Monday, April 6, 2015

Spotlight: Cebu Air, Inc (CEB)



Business Overview

Cebu Air, Inc. (the Parent Company) is an airline that operates under the trade name “Cebu Pacific Air” and is the leading low-cost carrier in the Philippines. It pioneered the “low fare, great value” strategy in the local aviation industry by providing scheduled air travel services targeted to passengers who are willing to forego extras for fares that are typically lower than those offered by traditional full-service airlines while offering reliable services and providing passengers with a fun travel experience.

In 2005, the Parent Company adopted the low-cost carrier (LCC) business model. The core element of the LCC strategy is to offer affordable air services to passengers. This is achieved by having: high-load, high-frequency flights; high aircraft utilization; a young and simple fleet composition; and low distribution costs.

For the past 3 years, 78% of the Company's revenues come from Passenger Services, 16% from Ancillary Services, and 6% from Cargo.  According to Civil Aeronautics Board (CAB) data, Cebu Pacific is the leading domestic airline in the Philippines by passengers carried, with a market share of 60.8% for the year ended December 31, 2014.

Major Subsidiaries

Here is a complete chart of JG Summit Holdings, showing its 67.23% ownership of Cebu Air, Inc.  Cebu Air recently acquired Tiger Air last March 2014 at a net cost of Php265.1M.  (Goodwill offset by operational losses).

(Click the view larger image)




Key People 

(c) Forbes.com

1.) John L. Gokongwei Jr. - Founder and Chairman Emeritus of JG Summit Holdings.  Other notable companies he holds:  Robinson Retail Holdings (Chairman & CEO), Oriental Petroleum & Minerals Corporation (OPM) (Director), MERALCO (director).  MBA Graduate from De La Salle University and attended the Advanced Management Program at Harvard Business School.
(c) Romulo.com
2.) Ricardo J. Romulo- Chairman of the Board since 1995.  Director of JGS,  PhilamLife, Zuellig Pharma among others.  Former Makati Business Club for 19 years (1987-2006).  He is the brother of John Gokongwei, Jr.  He received his Bachelor of Laws degree from Georgetown University and Doctor of Laws degree from Harvard Law School.
(c) uic.com.sg

3.) James L. Go - Director since 2002.  Chairman/CEO of URC Philippines and OPM.  Chairman of Robinson Land.  Director of PLDT since 2011. Director of MERALCO since 2013.  Received his Bachelor of Science Degree and Master of Science Degree in Chemical Engineering from Massachusetts Institute of Technology, USA
(c) wsj.com
4.) Lance Gokongwei-  President and Chief Executive Officer of the Group since 1997.  Other positions that he hold:  President & CEO (Universal Robina Corporation) , President & COO (JG Summit Holdings, Vice-Chairman & CEO (Robinson Land), Chairman (Robinson's bank), Director (OPM and MERALCO).  He is the only son of John Gokongwei.  Received his Bachelor of Science degree in Finance and a Bachelor of Science degree in Applied Science from the University of Pennsylvania.
(c) Romulo.com

5.) Jose F. Buenaventura  - Director since 1995. Senior Partner w/ Ricardo Romulo at their law firm.  Board Member of BDO Unibank, Melco Crown, Philippine First Insurance, Philplans First, among others.  Law graduate from Ateneo, Masters of Law from Georgetown University.
(c) Inquirer.net
6.) Robina Y. Gokongwei-Pe - Director since 2007.  President & COO of Robinsons Retail Holdings.  Director of : Robinsons Land, JG Summit, Robinsons Bank.  She attended the University of the Philippines-Diliman from 1978 to 1981 and obtained a Bachelor of Arts degree (Journalism) from New York University in 1984.

Dividend Policy

Regular cash dividends of Php1 per share were given for the past 3 years.  In 2013, Special dividend of Php1/share was given.


Quick Numbers

Fundamentals



Book Value of Equity (AR 2014): ~Php21.54B
Outstanding Shares: ~606M

BV/share: Php 35.54


Debt Ratio (Long term): 57%
Beta: 
0.88
Cost of Capital: 6.8%  (estimated debt cost 3.2% but 6% max is used)


Net Income: 

2014 :  Php 1.06B
2013:  Php 256M
2012: Php 3.52B
   
time-weighted average NI: Php 1.31B

A conservative assumption of long-term growth (3% yearly), would put the fair value of the company  (based on earnings - DCF analysis) by at least:

Fair Value/share: Php 251.53


Cebu Air's Net Income has been volatile mainly due to 2 risk elements:  Commodity price (oil) and  Foreign exchange losses affecting loan interest costs.  For 2014, Cebu Air incurred around Php2.3B worth of losses due to hedging (oil price drops) while in 2013,  foreign exchange losses amounted to Php2B.  Despite the fluctuations, if the company would be able to maintain around Php1B in Net income year on year, then the above Fair Value could be achieved, even more.

Notably, 2014's operational income is almost 2x the previous year at around Php4B.  This goes to show that the company is very profitable, but just needs proper risk management to improve net profit margins.

