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.

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

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

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.

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

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.  

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

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

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.

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

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)

June - July 2012

This may serve as my June and July update since I have been busy at work lately and I don't think I can religiously update this blog regularly (at least bi-monthly).  It is unfortunate that I got busy the same time when the market has corrected, and that I can no longer keep up with the daily monitoring that I got used to for the last 2 years.

ScIoN Fund (mid-long term)

YTD:  +4.28%

Benchmark: +18.5%

The start of the year was great since I was able to outperform the index; however, during the correction last May, I realized that my stops were too low (100 MA) as my paper profits went back to almost zero.    PSE market is still quite shaky these days as I am trying to re-enter.  My portfolio above shows a lot of entries because most of them are test buys.  Only FGEN and CMT seem to show a continuity on its uptrend.

Currently, my portfolio is clearly underperforming; I hope, I can manage to steer it back to beat the benchmark.  Still, the good thing is it is still on the positive.

AJC Fund (short term fund)

YTD (3 months):  -2.59%

Benchmark: -0.70%

AJC Fund is still on the negative although the gap from the benchmark is closer (< 3%) now  than what was last reported (~ 5%).  Both portfolios suffered from the inclusion of Lepanto which backfired when the Mining EO signed by PNoy still gave uncertainty to the mining sector.  

PSE Index Weekly

Looking at the PSEi weekly chart, seems like it is on a positive channel uptrend.  However, note the divergence as revealed in the MACD.  This may indicate that the uptrend is not sustainable; we can expect further consolidation in the future.  Seems like our market will trade at a range for the meantime. Next month would be the so-called ghost month, so it is possible that we may experience further selldowns.  Might be best to stay at the sidelines for now.

Spotlight: GMA Network Inc (GMA7)

Business Overview:

GMA Network, Inc. is a free-to-air broadcasting company principally engaged in television and radio broadcasting, the production of programs for domestic and international audiences, and other related businesses. The Company derives the majority of its revenues from advertising related to television broadcasting.

In 2011, GMA Network, Inc. grabbed and maintained leadership in nationwide TV ratings.  GMA Network garnered a nationwide average household audience share of 34.2%, up by 3.1 percentage points over its nearest competitor. GMA likewise maintained its TV ratings dominance in its traditional bailiwick areas of Mega Manila and Urban Luzon in 2011. The Network, its programs and personalities also reaped various local and international awards within the year. (source: AR2011)

Some notable subsidiaries:

GMA News Media, Inc (100%) - Converging Technology

Citynet Network Marketing and Productions, Inc (100%) - Television entertainment production

GMA Network Films (100%) - Film production (i.e. Temptation Island, The Road, Panday 2, etc.)

GMA Records (100%) - Music recording, publishing and video distribution

Affiliates

INQ7 Interactive, Inc (50%) - partnership with Inquirer.  INQ7 ceased operations in 2007.  

Philippine Entertainment Portal, Inc (PEP) (50%) - www.pep.ph , indirect ownership via GNMI.

X-Play Online Games, Inc (50%) - partnership between IPVG and GMA News Media for online gaming business.  **Asset Held for a sale

Mont-Aire Realty and Development Corp. (49%) - Real Estate holding company  **subject to sale

Cash Dividend Policy: 

Minimum 50% of prior year's net income (subject to approval of the Board, in consideration of factors in the implementation of business plans).

Net income attributable to Preferred shareholders is 30% of prior year's net income. (historical)  Participating preferred gets 1/5 of the dividend paid to common shareholders.  Convertible to common with a 5:1 ratio.

Top 3 major individual stockholders 

In the 1974, when former President Ferdinand Marcos declared Martial Law and banned foreigners from owning media outlets, Stewart and the American Broadcasting Company were forced to cede their shares to the triumvirate of Gilberto Duavit, Sr., Menardo Jimenez and Felipe Gozon. (source: wikipilipinas)

1.) Felipe Gozon - Chairman and CEO since 2000
2.) Gilberto Duavit Jr. - President and COO
3.) Menardo Jimenez - former President and CEO of GMA7 until giving up the position to his brother-in-law, Felipe Gozon in 2000.  A director of Unicapital, Inc, among all other businesses.

