PSE Points to Ponder

A Philippine Real Estate Investment Trusts (REIT) is a stock corporation established in accordance with the Philippine corporation code. The present corporation code in the Philippines is Republic Act No. 11232 (RA 11232). For purposes of clarity, a REIT, although designated as a “trust”, does not have the same technical meaning as “trust” under existing laws but is used for the sole purpose of adopting the internationally accepted description of a company owning income-generating real estate assets in accordance with global best practices. A Philippine REIT is not a “trust” created under trust laws of the country but a corporation created in accordance with the corporation code. What make a corporation a Real Estate Investment Trusts (REIT) is governed by the Republic Act No. 9856 (RA 9856) known as “The Real Estate Investment Trust (REIT) Act of 2009.” The law was enacted to to promote the development of the capital market, democra...

Cemex Holdings Philippines, Inc. ( CHP ) at 1.46 a share has a market capitalization of 19.69 Billion Pesos while Holcim Philippines, Inc. ( HLCM ) at 5.94 has a market capitalization of 38.33 Billion Pesos. For 1H 2020 HLCM generated 11.4 Billion Pesos of sales while CHP generated just 9.6 Billion Pesos. HLCM was able to translate it sales to cash from operations of 2.4 Billion Pesos while CHP was able to generate cash from operations of a neglible 0.26 Billion Pesos. CHP is saddled with long-term debt of 11.1 Billion Pesos while HLCM is free from long-term debt. Aside from the debt burden, CHP’s balance sheet carries a 27.9 Billion Pesos goodwill which doesn’t count for much given the present COVID-19 pandemic and as evidence by its operating results over the years. The massive goodwill of CHP was created to justify the pricey acquisition of the 40% interest in Solid Cement and Apo Cement which that at that time it didn’t yet own. CHP argued that the massive g...

AREIT debuted in the market with a 27 per share public offering. At that time we said that buying AREIT at 27 could inflict capital loss as the market will have to price it down to set the appropriate yield for AREIT which could be around 5.5% to 7%. At the time AREIT was listed in the market, dividends were not set, so we anticipated that AREIT will have to move down towards a zero dividend yield until dividends are declared . AREIT indeed plunge to a low of 24.10 a share. AREIT eventually declared dividends and set a dividend policy. At the current level of dividends and at the current price of 25.60 a share, AREIT’s yield is at 4.82%. AREIT may still move downward towards a yield of 6% to 7% inflicting holders further capital loss. Double Dragon Properties Corp. ( DD ) had issued cumulative, non-voting, non-participating, redeemable at the option of DD, convertible at the ratio of 1 preferred share to 1 common share, perpetual Preferred Shares now trading as DDPR . D...

On August 12, 2020 Henry “Big Boy” Sy. Jr. moved 15,000,000 common shares of SM Investments Corporation ( SM ) from his brokerage account to a corporation which is also a controlling stockholder of SM. The transaction was crossed at 863.50 per share for a total of around 13 Billion Pesos. This transaction was disclosed by SM on August 20, 2020. You can notice this transaction on the chart below – the towering green volume. Again on August 27, 2020, a transaction of similar size -15,000,000 common shares – crossed at the stock exchange at 880 a share for a total of 13.2 Billion Pesos. The transaction was facilitated by the brokerage BDO Securities Corp. BDO Securities Corp. is different from BDO Nomura Securities Inc. which is the retail brokerage of BDO Unibank Inc. ( BDO ). You can notice this transaction above by the towering red volume. The transactions are intriguing. Meanwhile, Cemex Holdings Philippines, Inc. ( CHP ) is selling hot. In a one-month p...

First Gen Corporation ( FGEN ) and subsidiaries earned $183 Million for the period 1H 2020. What is better is that it was able to translate such earnings into cash from operations of $302 Million. The cash generated from operations allow FGEN to bolster its liquidity. FGEN’s balance sheet has a cash of $748.7 Million as of end of 1H 2020. That is an increase of 20% from the end of 2019. Only around $36.7 Million were used by FGEN for capital expenditures. This is a testament to the efficiency and flexibility of operating a natural gas power plant. The low capex allows FGEN to pare down its debt. Long-term debt was down by around $200 Million from $1.6 Billion to $1.4 Billion. FGEN is an efficient and a flexible power company but underappreciated by the market. FGEN is undervalued. FGEN’s undervaluation by the market has been noticed by KKR , the giant US private equity pioneer. Just this June KKR through its Valorous Asia Holdings Pte. Ltd. made a tender offer of 22...