=================

Technicals



Hopefully, it's a bullish pennant that we see onwards to breaking resistance at 98, or the price will retreat back to 80 levels (green upwards trendline which coincides with 200 EMA).  Seems to me a range trade for some time until that resistance gets broken.

Analysis

No doubt, Cebu Air Inc is the leader in Philippine air transportation and we can see through its revenues that business is good.  As mentioned earlier, the company should improve on its risk management strategies.

For a capital intensive company, it's good to see that debt costs are low for as much as 4-6%.  Interest rate risk should also be monitored with the expense already reaching Php1B this year.  For the year 2014, huge losses were incurred due to commodity price hedging (oil).  It has been said that for every $10 change in oil price, its effect on the pre-tax income of CEB would translate to around Php1.7B.  Not sure if the recent Php2B loss on hedging is to be considered as mitigated loss.  Considering the drastic fall of oil prices last year, it could have been worse.

Would it be possible to sustain a Php1B Net income every year?  It's actually just a small portion of the company's Gross Revenue at Php52B.  So where did all the money go?  Operating Profit Margin may be small as almost 90% goes to operational expenses.  Php4B is alloted to depreciation costs, way bigger than the annual net income, but it is still ready cash for the company.  The average age of CEB planes is just around 4 years, compared to a depreciable life of 15.  This means a lot of the expenses are mainly capital outlays; that for the succeeding years, expenses are expected to drop.  Operating Cash Flows is at Php7B on 2014, almost twice that of 2013.

Given that Cebu Air will continue to dominate Philippine air transportation even considering saturated growth maintained at current levels, the company remains to be profitable.  Challenge left to Cebu Air executives is on how they can manage risk (they have lost a lot from financial derivatives -- should they continue?) and cost management to increase margins.

Personally, I have just started my position on CEB and will likely start to accumulate.  I only first started monitoring this stock after COL released its 2015 guidance, showing a major upside for CEB.  I wanted to take a look myself, and as it turns out, I even gave it a higher FV despite trying my best to use conservative assumptions.  Another blog earlier posted a fundamental analysis on this stock which you should check out:  http://www.alphainvestments.ph/is-cebu-air-truly-worth-php150/ .  So far, it's unanimous, CEB is undervalued.





References: Financial Statement of CEB (AR 2014)
                    Images found via Google search

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This post does not give a comprehensive analysis on the company/industry.  This is only a summary or a company snapshot as of the date it was posted.  Spotlight stocks featured in this blog are being chosen arbitrarily, and are only intended for the blog owner's personal consumption; not as a form of solicitation to buy or to sell.  Comments from readers who would like to point out errors, to share ideas, etc are most welcome. 

Sunday, February 15, 2015

List of Philippine Preferred Shares

     I have experienced call/prepayment risk firsthand as San Miguel Purefoods decided to redeem their Preferred shares (ticker: PFP) 4 years after its issue date last March 2011.  The indicative dividend rate for PFP was 8% (@1000/sh) but since I bought mine at a premium (1009/sh incl. fees), this brings down my dividend yield to 7.14% (net).  As the shares are to be redeemed less than 1 year since I started investing, I only get 3 out of 4 dividend payouts which gives me an actual yield of 4.5% (gross).  Not bad, but could have been better.

     Due to the early redemption, I need to find another instrument to shift these funds.  I don't see any updated comprehensive list for Philippine Preferred shares; thus, created one on my own.

     Since it is unlikely that you would be able to buy Preferred shares at Offer Price (unless you got it at IPO), it is important to check on the Yield to Maturity (YTM) with respect to the stock's price. There are lots of YTM calculators online which you can use to compute for the bond yield.  Examples:  Monkey Chimp and Investopedia

     The list below only includes Preferred shares that has a history of giving out dividends consistently (behaves like a fixed income asset).  Important things to note are the earliest redemption dates and examples of current yield with the default holding period of 5 years unless stated.  Prices are as of 2/13/2015.

     If there are other Dividend-giving preferred stocks that I have missed, please let me know on through the comments section and I'd gladly add them here.



IssuerTickerListing DateEarliest Redemption DateOffer PriceDiv YieldYield to Maturity
Ayala CorporationACPA11/25/08redeemed8.8800%redeemed
Ayala CorporationACPB111/15/13??5005.2500%@502: 5.103% for 3 yrs; 5.157% for 5
Ayala CorporationACPB211/5/1411/5/195005.5750%@505: 5.342% for 5
First GenFGENG5/18/125/18/221007.8080%@106: 5.58% for 3 yrs; 6.37% for 5
First GenFGENF7/25/117/25/181008.0000%@107.7: 5.16% for 3 yrs; 6.16% for 5
Leisure and Resorts WorldLRP11/3/14any time?18.5000%@1.03: 5.34% if 1 year; 6.84% for 2 yrs
PetronPPREF3/5/109.5281%
PetronPRF2A9/3/149/1/1910006.3000%@1010: 6.06%
PetronPRF2B9/3/149/1/2110006.8583%@1020: 6.38%
San Miguel CorpSMCP112/8/10to be redeemed8.0000%to be redeemed
San Miguel CorpSMC2A9/28/129/28/15757.5000%@76.2: 5.807% in 1 yr
San Miguel CorpSMC2B9/28/129/28/17757.6250%@78.5: 5.883% for 3 yrs; 6.502% for 5
San Miguel CorpSMC2C9/28/129/28/19758.0000%@81.5: 4.828% for 3 yrs; 5.946% for 5
San Miguel PurefoodsPFP3/11/113/11/1410008.0000%to be redeemed
San Miguel PurefoodsPFP23/12/153/12/1810005.6569%to be issued


