Spotlight: RFM Corporation (RFM)

Business Overview

RFM Corporation (the “Company”) is a major player in the food and beverage industry in the Philippines, specifically in the processing and manufacture of flour, flour-based products, milk and juice drinks, canned and processed meats, ice cream, and bottled mineral water.

The Company also operates non-food businesses, which include barging services (Rizal Lighterage Corporation) and insurance brokerage (RFM Insurance Brokers, Inc.), and leasing of commercial / office spaces (Invest Asia Corporation).

RFM meant "Republic Flour Mills",  which was the name of the company during its incorporation. From its original business of flour milling, the Company diversified into poultry and livestock production and areas of food manufacturing that includes flour-based products, margarine, milk & juices, canned and processed meat, ice cream, and bottled mineral water.

Subsidiaries

1.) Cabuyao Meat Processing Corporation - produces hotdogs, corned beef, hams, and other meat products under the Swift brand.
2.) Interbake Commissary Corporation - operates a high-speed Bun Production Line. It’s first, and continues to be the biggest customer, is McDonald’s. Interbake supplies the bun

requirements to McDonald’s over 260 stores in Luzon and now includes other clients such as KFC and Wendy's.

3.) RFM Equities, Inc and Subsidiaries - It was organized in 1996 to hold and manage RFM Corporation’s holdings in two small financial services subsidiaries – Conglomerate Securities and Financing Corporation (CSFC) and RFM Insurance Brokers, Inc. (RIBI).
4.) RFM Foods Philippines Corporation - ceased operations; former joint venture with Indofoods.
5.) Southstar Bottled Water Company, Inc.
6.) Swift Tuna Corporation
7.) Invest Asia Corporation (96%) - owns the RFM head office and land.  Leases commercial and office spaces to its affiliates and third party tenants.
8.) FWBC Holdings, Inc and subsidiary (84%) - FWBC is involved in the processing and distribution of bottled mountain spring water.
9.) Rizal Lighterage Corporation (94%) - barging company
10.) RFM Canning and Marketing Corporation (70%)
11.) WS Holdings (60%) - 40% owned by Unilever .  Incorporated to invest in, purchase and own shares of stocks, bonds and other securities of obligations including real estate and personal property of any foreign or domestic corporation, or partnership, or association.
12.) Unilever-RFM Ice Cream, Inc (50%) - It is engaged in the business of manufacturing, marketing, distributing and selling, importing and exporting of ice cream and similar food products.
13.) Selecta Wall's Land, Inc (35%) - incorporated in 1999 to acquire, own, use, develop and hold for investment all kinds of real estate.

Products

RFM Corporation operates two major business segments:

1. Institutional Segment which primarily manufactures and sells flour, pasta, bakery and other bakery

products to institutional customers (40% of total Sales)

- Brands: Republic Special, Cinderella, Altar Bread, Milenyo, Hi-Pro Majestic, Señorita

2. Consumer segment, that manufactures and sells ice cream, meat, milk and juices, pasta products,

and flour and rice based mixes. (60% of total Sales)

- Brands: Sunkist juices, Alo Green Tea, Selecta Moo, Selecta Milk, Vitwater, Swift Meat products, Fiesta Spaghetti, White King hotcakes, Fiesta Meaty sauces, etc.

Key People

1.) Jose S. Concepcion, Jr - Chairman of the Board, CEO of RFM Corporation and Swift Foods, Inc.  Founding Chairman of NAMFREL.  Member of the Board of Philtown Properties, Inc.  Former DTI Secretary, Chairman of the Board of Investments, Member of the Central Bank Monetary Board (1986-1991).
2.) Ernest Fritz Server - Vice Chairman of the Board of Directors in RFM.  Member of the Board: Philtown Properties, Inc, One Mckinley Place, RFM Equities.  President of Philam Fund, Inc.  Wharton MBA Graduate.
3.) Jose Ma. A. Concepcion III - President and CEO of the Corporation. Chairman of the Board : Cabuyao Meat Processing Corporation, Interbake Commissary Corporation, RFM Equities, RFM Insurance Brokers, Filipinas Water Bottling Company, Unilever RFM Ice Cream.  Vice Chairman of One Mckinley Place.
4.) Romeo L. Bernardo - Independent Director.  Chairman of Ayala Life Peso/Dollar/Euro Bond Funds and Philippine Stock Index Fund.  Board member of Ayala Plans, Ayala Life, Globe Telecom, Bank of Philippine Islands, PHINMA, Institute of Development and Econometrica Analysis, Aboitiz Corporation, and many more.  BS Business Econ grad (mcl) from UP and MA Development Economics (valedictorian) from Williams College (Massachussetts).