(L-R: Felipe Gozon, Gilberto Duavit Jr)

Quick Numbers:

Fundamentals

Book Value of Equity (AR 2011): ~Php9.8B

Outstanding Shares: ~3.36B
Preferred Shares: 7.5B

BV/share: Php 2.92


Debt Ratio (Long term): 0%
Beta: 0.71
Cost of Capital: 9.7%


Net Income:                 Dividends:
2011:  Php1.72B          2.19B
2010: Php 2.82B          3.4B
2009: Php 2.82B          1.69B


Assuming conservative growth, fair value for the company based on earnings (DCF analysis) would be around:


Fair Value/share: Php12.68


As of 5/4/12, GMA7 closed at 10.06.  Rumors has it that Manny Pangilinan is interested to buy GMA7, to add on his media war chest.   Considering our estimated fair value of 12.68, we still have a potential upside of  +26%.

Risk of Dilution

Due to recent news on MVP's interest on GMA7, there is a risk of dilution when all preferred shares are to be converted into common shares, further diluting ownership on the firm.  7.5B preferred shares translates to 1.5B common shares.  With this assumption, fair value may go down to just 8.77 per share.
Another point of concern is the issuance of dividends which have been greater than net income.
===========================

Technicals:

After a very long consolidation, trading on a tight range for more than 3 years, GMA7 picked up investors' interest at the start of the year, probably on rumors of a buyout from MVP.  Major resistance can be seen at 10 as prices corrected back down on April.  News on the talks gave rise to the stock at the end of the month, making a bullish move which led to a piercing of the resistance line.


A zero cross on the MACD chart supported by more than the average trading volume tells us that the uptrend may still continue further.  Perhaps further consolidation may be observed, which can be supported at the 10.0 line.

PD:  I have positioned myself, buying shares at 10.  Given a favorable valuation based on its earnings, this can be a conviction buy for me.  However, there may still be risks involved such as a possible private placement by MVP, or a dilution of shares when all preferred shares would be converted into commons (~1.5B new common shares).

-------
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. 

April 2012

ScIoN Fund (mid-long term)

YTD:  +21.43%

Benchmark: +18.3%

Much of this month's gains came from the liquidation of TA upon touching the 200MA @1.21.  TA remains to be an undervalued stock; however, there is still the SRO overhang which discourages some investors to go in, at least until ex-date.  We remain bullish with MARC for its Nickel trades; especially since Indonesia has started banning their Nickel exports.

BDO has also been let go after its SRO announcement.  Prices plummeted the day after the announcement, as stockholders would need to lighten their BDO shares if they still want to maintain the same exposure.

FDC enjoyed some push coming from its subsidiary's IPO (East West Bank).  The stock's price went up as high as 5.19, or +10.66% from last month's close.  We shall wait for further price action when EWB would finally go public this May after being oversubscribed 3x.

PAX is a bit of a disappointment since we are having paper losses from this stock.  Hopefully prices would pick up once again this May after waiting for disclosures regarding the supposed huge cash it got from selling of a subsidiary.

We now maintain cash close to 40% of the total portfolio.  It's summer season once again, and some believe in "Sell in May and go away".  Perhaps traders go into a vacation, leaving behind a low volume market susceptible to volatile prices with a selling bias.  It's high time for early leaders to take a breather; thus, an opportunity for a buy when prices dip.

AJC Fund (short term fund)

YTD (3 months):  +0.24%

Benchmark: +5.64%

This fund is still lagging behind since MPI (benchmark stock) continued its strong push.  Out of all the trades this month, only FDC provided a respectable gain, enough to offset some losses.  Largest allocation goes to PAX; however, the stock underperformed this month.  Its fundamentals remain to be strong, but has weak positive momentum.  Hopefully, the other stocks would compensate and help push next month's trading gains.