Rant: 

     My Preferred stock investment was placed through BPITrade. It's hard to keep track of dividend payouts since BPI Trade does not notify me through email for any incoming dividends or at least give out an e-receipt. History of transactions is also limited. Based on my experience, COL Financial and Philstocks (Accord Capital) provide these things; thus, are more reliable when it comes to keeping your preferred share investments.  Not to mention, BPI Trade's customer service/support is the worst.

Risk:

Liquidity - Preferred shares may not be as liquid as common shares which is significant if you would want to sell.  It may take time before a buyer would match your desired offer price.
Default - A bit better than Common since Preferred shareholders has a higher priority of payment.  Still, it is best to invest on companies that are less likely to go bankrupt.

Monday, October 6, 2014

CPG's 800 Million Peso Share BuyBack Program

I have previously covered Century Properties Group (CPG) in this blog but that was already around 2 years ago; thus, this badly needs an update.  Looking at the historical chart, one can see 2.42 as a major resistance and that the stock price have long been in a bearish trend for more than 1 year.

On hindsight, it would be easy for me to say my fair value (FV) price of 2.43 (Spotlight: CPG) was spot on; but I'd say getting close to that resistance level was more of a coincidence.  I only use FV calculations as a guide in spotting undervalued companies , and not as a predicting tool.


My selling strategy with stock prices which had a parabolic rise is to sell when prices revert back to a short term moving average (i.e. 20 SMA).  One good use of having a FV is in avoiding bear traps (i.e. selling too soon).  That was a good +45% gain and an escape for me from the imminent breakdown.



Steep rise by the end of 2012

Looking at the company disclosures, I don't see much relevant news except the announcement of the 800 Million, 2-year share buyback program which was announced on January 8, 2013.  Seems like some insiders already bought before the announcement, and as soon as CPG started buying back millions of shares, the rise continued.


Sudden crash in May 2013?
Another interesting event was the declaration of increase in Authorized Capital Stock (ACS) on May 17, 2013.  Although I think increasing ACS does not usually have an effect, seemed like the news was received negatively by the market.  This may be because of the big increase from 10B to 18B authorized capital which may imply dilution soon in the form of new equity sales (i.e. private placement, SRO, etc). At the same time, 25% stock dividends were also declared; however, this remained to be TBA until now.  Good thing I went out before that plunge.

Company BuyBack
BuyBacks can be seen as positive flags, wherein the company itself sees its own stock being undervalued.  In the chart above, the yellow spots indicate the time when CPG bought back its shares.  You may also refer to the table below for the figures.  As for the green spots, these are the times that I have bought for accumulation.  If I compare myself with an 800M Peso buyback fund, then certainly buying below what the CPG (average: 1.51) has been buying so far makes me feel more comfortable.  This is a 2-year program, and CPG has barely used its ammo with just3% (26M) bought so far.

Buybacks:

DateSharesPrice per Share
January 9, 20131.5 M1.73
January 10, 20132.7 M1.73
January 23, 2013236 k1.75



June 17, 20133 M1.73
June 26, 20132 M1.48
August 1, 20135 M1.33



September 24, 20141.22 M1.26
September 25, 2014500 k1.31
October 1, 2014620 k1.26
October 2, 2014500 k1.25
TOTAL17.27 MAverage: 1.51
Cumulative Number of Shares Purchased to Date 117,270,000
Total Amount Appropriated for the Buy-Back Program800,000,000
Total Amount of Shares Repurchased26,124,898.16
(data from company disclosures:  edge.com.pse.com)

The company have bought shares recently at current levels, which could mean a good support above 1.2.