Jose S. Concepcion, Jr.  

Quick Numbers

Fundamentals

Book Value of Equity (3Q 2012): ~Php5.38B

Outstanding Shares: ~3.16B

BV/share: Php 1.70


Debt Ratio (Long term): 28%
Beta: .68
Cost of Capital: 8.2%


Net Income: 
2012 3Q:  Php 588M (projected)
2011:  Php 508M
2010: Php 625M
2009: Php 365M   

time-weighted average NI: Php 549M


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: Php5.04 

As of December 21, 2012, the closing price is at 4.9 which gives us room for about 3% upside towards our conservative target price.

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

Technicals

I was able to buy RFM last December 11 right before it's run up.  Not yet knowing its fundamentals, I bought this stock based on the chart only, and I guess was lucky that I got in with a "barat" bid before prices went up.  You can see from the chart that the stock's price has been traded on a range since late August.  Bollinger Bands constricted until the candlesticks for 12/7 and 12/10 showed bullishness, breaking out from the band.  

Analysis

This is a good case on how Technicals + Fundamentals work hand in hand.  I was able to enter the stock basing on its charts (faster to read charts than to scan through financial statements).  Fundamental analysis can act as a confirmation for the buy and help to achieve conviction.  For stocks having good fundamentals, if ever prices go down, it's ok for me to buy more.

For RFM, the recent parabolic rise brought the stock straight to my conservative target price.  I no longer intend to add up, but will still hold to ride the momentum.  Possible sell signal for me would be when prices touch the 20 Moving Average.  HOLD.

References: Financial Statements of RFM (3Q 2012)
                    Images via Google search

Spotlight: Cirtek Holdings Philippines Corporation (CHIPS)

Business Overview

Cirtek Holdings Philippines Corporation is an independent full service solution provider for subcontract manufacturing of semiconductor devices.  The company provides turnkey solutions that include package design and development , wafer probing, wafer back grinding, assembly and packaging, final testing of semiconductor devices, and delivery and shipment to its customers' end users.  The company is currently located at the Laguna Technopark (Binan, Laguna).

The Company's 2 main subsidiaries, used to be under the majority ownership of  Carmetheus Holdings, Inc and Charmview Holdings, Inc, both of which are owned by the Liu family.  After a Deed of Absolute Sale of Shares by the 2 Holdings companies, the Cirtek Holdings became the parent company of CEC and CHI while the holding companies of the Liu family no longer forms part of the company structure, post-reorganization.

Subsidiaries

1.) Cirtek Electronics Corporation (CEC) - 100% owned by the Company, primarily to engage as an independent subcontractor for semiconductor assembly, test, and packaging services.
2.) Cirtek Electronics International Corporation (CIEC) - 100% owned by the Company.  Primary purpose is to sell integrated circuits principally in the USA and to subcontract the production of the same to CEC.

Products

1. Protection Products - designed to protect electronic devices from damaging voltage or current spikes.
2. Light sensors - optical device that is used on the automatic switching on/off of headlights and the automatic adjustment of airconditioning settings in cars.
3. Real time clock - precision time keeping devices with features like calendars, trickle charger, memory functions, etc.
4. Voltage control oscillators (VCO) - designed to be controlled in oscillation frequency by a DC voltage input.
5. Electronic relays - opto relays that are used in controlling high voltage and high power equipment.
6. Power management devices - used in a wide range of power management applications (telecommunications, portable devices, industrial equipment, etc).

Key People

1.) Jerry Liu - Company Chairman and President.  He is concurrently President/CEO of CEC, Director of Cirtek Land and Cayon Holdings, Inc. and Chairman of Silicon Link, Inc.  Mr. Liu's citizenship is in Taiwan.
2.) Nelia Liu - Director.  She is also the Corporate Secretary of CEC, President of Cirtek Land and Cayon Holdings,Inc and treasurer of Camerton, Inc. and Carmetheus.  She is also Dept. Chairman of the Dept. of Pathology and Laboratory of the Lung Center of the Philippines, Cardinal Santos Medical Center and Perpetual Help Medical Center, and an associate professor of the UP College of Medicine - Philippine General Hospital.  UP College of Medicine batch 1975.
3.) Nicanor Lizares - He is also a director of Pancake House, Inc.  Has MS in Industrial Economics and MA International Relations from Boston University.
4.) Anthony Buyawe - Company's Treasurer and CFO.  He is concurrently the CFO of CEC, CEIC and the Figaro Coffee Company.  A former Sr. Director of Ernst and Young.  He obtained his BA degree from UP and his MBA at AIM.
5.) Martin Lorenzo - Independent Director of the Company.  He is currently the Chairman and President of Pancake House, Inc.
6.) Ernest Fritz Server - Independent Director.  President of Multimedia Telephony, Inc., Vice Chairman of RFM Corporation and a director of Philippine Township, Inc. Former Vice Chairman of Commercial Bank of Manila and Cosmos Bottling Company, and President of Philippin Home Cable Holdings, Inc and Philam Fund.

