Monday, August 27, 2012

Spotlight: Southeast Asia Cement Holdings, Inc (CMT)


Business Overview

SeaCem (CMT) is a holdings company which is primarily invested in 26.59% of Republic Cement Corporation.  CMT have merged its previous subsidiaries into one, Seacem Silos , Inc (SSI); however, it has no commercial operations for now.

Significant Holders:
1.) Calumboyan Holdings, Inc  - 53.01%
2.) Lafarge Holdings (Philippines), Inc - 29.07%

The company's earnings rely mainly on Republic Cement.  Other income comes from interest income on banks and money market placements.


Quick Numbers


Fundamentals



Book Value of Equity (AR 2011): ~Php6.8B
Outstanding Shares: ~6.45B

BV/share: Php 1.06


Debt Ratio (Long term): 0%
Beta: 0.95
Cost of Capital: 11.1%


Net Income:  

2012 (1H):  Php 415M            
2011:  Php 669M        
2010: Php 1.114B      
2009: Php 1.028B      


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

Fair Value/share: Php1.70  (conservative)

Since current price (2.37 as of 8/24/12) is already way beyond our conservative fair value, the next target would be
 Php 2.78/share, assuming 6% LT growth, which is double our conservative assumption.  If the moderate assumption is correct, there would still be around 17% upside for this stock.

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Technicals




The prices form a bullish flag or pennant which gives us a possible target price of 3.1.  Chart indicators show that CMT maintains a strong positive momentum.


Analysis

The company's lackluster income for last year was due to the minimal government spending for infrastructure projects.  Main driver for CMT's growth this year would be the PPP projects for which the Aquino administration had promised to deliver. Increased spending may also be fueled by the fact that 2013 will be another election year.

Technicals show that the stock's prices are in a favorable positive momentum; however, the earlier valuation may indicate that the stock is already fairly valued.  CMT is in my portfolio but I am no longer looking into buying more.  I will just wait for sell signals; then, that would be the time I would take profit.  It's a HOLD for me.


Reference: CMT Financial Reports (2011 and 1H 2012)