CPG still owes its shareholders some stock dividends as was promised.  Currently still TBA.  Take note, this can lead to further decline in the stock price due to dividend adjustment.
YearStockCashSplits.RightsEx-DateRecord DatePayable
YEARSTOCKCASHSPLITSRIGHTSEX-DATERECORDPAYABLE
201420.65%---TBATBATBA
2014-0.019046--12-May-201415-May-201405-Jun-2014
201325%---TBATBATBA
(from COLFinancial.com)

In an article posted by the Prudent Investor last Oct 2013, he highlighted that CPG has been into aggressive leveraging with the current low-interest rate environment.  Putting all the above together, this explains CPG's corporate strategy which are as follows:

1.) Increase Leverage - take advantage of low interest rate environment to further Return on Equity.
2.) Increase of Authorized Capital Stock - High debt over equity would be bad for the books as it implies greater risk for the company (risk being shifted towards the lenders).   Increasing ACS signals that they will soon raise capital via equity, eventually lowering leverage ratios.
3.) Company Buyback program - Accumulation of treasury shares which may be used in the future for re-issuance.  Can be used as a signal for undervaluation (to support/push stock's price).  I don't think CPG is obliged to use up all the 800M peso for share repurchasing; it's more of an option for them.
4.) Stock Dividends - Retained earnings (i.e. cash) are kept by the firm and instead stocks are to be distributed to shareholders.
5.) Grand Finale:  Equity sale  - The preceding steps all lead to one thing:  CPG will most likely raise capital via share sales.  These can be in the form of private placements, Rights Offers, etc.

What's in it for retail investors like me?
I haven't checked again on the company's fundamentals (updated earnings, dilution effects, etc) to see if CPG is still being undervalued and has manageable risk (Hopefully soon!).  In terms of trading the stock, it is good to note relevant events that may trigger price movements, both positive and negative.  This gives me a more informed decision when timing my trades.

As in the case of the impending equity sale, this may not happen soon, but there would most likely be a build up on the stock's price before CPG will start raising capital via equity.  The company buybacks can be a good price entry point and accumulation is key while the stock is at its lows and at its least risky state (easy to cut loss during breakdown).  When the stock price starts to fly due to the increase of buying demand, that's the time to prepare for an exit before CPG starts declaring an equity sale.

As always for the readers, caveat.


Personal Disclosure: As mentioned earlier, I have been accumulating on this one, among other stocks.

-------
This post does not give a comprehensive analysis on the company/industry.  This is only a summary or a company snapshot as of the date it was posted.  Stocks featured in this blog are being chosen arbitrarily, and are only intended for the blog owner's personal consumption; not as a form of solicitation to buy or to sell.  Comments from readers who would like to point out errors, to share ideas, etc are most welcome. 

Sunday, August 31, 2014

MSCI August QIR 2014: Effect on Total Turnover Value of the Philippine Market

I didn't monitor much of foreign fund flows until now.  The Philippine market being relatively small and illiquid can easily be swayed by the entrance and exit of foreign money.  Regardless of companies having solid fundamentals and being undervalued, if foreign investors decided to get out of our market, surely stock prices will be pulled down by the large selling of these monstrous funds.

"MSCI Rebalancing" has already been a buzzword with local investors.  Certain stocks move as based on the increase/decrease of its weight, more so with the case of inclusion/exclusion as a constituent of an MSCI index.

The announcement (w/c includes the list of concerned stocks) has been announced early August; however, the actual Rebalancing happened on August 29.  Take a look on the Total Turnover Value of the Philippine market during that time.


Philippine Market Activity
c/o www.investagrams.com

More importantly, it is good to note that Foreign buying is still dominant, which means market rise as shown through the PSE index is still being supported at this point.


Sunday, August 11, 2013

Spotlight: Vantage Equities, Inc



Business Overview

The company was originally organized for oil and gas exploration in 1992 under the name iVantage Corporation.  By October 2000, the primary purpose of the firm has been changed to financial holdings and investments, including but not limited to IT companies and related ventures.

In June 2006, the Corporation divested its shareholdings in International Exchange Bank, its single largest investment at that time.  The iBank sale generated Php2.9B.  The Corporation decided to invest its Php2.9B war chest in portfolio of equity and fixed income securities.   For this purpose, the Company hired its current President in October 2006 along with a team of finance professionals.  The current team is also tasked to further professionalize management of the Vantage Group of Companies.

Major Subsidiaries



1.) E-Business Services, Inc  (100%)
 - engaged in the fund transfer and remittance services, both domestic and abroad.  E-Business has an existing Representation Agreement with Western Union Financial Services, Inc. (top 3 among its direct agents) covering its fund transfer and remittance services for 7 years (Sept 2007 to Aug 2014).  Subsidiary, eBiz Financial handles the financing business.

2.) iCurrencies, Inc. (100%)
 - organized primarily to engage in the business of buying and selling foreign currencies.  However in 2001, a new circular issued by the Central Bank required for additional documentation including a minimum paid-up capital of Php50 Million.  iCurrencies decided to stop its business as a Foreign Exchange Corporation (FxCorps) due to the regulatory changes.  In the meantime, iCurrencies is sustained by income on its investments and interest income on its funds.


3.) Philequity Management, Inc  - PEMI (51%) 

 - an Asset Management company with about Php3B in assets under management at end of 2008.

4.) Unlaunched Funds  as of Dec 2012 (100%)
 - Philequity Balanced Fund, Inc
 - Philequity Foreign Currency Fixed Income, Inc
 - Philequity Dividend Yield Fund, Inc
5.) Yehey!
 - engaged in the business of internet online related products relating to database search engine, such as, but not limited to , conceptualizing, designing, illustrating, processing, and editing web sites.  From a pioneering web portal in the late 90's, Yehey has grown into a leading digital on-line marketing solutions provider in the country.  To support its growth, Vantage infused Php250M capital in Yehey in 2007.