(L-R: PSE President Hans Sicat, Nicanor Lizares, Jerry Liu, VP Binay,  PSE Chairman Jose Pardo, CVCLaw Senior Partner Avelino Cruz)

Quick Numbers

Fundamentals

Book Value of Equity (3Q 2012): ~Php1.08B

Outstanding Shares: ~162.163M

BV/share: Php 6.64


Debt Ratio (Long term): 28%
Beta: 1
Cost of Capital: 10.4%


Net Income: 
2012 3Q:  Php 157M
2011:  Php 163M
2010: Php 148M
2009: Php 40M   

time-weighted average NI: Php 145M


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: Php20.48 

As of the end of November 28, 2012, the closing price is at 15.28 which gives us room for about 34% upside towards our conservative target price.

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

Technicals

This post came in a bit too late as CHIPS prices have started to move up again.  After settling at around 12, there came a sudden buying demand pushing the price up to its latest at 15.28.  I expect prices would be a bit more volatile this time around since a lot of sellers would start to take profit on higher prices.  The latest candle is an inverted hammer, which may signal prices to close lower than the last 2 days.

Analysis

Cirtek Holdings maintain to have stable earnings over the past few years as they were able to acquire service contracts and also attract new investors via its recent IPO and debt offers.  Risks associated with the company would be more on industry risk (semiconductor) and on foreign exchange, since profits are based in USD.  Market outlook for developed countries (main clients) isn't good; thus, there may be a slowdown of growth in the future.

I find the prices at around 12 as very attractive; unfortunately, prices already went up beyond that level just recently. As prices are expected to be more volatile this time, it would be best to wait until the stock price stabilizes or reaches low levels again.  I would recommend a BUY ON DIPS.

References: Financial Statements of CHIPS (3Q 2012)
                    Images via Google search

Spotlight: Century Properties Group, Inc (CPG)

Latest update related to CPG: 
as of October 6, 2014: CPG's 800 Million Share Buy Back Program 
This article was written as of: November 11, 2012: Spotlight: Century Properties Group, Inc (CPG)

Business Overview

Century Properties Group, Inc is one of the leading real estate companies in the Philippines with over 26 years of experience.  It has only recently been made public via the corporate buyout of publicly listed East Asia Power Resources Corporation (PWR), then transferring its asset to it.  Through its Subsidiaries, Century develops, markets and sells residential, office, medical and retail properties in the Philippines, as well as manages residential and commercial properties in the Philippines.  

CPGI believes that it has earned a reputation for pioneering new housing concepts in the Philippines. One of Century’s significant contributions is the Fully-Fitted and Fully-Furnished (“FF/FF”) concept, which is now an industry standard in the Philippines. They also employ a branding strategy that focuses on strategic arrangements with key global franchises to help capture and sustain consumers’ awareness. To date, CPGI has entered into agreements with Gianni Versace S.P.A., Donald Trump (through the Trump Organization) , Paris Hilton, and Missoni Homes, among others.

Subsidiaries

1. Century City Development Corporation (100%) - CCDC, incorporated in 2006, is focused on developing mixed-use communities that contain residences, office and retail properties. CCDC is currently developing Century City, a 3.4-hectare mixed-use development along Kalayaan Avenue in Makati City.

2. Century Limitless Corporation (100%) - CLC, incorporated in 2008, is Century’s newest brand category that focuses on developing high-quality, affordable residential projects. Projects under CLC will cater to first-time home buyers, startup families and investors seeking safe, secure and convenient homes.

3. Century Communities Corporation (100%) - CCC, incorporated in 1994, is focused on horizontal house and lot developments. From the conceptualization to the sellout of a project, CCC provides experienced specialists who develop and execute the right strategy to successfully market a project. CCC is currently developing Canyon Ranch, a 25-hectare house and lot development located in Carmona, Cavite.

4. Century Properties Management (80%) - CPMI, incorporated in 1989, is one of the largest property management companies in the Philippines, as measured by total gross floor area under management. CPMI currently has 51 projects in its portfolio, covering a total gross floor area of 2,192,338 million sq.m. CPMI has been awarded 18 safety and security distinctions from the Safety Organization of the Philippines.