TEL has been gradually accumulating debt. As of June 30, 2020 (1H 2020) total long-term debt of TEL is at 199.7 Billion Pessos. That is a significant 28.2% increase from 155.8 Billion Pesos as of the end of December 31, 2018. It can be remembered that on October 2019 TEL initiated a consent solicitation from bondholders to amend certain provisions in the indentures to allow TEL to borrow more money without breaching any debt covenants. TEL has to borrow more in 2019 because it has to fund its massive capital expenditures. In 2019, TEL spent 88 Billion Pesos for network and infrastructure. TEL has to catch-up on network and infrastructure investments as the third telco rolls out its network and telecom infrastructure . Over the years while it grew debt, TEL did not invests aggressively on its infrastructure. Over a three period from 2016 to 2018, TEL’s investment on its infrastructure averages to only 42 Billion Pesos. TEL was among the early companies to dip into borrowings ...

Gold  prices have surged in the wake of the  COVID-19  pandemic as investors look for safer places to park their money. The jump in gold prices has boosted investors’ willingness to pump billions into the gold mining industry. Warren Buffet’s Berkshire Hathaway Inc. added to its portfolio a Canadian gold miner, Barrick Gold Corp. In the past, Warren Buffett, the billionaire chairman of Berkshire, cautioned against investing in gold because it’s not productive like a farm or a company . Now with the jump in gold prices, gold miners are benefiting from surging bullion prices that are boosting profit margins as costs of production have steadied, making them increasingly attractive investments. Investors interest in gold miners has also caught Apex Mining Company, Inc.’s ( APX ) shares. APX is also trading like gold. APX is controlled by the port and gaming tycoon, Enrique K. Razon Jr. through his holding company Prime Metroline Holdings, Inc. which own 40....

ABS-CBN Corporation ( ABS ) has finally submitted its first half 2020 (1H 2020) results. The results showed that it has the financial strength to continue its operations. It has cash, cash equivalents, and short-term investments of 18 Billion Pesos as of end of 1H 2020 while debts due in the next 12 months is only 0.5 Billion Pesos. In the 1H 2020 it was able to generate cash from operations of 1.7 Billion Pesos which has been more than enough to service it debts. The losses of 3.2 Billion for the period 1H 2020 can be attributed to the inefficiency of a bigger organization (the administrative and general expenses/GAEX) with a smaller revenue stream. But this inefficiency is now being addressed. ABS has adopted and continues to implement cost control measures, reducing general and administrative expenses (GAEX) or overhead, rationalizing capital expenditures, and streamlining its manpower requirements. Given the reduced operations, ABS is reviewing its current business models, struc...

MM is now trading at 3 times its IPO price of 1.00 a share. It is just two months since the IPO but its shares is already 3 times the IPO price and this is despite the fact that the IPO proceeds has not yet been fully used. Clearly the market has priced in the future prospect of the MM business. Groceries and convenience stores are capital intensive and low margin businesses and those are the businesses of MM. Established player in this industry are PGOLD , MRSGI , SM , RRHI , and SEVN . The proceeds of the IPO once deployed maybe will be able to add a handful to a dozen operating stores. The additional stores will only produced marginal income for MM. The key revenue actually for MM is the franchise fee. The margin for that is almost a 100% percent. But for now that revenue is still a footnote in the other operating income. The COVID-19 pandemic if we take note of the events around us is battering strong the small and medium enterprises all over the country. Banks are tighten...

No doubt the COVID-19 pandemic has wreaked havoc on the real estate industry. The pandemic has put to test the strength of the finances and operating capabilities of the real estate companies. Pandemic distinguishes the strongest from the rest. The biggest real estate company, SM Prime Holdings, Inc. ( SMPH ) is seen to weather the storm. SMPH has a fortress balance sheet. It can generate at least 60 Billion Pesos of revenue and cash flows without spending capital as they have an inventory of built units of 12,000. This was have discussed earlier. Meanwhile ALI ‘s best and the brightest are hustling to crystallize the values of ALI’s assets. They have just raised 13.6 Billion from the AREIT public offering. In Rockwell Land Corporation ( ROCK ) we saw vulnerability. As of end of June 30, 2020 (1H 2020) ROCK had a cash balance of only 3.1 Billion Pesos after borrowing 4 Billion Pesos. ROCK is facing debt repayment in the next 12-month period of 7.1 Billion Pesos. And t...