Key People 

Valentino Sy - also a Philstar columnist for Philequity Corner.  Owns 3%.

Wilson Sy - Brother of the Chairman/CEO Valentino Sy.  Owns 8.77%
WillyN. Ocier -  Also involved with Belle Corporation.  Owns 0.31%

1.) Valentino L. Sy - Chairman and CEO, Director since 2002.  Holds top positions on businesses that are into steel trade.  BS Industrial Management Engineering graduate from DLSU.
2.) Edmundo P. Bunyi - President and COO, Director since 2006.  Pres & CEO of e-Business Services and Pres & COO of Philequity Management.  Former Senior Vice President and Treasurer of International Exchange Bank, AVP and Head of FX Sales of UCPB, Asst Manager for Corporate Banking for Far East Bank & Union Bank.  BS Management Engineering graduate from Ateneo.
3.) Ignacio B. Gimenez - Director since 2003.  Treasurer of I.B. Gimenez Securities, a stock brokerage firm.  President of several Mutual Funds: Philequity Fund, Philequity Dollar Income Fund, Philequity PSE Index Fund, and Philequity Peso Bond Fund.  Also Sales and Marketing Manager of Society Publishing.  Earned an MBA from AIM.
4.) Willy N. Ocier - Chairman & President, Director since 1999. Co-Vice Chair of Belle Corporation and Highlands Prime.  Chairman of APC Group, Sinophil Corporation.
5.) Wilson L. Sy - Reelected to the Board in 2005.  Brother of Valentino Sy.  Vice Chair of Asian Alliance Holdings, Director of Philequity Management.  Independent Director of Tagaytay Highlands. Former Chairman of the Philippine Stock Exchange.  Director, Basic Petroleum & Minerals, Belle Corp, A. Brown Corporation,  Jollibee Foods, among others.  Management Engineering graduate from Ateneo.
6.) Antonio Samson - Director since 2005.  Group Chairman/ Chief Business Strategist of DDB Worldwide Communications Group, an advertising company.  Former EVP in PLDT and concurrently President and CEO of MediaQuest Holdings.  MBA from AIM, Masters in Business Economics from UAP, Economics from Ateneo.
7.) Gregorio Kilayko - Independent Director in 2012, also for SMPH, BELLE, HP.  Former PSE Governor in 1996 and 2000.  MBA from Wharton.
8.) A. Bayani K. Tan - Corporate Secretary, also with other companies: First Abacus Financial, BELLE, Sinophil Corp, Tagaytay Highlands, Touch Solutions, I-Remit, Philequity Funds, TKC Steel Corporation, among others.  Managing Partner of Tan Venturanza Valdez Law Offices.  Director/Corporate Secretary of Private Companies such as : Sterling Bank, Medicare Plus, etc.  Master of Laws from New York University, Bachelor of Laws from UP.

Dividend Policy

No cash dividends have ever been declared.  In 2008, 5% property dividend was brought out distributing Yehey stocks to its shareholders, paving way to Yehey's listing by way of introduction to the PSE.


Quick Numbers

Fundamentals



Book Value of Equity (AR 2012): ~Php6.6B
Outstanding Shares: ~2.24B

BV/share: Php 2.97


Debt Ratio (Long term): 0%
Beta: 
0.48
Cost of Capital: 8.4%


Net Income (Realized): 

2012 :  Php 570M
2011:  Php 530M
2010: Php 716M
   
time-weighted average NI: Php 587M

Net Income (Takes account of increase in market value of Assets For Sale): 
2012 :  Php 1.09B
2011:  Php 668M
2010: Php 893M
   
time-weighted average NI: Php 926M

A conservative assumption of long-term growth (3% yearly), would put the fair value of the company  (
based on earnings - DCF analysis) between:

Fair Value/share: Php 5.13 to 8.02



The lower FV estimate is computed from the realized Net Income while the higher FV (8.02) uses the Net Income that takes into account the market value of Assets For Sale.  Take note that in 2012, unrealized gains reached to as much as 500M due to its equity investments on a bullish environment.  For conservative purposes, I would still base my decision on the realized income having sustainable growth at 3% yearly.  At current market price of 2.58, this gives us a 99% upside in the future.  This is even below current book value.

Another factor that boosts our fair value estimate is the low Beta (0.47) which makes this stock a good addition to my portfolio.

=================

Technicals


Nothing impressive with the charts and so I mapped it with the timing of disclosures.  The decline in May coincided with the breakdown of the market and has nothing to do with the earnings results.  Earnings were actually good with a potential 500M increase if all AFS were sold.  Thus, May-June was a good opportunity to buy for value investors.  V has no history of giving out dividends, instead the company prefers share buybacks as evident on the recent activities.  Starting August, the company already had bought back at prices averaging at 2.60.

