected, along with FX-related effects in some companies and weather headwinds for some others. Similar to previous quarters, we forecast on average margin contraction for our covered companies, as companies struggle with a weaker operating leverage (among other factors).

In Consumer, we are mostly lowering our PTs, while upgrading Gruma to Market Perform (from Underperform). Overall, FX remains a key factor, albeit at a lower scale vs previously expected. Within Consumer Discretionary, we continue to prefer Alsea, as we see its formats more resilient and healthily positioned to keep or gain market share. In food & bev, beverage companies AC, KOF, FEMSA and Becle remain our Outperform ratings. We are upgrading Gruma given its recent underperformance (-11% vs –2.3% of MEXBOL since June), yet expected solid margin performance. Within Health & Personal Care, we continue to prefer Genomma Lab (previously restricted), while in Supermarkets, we rate Chedraui Outperform. Despite another quarter of weak volumes and traffic across our consumer coverage, we continue more constructive on 2H25.

The Mexican Transport sector is expected to post another positive quarterly result at the top line, however, PAX traffic and cargo have been negatively impacted by weak consumer trends, uncertainty regarding US trade policies, and negative sentiment towards immigration policies in the U.S. As a result, we are reducing our PTs in ASUR (P$665, Outperform) and Traxion (P$30, Outperform). We are downgrading OMA to Underperform (from Market Perform) given the limited potential upside to our P$272 PT.

In the Cement sector, we continue to anticipate a challenging quarter. The company's efforts to optimize its asset portfolio are expected to partially mitigate cement demand contraction. Furthermore, the uncertainty associated with U.S. trade policies may result in challenging market conditions in the coming months. In housing, we expect total revenues in the sector to increase strongly, explained by VINTE's positive performance after JAVER's business consolidation, and we are thus increasing our PT to P$47 and reiterating our Outperform rating.

Within our Real Estate coverage, in Industrial Real Estate we forecast an overall improvement in profitability vs 2Q24, amid a more favorable FX and double-digit growth in revenue due to inorganic growth of FIBRAPL and FMTY. Despite a deceleration in net absorption in most industrial markets, especially border markets, most companies have been posting healthy results, and as of 1Q25 had almost record high occupancy. On the contrary, regarding Hotels & Hospitality, we expect a challenging quarter for our covered companies amid moderate growth and slower demand trends.