Key People

(L-R: Jose Marco Antonio, Jose E.B. Antonio, and John Victor Antonio)

1.) Jose E.B. Antonio - founder and chairman.  Also, current chairman of Century Asia Corporation, Prestige Cars , Inc., and Philtranco Service Enterprises.  Father of the Antonio brothers listed below.
2.) John Victor R. Antonio - COO and Managing Director. BS Econ (cl) and MBA from Wharton.  Involved in managing projects in the company's middle income and affordable product lines (i.e. Gramercy Residences and Azure Urban Residences).
3.) Jose Marco R. Antonio - COO and Managing Director. BS Econ (scl) and MBA from Wharton. Involved in managing projects in the company's middle income and affordable product lines (i.e. Canyon Ranch, Knightsbridge Residences, and Acqua Private Residences).
4.) Jose Roberto R. Antonio - COO and Managing Director.  BS Econ (Northwestern Univ) and MBA (Stanford).  Handles the company's luxury product line (i.e. Milano Residences and Trump Tower)
5.) Jose Carlo R. Antonio - CFO.  BS Econ (mcl) from Wharton.
6.) Ricardo Cuerva and Rafael Yaptinchay - co-founders of Meridien (developer for early CPI projects).
7.) Washington Sycip - Independent Director.  Founder of AIM and SGV.
8.) Monico Jacob - Independent Director. President and CEO of STI Education Services Group, PhilPlans First, Inc., and Philhealth Care Inc.

4 Current Master-planned Communities:

1.) Century City - A 3.4-hectare mixed-use project in Makati City with eight buildings (6 plans so far:  Gramercy Residences, Knightsbridge Residences, Milano Residences (interior by Versace Home), Centuria Medical Makati, Trump Tower Manila and Lifestyle Center)

2.) Acqua Private Residences - Located in Mandaluyong City, this development comprises six towers with views of the Makati City skyline and will feature a country club with fitness, retail, dining and entertainment facilities, as well as what we expect to be the first riverwalk promenade in the Philippines.

3.) Azure Urban Resort Residences - Century’s first property in the affordable market segment, Azure

Urban Resort Residences is a nine building residential property set on six-hectares in Parañaque City. The development will feature what we expect to be the first man-made beach in an urban residence in Manila and a beach club designed by Paris Hilton.

4.) Canyon Ranch - A 25-hectare house and lot community that is part of the 77-hectare San Lazaro

Leisure Park in Cavite City targeted for middle-income buyers. The community features a clubhouse with sports and leisure facilities and offers residents views of the Leisure Park which includes one of only two operating horse racing tracks in the Philippines.

Completed Projects (sample)

1. Medical Plaza Makati/Ortigas

2. Essensa 

3. South of Market

4. SOHO Central

5. Grand SOHO Makati

Properties Under Management  (sample)

1. Essensa East Forbes
2. Asian Development Bank
3. BPI Buendia Center
4. One Corporate Center Ortigas
5. PNB Financial Center

Dividend Policy

CPGI intends to maintain an annual cash dividend payment ratio for the issued and outstanding common shares of the Company of approximately 10% of its consolidated net income from the preceding fiscal year, subject to the requirements of applicable laws and regulations, availability of unrestricted retained earnings and the absence of circumstances which may restrict the payment of such dividends.

Quick Numbers

Fundamentals

Book Value of Equity (AR 2011): ~Php4.33B

Outstanding Shares: ~4.01B

BV/share: Php 1.08 


Debt Ratio (Long term): 11%
Beta: 0.77
Cost of Capital: 9.8%


Net Income:  
2011:  Php 864M
2010: Php 180M
2009: Php 696M   

time-weighted average NI: Php 625M


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: Php2.43 

As of the end of November 9, 2012, the closing price is at 1.4 which gives us room for about 70% in order to achieve the conservative target price.

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

Technicals

When CPG took over the dormant PWR, there were lots of speculations over how much the company would be valued.  Stock prices skyrocketed up to 5 before it finally settled down to the current range which is already less than 2.  I would expect a long overhang on this range unless there would be significant news that could propel demand on this stock.  There are a lot of resistances up there that needs to be broken.

Analysis

Given that our fundamental analysis show that CPG is undervalued, we might consider starting to accumulate on this stock.  The RSI shows a range trade and currently prices seem to be at the bottom unless it breaks.  The MACD indicator shows some strength which may signal some bullish divergence on the stock's prices.

References: Financial Statements of CPG (AR 2011)
                    www.wikipedia.org

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.  