Analysis

Bulk of the company's gains are basically coming from its direct investments to equity and fixed income assets.  Because of this, I believe the performance of this company is tied to general market conditions of our local market.  This is not a heavily traded stock; thus, does not move along the directions of the market.  Investing into this stock is just like getting a free ride on the investments of the Finance professionals in this company.  However, we wouldn't expect getting cash dividends but could rather gain through capital appreciation.

I'm not a fan of Yehey but I wouldn't be too much concerned with it as it is just a small part of the company.  It may be possible that they plan to leverage their digital services with their remittance/fx business soon.  Given that performance of the company's investments are good and the stock remains undervalued, I believe this is a good buy; thus, would personally include into my portfolio.  I already have a starting position on this for my speculative port and plan to increase it more.

References: Financial Statement of V (AR 2012)
                    Images via Google search

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This post does not give a comprehensive analysis on the company/industry.  This is only a summary or a company snapshot as of the date it was posted.  Spotlight stocks featured in this blog are being chosen arbitrarily, and are only intended for the blog owner's personal consumption; not as a form of solicitation to buy or to sell.  Comments from readers who would like to point out errors, to share ideas, etc are most welcome. 

Sunday, June 2, 2013

Spotlight: Crown Equities Incorporated



Business Overview

The company started out engaging in exploration and development of mines under the corporate name,  Leyte Base Mining Corporation, Inc in 1969.  In 1993, the firm have shifted focus onto oil exploration and changed the name to Pacific Rim Oil and Resources Corporation.  2 years later, the board decided to divest from the oil business and shift towards being an investment holdings company.

The corporation's main business is the acquisition, development and sale of real estate properties, either through its own subsidiaries or through tie-ups with major real estate and property development companies in the field.  The corporation also delivers medical and health services to outpatients through its ambulatory care centers.

Subsidiaries and Projects

1.) Real Estate and Property Development
 a.)  Ceres Property Venture, Inc (CPVI) - organized primarily to acquire, develop and sell real estate properties.  Started commercial operations in 2010.  Owns over 4 hectares of real estate properties along Levi B. Mariano Ave in Taguig City.  CPVI has ownership interest in Cypress Towers which gave around 20% to the Corporation's total revenue for 2012 (45% in 2011).  The land where Cypress Towers now stand was owned by CEI's subsidiary.

Cypress Towers - Developed in partnership with DMCI
  b.) Crown Central Properties Corporation (CCPC) -  Joint venture with Solid Share Holdings, Inc.  In 2003, CCPC entered into a Memorandum of Agreement with Sta. Lucia Realty whereby land is formed by the latter and CCPC shall be responsible for completing the development of the subdivision project.  Sharing agreement was 60-40% in favor of CCPC.

Palma Real - In partnership with Sta Lucia Realty.  Project completed and marketing in progress.  Contributed 25% to Total Revenue in 2012
c.) CEI Development Corp (CEIDC) - owns over 50 hectares of real estate property in Sto. Tomas, Batangas.  Some of the properties are still in the process of titling.  Sells house units for buyers in Palma Real Residential Estates.

d.) Parkfield Land Holdings, Inc (PLHI) - 75% owned subsidiary of the Corporation.  PLHI owns 92 hectares of land located in San Jose del Monte, Bulacan.  No significant business development so far.


2.)  Healthcare 
a.)  Healthcare System of Asia Phils, Inc - contributed 41% of Total Revenue for the year 2012

FortMed Medical Clinics   http://www.fortmed.org/  
- Makati clinic (Jupiter St) started out in 1997 while the 2nd clinic located at Sta Rosa, Laguna started in 1998.

Makati clinic is located within the vicinity of Bel-Air Village while the Laguna clinic is located in Greenfield Business Park, Sta. Rosa.

Key People 


1.) George L. Go - Chairman of the Board.  Also the chairman of the ff: Healthcare Systems of Asia Philippines, Asian Alliance Holdings  and GLG Crown Holdings.  Also a director of Shang Properties, Inc. and Asian Alliance Investment Corporation.  BS Econ grad from Youngstown University in the US and completed an advanced management program in Harvard Business school.
2.) Wilfrido V. Vergara - Vice Chairman of the Board.  He is Chairman/Vice Chairman/Director of most subsidiaries under CEI.  Obtained Bachelor's degree from Ateneo.
3.) Ramon Recto - Independent Director, member of Audit and Nomination committee.  President of Marcventures, former president of Lepanto Mining Corporation.  BS EE/ME from UP and MS Industrial Management from the same university.
4.)  Isidro Consunji - Independent Director.  President of DMCI and Director of other companies such as Semirara Mining, Atlas Mining, Carmen Copper, DMCI , among others.
5.) Patrick Warren Go - Director.  Managing Director of Healthcare Systems of Asia Phils.   Former VP at Banco De Oro.  Bachelors graduate of Finance and Real Estate from San Francisco University.  Son of George L. Go. 

Dividend Policy

No dividends have been declared over the past 3 years.


