Spotlight: Waterfront Philippines, Inc (WPI)

Business Overview

Waterfront Philippines, Inc is an investment holding company which focuses into hotel, leisure, and tourism businesses.  WPI is now also known as the largest Filipino hotel chain in the country.  Hotel properties are mainly located in the three central business districts: Manila, Cebu and Davao.  WPI has a Central Reservations System, which makes it the only integrated network of hotels in the country.

Penthouse Suite at Waterfront Cebu

Subsidiaries

1. Waterfront Cebu City Casino Hotel, Inc. (WCCCHI) - has an entertainment block, hotel block and a convention center.

2. Waterfront Mactan Casino Hotel, Inc. (WMCHI) - located right across Mactan-Cebu International airport.  Possible phase II development in the future.  Cebu City is the only South East Asian city that offers casino facilities to transients while waiting for their flights.

3. Waterfront Insular Hotel Davao, Inc. (98%)

4. Waterfront Promotions Limited -marketing arm for international marketing and promotions 

5. Waterfront Entertainment Corporation - country's first ever integrated hotel reservations and booking system.

6. Mayo Bonanza, Inc. - operation and management of amusement, entertainment and recreation businesses.

7. Grand Ilocandia Resort Development Incorporated (54%) - for disposal

8. ACESITE (Phils.) Hotel Corporation (59%)- principal property is the Manila Pavilion Hotel, which houses Casino Filipino (owned and operated by PAGCOR); publicly listed (ACE)

9. Waterfront Food Concepts, Inc. - pastry business catering to member hotels and other coffee businesses.

10. Waterfront Management Corporation - G-Hotel Manila, located at Roxas Blvd, Malate, Manila

11. W Citigyms and Wellness, Inc. - gym subsidiary currently available at WCCCHI.  Possible opening of gyms in other member hotels.

Significant Shareholder/s

William Gatchalian

1.) The Wellex Group, Inc  (45.757%) - Publicly listed holdings company (WIN) which is owned and managed by the Gatchalians.  The family is known for the "Plastic City" and being a political dynasty in Valenzuela City.  Other known subsidiaries are: PHES, FPI and ACE.
2.) Kenneth Gatchalian - He is the company president and sits on the board along with his mother (Dee Hua Gatchalian) and aunt (Elvira Ting).  He is the 2nd (out of 4) son of "Plastic King", William Gatchalian.

Outstanding Debts

The company has a history of defaulting on its debts.  Until now, loans under SSS and ICBC amounting to around Php400M each are still being negotiated for re-scheduling.  These loans are placed on the current liabilities part of the company's balance sheets.

Quick Numbers

Fundamentals

Book Value of Equity (1H 2012): ~Php3.86B

Outstanding Shares: ~2.5B

BV/share: Php 1.55


Debt Ratio (Long term): 23%
Beta: 0.6
Cost of Capital: 8.9%


Net Income:  
2012 (1H):  Php 45M (Other expenses which get reflected at the end of the year may reduce this further)      
2011:  Php -2.4M    
2010: Php -52M  
2009: Php -167M    

time-weighted average NI: -9.6M


Assuming conservative long-term growth (3% yearly), fair value for the company based on earnings (DCF analysis) would be around:

Fair Value/share: Php1.8

Although Average Net Income of the company has been in the negative, cash flows are still actually positive when we add back the amount reserved for Depreciation costs. 

Latest price as of 9/14/2012 is 0.45.  This gives us around 300% upside assuming market price approaches fair value.

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Technicals

The 1 year historical chart shows the important resistances once the stock's prices would break its current trading range [ 0.43 - .475 ].  The short term moving average, 20MA, has now started to be more bullish over the long term MAs.  However, lagging indicators still show weak momentum.  

Analysis

WPI has been one of those undervalued companies in terms of its book value and earnings growth potential.  However, there is some sort of reputation among "Gatchi stocks" that veer away investors.  The company shows conservative growth in earnings; however, it still is crawling with its past debts. This remains to be a sleeper stock waiting to be awakened by rather more interesting news.  This is good for RANGE TRADING, for now.

