Spotlight: The Philippine Stock Exchange, Inc. (PSE)

Business Overview

The national stock exchange of the Philippines; also considered as one of South East Asia's oldest.  The  current PSE was brought forth from a merger between the Makati Stock Exchange and the Manila Stock Exchange in 1992.  In June 1998, the PSE was granted a Self-Regulatory Organization (SRO) status, and was eventually listed to the exchange by way of introduction in 2003.

Subsidiaries

1. Securities Clearing Corporation of the Philippines (SCCP) - clearance, settlement and depository agency for SCCP-eligible trades executed through the facilities of the PSE.
2. Capital Markets Integrity Corporation (CMIC) - to implement rules and regulations and provisions of securities laws pertaining to the operations of the trading participants and their dealings with the investing public.

3. Philippine Dealing System Holdings Corporation (PDSHC) - 20.98% shareholder of the holdings company of PDEX, PDTC, PSSC.

Significant Shareholder/s

1.) San Miguel Corporation Retirement Plan - 10.32%
2.) Ansaldo, Apex Phils, BDO Securities, Deutsche Regis, HSBC Securities, etc - 0.33% each.

Key People

Hans Sicat, President & CEO

1.) Jose T. Pardo - PSE Chairman (SCCP) and Independent Director.  Former Finance Secretary (2000-2001) and Trade (DTI) Secretary (1998-2000).  Other affiliations: JGS Holdings (Ind. Director), National Grid of the Philippines (Director), Bank of Commerce (Director), Philippine Savings Bank (Director).

2.) Hans B. Sicat - PSE President and CEO. 2 decades of international investment banking experience (Citigroup, Salomon Smith Barney).

3.) Emmanuel Bautista - Director.  Current Chairman and CEO of Deutsche Regis Partners, Inc.

4.) Annabelle Lim-Chua - Director.  CFO of Smart Communications; Treasurer and SVP of PLDT.

5.) Robert Vergara - Director. President and General Manager of GSIS.

6.) Vivian Yuchengco - Director.  Former PSE Chairperson (2002-2003).

Dividend Policy

The company adopts a policy for the declaration of regular cash dividend out of the unrestricted retained earnings equivalent to 50% of the company's audited net income.  (Subject to cash flow and financial condition of the company)

Quick Numbers

Fundamentals

Book Value of Equity (1H 2012): ~Php1.95B

Outstanding Shares: ~61.2M

BV/share: Php 31.80


Debt Ratio (Long term): 0%
Beta: 0.68
Cost of Capital: 9.6%


Net Income:  
2012 (1H):  Php 432.5M (annualized)    
2011:  Php 360.4M  
2010: Php 377M   

time-weighted average NI: 399.8M


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: Php112.52 (conservative)

As of the end of September 2012, last price is at 375 which is already more than double the above mentioned fair value.  Even if we increase the long term growth up to 7%, fair value would reach only 300/ share.

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Technicals

There is nothing much interesting going on here as consolidation continues after the big drop in the first quarter of the year.

Analysis

Growth areas for the company would be: local investor participation (currently, there are more or less 1% of Filipinos who invest on stocks);  New product offerings (online trading platform, Direct Market Access, ETFs, REIT, etc); increase public listing of companies; integration of ASEAN markets / cross-border trading.  Initial computations show that the stock is currently overbought and the charts do not show much trend yet.  Personally, I wouldn't look buying into this stock at current levels.

References: Financial Statements of PSE (1H 2012 & AR 2011)
                    www.wikipedia.org