Quick Numbers

Fundamentals



Book Value of Equity (AR 2012): ~Php1.68B
Outstanding Shares: ~13.6B

BV/share: Php 0.123


Debt Ratio (Long term): 0%
Beta: 
0.823
Cost of Capital: 10.4%


Net Income: 

2012 :  Php 13.5M
2011:  Php 22.19M
2010: Php 12.4M
   

time-weighted average NI: Php 15.88M


A conservative assumption of long-term growth (3% yearly), would put the fair value of the company  (
based on earnings - DCF analysis) at around:

Fair Value/share: Php 0.033



As of May 31, 2013, current market price is at 0.081 which is already way beyond our fair value price in terms of growth.

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Technicals

CEI has been trading on range between .062 and 0.089.  Last time it reached its peak was on March 2012.  I only got interested with this stock lately when I saw the huge volume transaction for May 31, 2013.  It turns out that it was just a cross-trade within Public Securities for some reasons unknown.  For other days, CEI remains to be illiquid despite a public float of 71%.

Analysis

CEI's source of growth for the short term would come from sales of units from the Palma Real project.  Although the Cypress Towers project would still continue to generate revenue, most of the profit already came in as early as 2011.  CEI's landbank through its subsidiaries remain idle and has no business prospect yet within the year.

Majority of the corporation's revenues is still expected to come from its health care business.  However, I noticed through their financial statements that operating expenses outrun their revenues.  This is definitely not sustainable especially when I see that it has been already the case for the last 3 years.

Current market price at .081 is lower than the book value of 0.12 which may be of interest for value players out there.  Personally, I am looking for an undervalued stock with growth potential and the latter is what CEI lacks for now.  If ever I am going to buy using technicals, I think I'd rather wait at 0.06 levels which is near the trading range support.

References: Financial Statement of CEI (AR 2012)
                    Images via Google search

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This post does not give a comprehensive analysis on the company/industry.  This is only a summary or a company snapshot as of the date it was posted.  Spotlight stocks featured in this blog are being chosen arbitrarily, and are only intended for the blog owner's personal consumption; not as a form of solicitation to buy or to sell.  Comments from readers who would like to point out errors, to share ideas, etc are most welcome. 

Sunday, February 3, 2013

Spotlight: The Philodrill Corporation (OV)


Business Overview

Philodrill Corporation was incorporated in 1969, with the primary purpose of engaging in oil, gas and mineral exploration and development.  The company has also registered being a diversified holding company, investing in petroleum exploration and production, financial services, property development, mining and infrastructure development, as its secondary purpose.

The company's active petroleum projects cover production and exploration areas in offshore Palawan and South Sulu Sea and onshore Mindoro under various Service Contracts (SC) with the Philippine government through the Department of Energy (DOE).

In the financial services sector, the company is a 40% shareholder of Penta Capital Investment Corporation (Penta Capital), an investment house.

In the mining sector, the company holds minor equity interests in the following companies: Atlas Consolidated Mining, Vulcan Industrial & Mining Corporation, and United Paragon Mining Corporation.


Petroleum Projects


1.) SC 14 (Nido, Matinloc and North Matinloc) - in production.  Block operator: OV.  For further revaluation.  Based on crude oil sales agreement, all were sold to Pilipinas Shell generating 11% of total gross revenues.  OV interest 26.106%, 41.608%, 33.111% respectively.
2.) SC 14 C-1 (Galoc - Northwest Palawan) - in production. onto Phase 2 development.  Field operator: Galoc Production Company (GPC).  Other Partners: Nido Petroleum Phils, OPM, FEP. 7.21495% OV interest.  Oil being sold to foreign companies (i.e. GS Caltex Singapore, SK Energy International)
3.) SC 14 C-2 (West Linacapan) - Block operator: Pitkin Petroleum.  50% JV with Resource Management Associates Pty.  7.0175% OV interest
4.) SC 14 (Retention Block, Tara, and Libro) - no exploration.  Operator: OV. 33.751%, 27.5%, respective OV interest.
5.) SC 6A (Octon - Northwest Palawan) - new block operator : Pitkin Petroleum.  Partners: PetroEnergy Resources Corp, Anglo Phil Holdings, Trans-Asia Oil & Development, Forum Energy Philippines, Philex Petroleum, Alcorn Gold Resources Corp.  15.495% OV interest.  Status: Exploration
6.) SC 6B (Bonita - Northwest Palawan) - farm-in groups: VenturOil Philippines, Peak Oil and Gas Phil Ltd., Blade Petroleum Philippines Ltd.  Transfer and assignment of block operatorship from OV to Peak Oil, if approved.  Other partners: Phoenix Gas&Oil Explo Co, Oriental Pet. & Minerals Corp., TA, FEP, Alcorn Gold Resources, Corp.  6.5625% OV interest.  Status: Exploration.
7.) SC 41 (Sulu Sea) - still looking for prospective partners 
8.) SC 53 (Onshore Mindoro) - block operator: Pitkin Petroleum.  Evaluation progressing.  Other Partners: RMA Pty, APO, Basic Consolidated Mining Corp. (BSC). 22% OV interest. Expiry date: 7/2014.  Status: Exploration.
9.) Swan Block - ongoing negotiations with PNOC-EC

Key People 

Son of National Bookstore founder, Soccoro Ramos.
Chairman/President of Atlas Mining

Listed as #30 in the Forbes' list of top 40 Richest in the Philippines, the Ramos family has been actively involved in transporation, oil & gas exploration, mining, property development, etc.  The family started out with the success of National Bookstore, founded by Mrs. Soccoro Ramos, Alfredo's mother.