References: Financial Statements of WPI (2Q 2012 & AR 2011)
                    www.wellex.com.ph

Spotlight: Paxys, Inc (PAX)

Business Overview

Paxys was originally into ceramics manufacturing way back in the 50s (Fil-Hispano Holdings, Inc) before closing down its operations in the early 2000s.   The company now focuses into investments in the Business Outsourcing Industry (BPO) industry with diversified services such as contact centers, data conversion, salary packaging and software solutions.

Paxys is the first call center firm listed in the PSE after a reverse takeover by Advanced Contact Solutions, Inc (ACS), injecting 100% of the business into PAX in 2004.  However, on January 2011, PAX sold ACS to Alorica International, Inc.  The Salary Packaging business is also being divested.

Major stockholder of this firm at 73.23% stake is All Asia Customer Service Holdings Ltd, a company incorporated in Hong Kong.

Business Segments

1.) Call Center - inbound and outbound teleservicing including email and web-based tools.
2.) Salary Packaging - services that effectively structure employee income through a combination of cash and approved benefits.  Implementation of a well-aligned salary packaging policy and delivery of a comprehensive tax management reporting suite.

3.) Data Transcription - data transcription and scoping services, voice-to-screen message conversion and electronic data encoding and processing.

4.) Others - software development and IT consultancy; Parent company operations 

Significant Subsidiaries

1.)  Advanced Contact Solutions, Inc (ACS) - divested and sold to Alorica International

2.) SmartSalary Pty Ltd - indirectly owned through Paxys A.U., which is currently classified as disposal group held for sale.

3.) Scopeworks Asia, Inc (SWA) - Data transcription

4.) Paxys Global Services (PGA) - Headquarters based in the Philippines

5.) Ubaldo Reidenbach Solutions, Inc (URSI)- (63.5% stake) IT, software development, licensing and consultancy

6.) Stellar Global Solutions Philippines, Inc - Joint Venture (50%) ; call center  

7.) ACS Dalian - Joint Venture (50%); call center; declared as property dividend to Parent company

Based on the Business Segment Information from AR2011, net income losses are incurred through ACS while the Salary Packaging segment (SmartSalary) has been an income earner.  So, it turns out that PAX divests from the losing business and wants to veer away from Australia.  Remaining external revenue would come from China through ACS Dalian.

Quick Numbers

Fundamentals

Book Value of Equity (1H 2012): ~Php4.35B

Outstanding Shares: ~1.15B

BV/share: Php 3.78


Debt Ratio (Long term): 0%
Beta: 0.74
Cost of Capital: 9.9%


Net Income:  
2012 (1H):  Php 25.65M (excluding non-recurring income from sale of subsidiaries)        
2011:  Php 124.04M      
2010: Php -270.88M    
2009: Php 236.882M    

time-weighted average NI: 16.98M


Assuming conservative long-term growth (3% yearly), fair value for the company based on earnings (DCF analysis) would be around:

Fair Value/share: Php5.42  

Book value of equity per share is also attractive as it went up coming from just around 2/share in previous years;  this is due to the sale of subsidiaries.

Latest price as of 8/31/2012 is 2.85 which gives us around 90% upside to conservative fair value of 5.42.  Although the numbers look very good, the question now would be, where will all the proceeds of the Sale go?  PAX business strategy remains to be unclear for now.  We are still waiting for the minutes of the ASM; however, recent stock prices show a negative reaction.  

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Technicals

Something in the ASM must have turned off shareholders last August 31.  As seen on the chart, there has been a selldown right on the day of ASM, breaking the lower Bollinger band with considerable volume.  MACD chart does not help at all  with the breaking of the Zero line.  Stock's price would range trade at best for now, from 2.73 to 3.3.

Analysis

PAX may seem to be undervalued today; however, future prospects are still vague.  At least for now, all debts have been paid and there have been reported new JVs to be formed. 

It may not still be a good time to enter as shown in the charts.  I currently hold PAX in my portfolio and I plan to average down when the prices are stable.  For now, I would say this is a BUY ON DIPS.  

References: Financial Statements of PAX (2Q 2012, AR 2011, 3Q 2011)
                    www.pse.com.ph