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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

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)

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).

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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. 

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.

Spotlight: Atlas Consolidated Mining and Development Corporation (AT)

Business Overview

Atlas Mining came from a merger between three pre-war mining firms (Masbate Consolidated, Antamok Goldfields and IXL).  A major restructuring of the Company's assets was undertaken in years 2004 and 2005 with the creation of 3 special purpose subsidiaries to develop the Toledo Copper Complex, Berong Nickel Project and the Toledo-Cebu Bulk Water and Reservoir Project.  As a result, Carmen Copper Corporation (CCC), Berong Nickel Corporation (BNC) and AquAtlas Inc (AI) were incorporated and, subsequently, were positioned to attract project financing as well as specialist management and operating expertise.  In addition, Atlas Exploration, Inc to host, explore, and develop more minerals, including but not limited to copper, gold and nickel. (source: Annual Report 2011)

Since most projects are being done through joint ventures and project financing, Carmen Copper, (which is now 100% owned by Atlas) is being considered as the lone significant subsidiary of the company.

Atlas Exploration Inc (100%) - searching, prospecting, exploring, and locating ores and other mineral resources

AquAtlas, Inc (100%) - provision and supply of bulk water to local water districts and other customers.  i.e. Toledo-Cebu Bulk Water and Reservoir Project.

Amosite Holdings, Inc (100%) - holds assets for investment purposes

Carmen Copper Corporation (100%) - country's largest exporter of copper concentrate

Ulugan Resources Holding, Inc (70%) -  URHI owns 60% of Nickeline Resources Holdings, Inc.  While NRHI owns 60% of Berong Nickel Corporation.

Significant stakeholders:

1.) Alakor Corporation (20%) - represented by Alfredo Ramos 

2.) SM Investments Corporation (18%) 

3.) BDO - credit line facility of 129M.  BDO also currently holds convertible debt instruments.

4.) Consunji Group - Just recently (April 2012), the group bought a 5.3% stake on AT, further expanding their business portfolio with mining.

Significant personalities:

1.) Alfredo C. Ramos - President and Chairman of AT since 2003.  Other companies he manages:

Carmen Copper, Berong Nickel, Alakor Corporation, National Bookstore, Anglo Philippine Holdings, Philodrill Corporation (OV), Vulcan Industrial (VUL), and United Paragon Mining (UPM).

2.) Hans Sy - Vice chairman of AT.  Director of SM Prime Holdings (SMPH), China bank (CHIB), Highlands Prime (HP), etc.

3.) Jose Sio - EVP and CFO of SM group. Director of AT, Belle Corporation, China Bank, Manila North Tollways, among others.

4.) Walter Wassmer - Director of AT since 2010. SVP of BDO and Director of BDO Leasing.

Quick Numbers:

Fundamentals

Book Value of Equity (AR 2011): ~Php26B

Outstanding Shares: ~ 1.76B

BV/share:  Php14.85

Debt Ratio: 18%

Beta: 1.21

Cost of Capital: 11.2%

Net Income:

2012 (estimate from CCC and Berong): Php2.48B

2011 (non-recurring): 1.37B

2010: -847M

2009: -2.22B

Assuming only conservative long term growth of 3%, the value of Atlas Mining based on its earnings would only be around:

Fair Value per share: 10.82

Current market value as of April 27,2012 is 19.3.  To justify current values, Atlas Mining should target higher long term growth at 7% for which target price by then would be at around 22 per share.

Based on AT's financial statements, income reached around Php 15B, however most of this just came from the increase in fair value coming from the increased stake of AT over Carmen Copper.  If we base our net income projections only on recurring income from its mines, we only get the above values.

Do take note that we only base our computations from existing operations, primarily on CCC and Berong Nickel mines.  Other significant sources of income for the firm should be included (if there are any).

From here, we would assess that AT is fairly valued at current market price.  AT is just starting to turnaround coming from negative earnings of previous years.

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

Technicals:

The 2 year chart shows a major resistance at 19.8 while trying to maintain a positive long term trend.

Tightening of Bollinger bands has been observed at the start of April.  There has been a significant increase in volume transactions which favored the buy side, further pushing up prices towards 19.8 resistance.  Going past 19.8 would be a significant breakout as AT may continue further on its up trend move.  Meanwhile, a short term support is set at 18.9.

The increase in volume may be attributed to DHC (Consunji Group) having an interest on AT which eventually led to the buying of a minority stake of Atlas Mining.

Personal Disclosure: Bought AT last April 20 for an initial position after it went past 18.9 with significant volume.  This is more of a technical play and will be traded only for the short term.

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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.