Mexico Equity Research: 3Q25

A meaningful recovery is still pending; soft conditions across most industries remain, with weather headwinds and FX impacting some companies. For yet another quarter, we forecast average margin contraction for our covered companies, a trend that seems to be lingering for the rest of the year.

In Consumer, we are mostly lowering our PTs, -2% on a median basis, as we expect continued consumer softness in both Mexico and the U.S.; FX is expected to be less of a factor YoY. Within Consumer Discretionary, we continue to prefer Alsea, as we see its formats as more resilient and healthy positioned in the midst of the consumer backdrop. In food & bev, weather headwinds and competition are expected to remain, while AC, KOF, FEMSA and Becle remain our Outperform ratings. In Health & Personal Care, we remain Market Perform in KCM, while we stick with our Outperform ratings in Walmex and Chedraui within Supermarkets, despite a more cautious view for the remainder of the year vs. our previous estimates. Despite the aforementioned headwinds in the space, we continue to see some valuations providing meaningful upside potential.

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 US. We are downgrading ASUR to Market Perform (from Outperform), while our Market Perform ratings in OMA and GAP remain unchanged, and our Outperform ratings in TRAXION and VOLAR are reiterated.

In the Cement sector, we continue to anticipate a challenging quarter yet with a significant recovery QoQ. The company's efforts to optimize its asset portfolio are expected to partially mitigate the cement demand contraction. In housing, we expect total revenues in the sector to increase strongly, explained by VINTE's positive performance after JAVER's business consolidation. We downgrade ARA to Market Perform (from Outperform).

Within our Real Estate coverage, in Industrial Real Estate we forecast a slight decrease in profitability vs 2Q25, amid a less favorable FX and double-digit YoY 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 are expected to continue posting resilient results, with occupancy levels above historical averages; a weaker USD meanwhile is expected to impact most revenues of our coverage. Regarding Hotels & Hospitality Real Estate, we once again expect a challenging period considering ongoing slow demand trends and thus moderate growth, as well as a rising limited capacity to successfully pass on inflation costs via ADR while facing cost headwinds.