1.) Alfredo C. Ramos - President/CEO and Chairman of the Board. Held directorship in Atlas Mining (AT), Anglo Philippines Holdings (APO), MRT Development Corp, National Book Store (NBS), Shang properties (SHANG), United Paragon Mining (UPM), Vulacan Mining (VUL), etc.
2.) Nicasio Alcantara - Independent Director.  Held directorship in Alsons Corporation (ACR), BDO Private Bank, Seafront petroleum.  Listed #5 top shareholder (0.1892%)
3.) Christopher M. Gotanco - Director. Held directorship in APO, Boulevard Holdings (BHI), MRT Dev Corp., Penta Capital, VUL.
4.) Honorio A. Poblador III - Independent Director.
5.) Presentacion S. Ramos - Director.  Held directorship in Alakor Securities, APO, NBS, VUL.  Wife of Alfredo Ramos.
6.) Adrian S. Ramos - Director. Held directorship in Alakor Securities, APO, AT, Carmen Copper, UPM, VUL.  Son of Alfredo and Presentacion Ramos.
7.) Augusto Sunico - Held directorship in Alakor Securities,Anglo Philippines Holdings, Manuel L Quezon University, Penta Capital, UPM, VUL.  Brother in law of Alfredo Ramos.
8.) Marciano Padilla - Director.  Held directorship in AT, Padi's Point Restaurant Group.

Companies among the 20 Top Stockholders

1.) Alson Consolidated Resources, Inc - 0.2953% (#2)
2.) Vulcan Industrial & Mining Corp - 0.1201% (#10)
3.) Ayala Corporation - 0.098% (#13)

Dividend Policy

Subject to availability of funds and balance of Retained Earnings.  Previous Dividend Yields register to around 3-5%.


Quick Numbers

Fundamentals



Book Value of Equity (3Q 2012): ~Php3.19B
Outstanding Shares: ~191.9B

BV/share: Php 0.0166


Debt Ratio (Long term): 0%
Beta:
0.925
Cost of Capital: 10.9%


Net Income: 

2012 3Q:  Php 283.5M (projected)
2011:  Php 1.065B
2010: Php 557M

2009: Php 108.6M
2008: Php 15.1M   

time-weighted average NI: Php 555M


A conservative assumption of long-term growth (3% yearly), would put the fair value of the company  (
based on earnings - DCF analysis) at around:

Fair Value/share: Php 0.038



The latest price as of 2/1/13 is Php 0.044.  Oil production has still not been consistent as some sites may be needed to be closed for added improvements.  The company is also finding ways  to lessen the cost and to improve production.  This earnings projection only involves income coming from the production sites.  Potential income coming from the other sites currenly being explored has not yet been factored in.  Opening of an oil well could result to a huge gain in revenues.  Assuming by 2013, OV's target of Php1B net income is to be realized moving forward, then we can raise the stock's fair value price at around 0.078, even at conservative growth levels.

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Technicals



One year major support line stands at 0.038.  There has been exuberant buying last year which pushed prices up to 0.061.  Tracing on past news, the run-up was caused most likely by the 5% cash dividend declaration in February, for which the stock price went back towards support at ex-div.  Technical indicators still show weak momentum.  An anticipated cash dividend declaration may not provide enough catalyst, given that last year's income were not as big as in 2011; cash div may not be that big.


Analysis

It may be a coincidence that the 1-year support line is equivalent to our conservative fair value at 0.038.  If one remains to be bullish in our upstream oil industry; thereby hopeful that exploration efforts down south are going to be fruitful, then buying at current levels is relatively safe.

The company forecasts its income to reach the Php1B mark next year and may even double in 2014.  Although be reminded that this is more of a company target and is still subject to market conditions (oil prices) and the finishing of new oil wells.  

PD:  I have entered initially into OV at 0.044 based on technicals as prices broke a minor resistance at 0.042, and is now above the ichimoku cloud.  Given this recent research on the company's fundamentals pointing current prices are at fair value, I only intend to trade this stock within a range.  I believe this one will still remain a sleeper until new oil wells are declared to be open.

References: Financial Statements of OV (3Q 2012, AR 2011)
                    Images via Google search

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This post does not give a comprehensive analysis on the company/industry.  This is only a summary or a company snapshot as of the date it was posted.  Spotlight stocks featured in this blog are being chosen arbitrarily, and are only intended for the blog owner's personal consumption; not as a form of solicitation to buy or to sell.  Comments from readers who would like to point out errors, to share ideas, etc are most welcome.