We have reported earlier that AREIT may have to sink further until it finds the yield. In the said report we said that all the talks about its yield are all based on speculations from brokers, analyst, and commenters. We said at that time that AREIT’s yield is zero until AREIT declares dividend and it is going to sink because the yield is zero. It will sink further until it finds the yield. We feel that we have been heard by AREIT and the Ayala group. Just today AREIT declares a dividend. This was announced in an emergency disclosure today. Please see attached copy of the disclosure below. AREIT-08172020-Material-Information-Transactions Download In the trading today, AREIT attempted to rally but towards the end it lost steam to end at 25.95. With the cash dividend the market will now have a clear guide on how to price AREIT to get the yield it desires. Finally, the day of reckoning for AREIT holders has come. We will now see how the market will price AREIT. The dust wi...

Megawide Construction Corporation ( MWIDE ) has tapped RCBC Capital Corporation and PNB Capital as joint lead underwriters for the primary offer of series 2 non-voting perpetual preferred shares to raise 5 Billion Pesos. The dividend rate has yet to be set for the series 2 non-voting perpetual preferred shares. MWDE has outstanding preferred shares in the market trading under the symbol MWP . MWP has a dividend yield of 6.96%. The series 2 preferred shares may have the same dividend rate with that of the first series but we will have to wait for the final prospectus to confirm the final dividend rate. The COVID-19 pandemic restrictions affected the businesses of MWIDE resulting to a net loss of 617 Million Pesos in the first half of 2020. But cash flow from operations of MWIDE for 1H 2020 has more that doubled compared to that of 1H 2019. MWIDE has generated cash from its operation of 2.4 Billion Pesos during 1H 2020. This shows the resiliency of MWIDE’s businesses as ca...

AREIT was down 11% as of end of trading day on Friday August 14, 2020 to closed at 24.10 Pesos from its debut price of 27.00 Pesos. The event refreshes the memories of the Cemex Holdings Philippines, Inc. ( CHP ) public offering in 2016. From 10.75 Pesos IPO price , over the years CHP gradually declined and even reached a low of 0.86 Pesos. We tried to review the two ( AREIT and CHP) public offerings and see where they are alike and where they differ. In the AREIT offering 90.5% of the shares offered to the public were secondary shares owned by the Ayala Land, Inc. ( ALI ) and only 9.5% were primary shares of AREIT. The AREIT offers shares constituted 49% of the total outstanding and issued shares of AREIT. This structure is different from that of CHP . In CHP the offer shares were all primary shares constituting 45% of the total outstanding and issued shares of CHP . Despite the difference in the public offering structure, it seems that their share price are trending the sa...

MM and AREIT are two different public offerings, thus, the difference in results. Holders of AREIT may have missed the difference of the two public offerings. MM is a pure initial public offering. It means shares offered to the public comes from the unissued shares of MM or the so called “primary shares.” All the proceeds of the MM initial public offering went into the coffers of MM. The proceeds of the public offering more than doubled the size of MM’s balance sheet. From 0.9 Billion prior to the IPO to around 2.4 Billion post-IPO. Because the proceeds of MM’s IPO went to its coffers, MM will be able to utilize the proceeds of its IPO to grow the business and create more value to its shareholders including those who participated in the IPO. The more value a company creates the more the market rewards, thus, the rise in value of the company’s shares. In AREIT, the total proceeds of around 13.5 Billion Pesos of the public offering went to Ayala Land,...

Cemex Holdings Philippines Inc. ( CHP ) in a press release has disclosed that it had reached an agreement to amend its debt covenant with BDO. The debt agreement amendment was meant to defer the compliance of certain financial covenants until June 30, 2021. It could be surmised from that disclosure that had the financial covenants not been amended CHP may have not complied that certain covenant. The COVID-19 pandemic may have worsen its operating and financial performance making it difficult to stay with the financial covenant with BDO. The stock rights offering at 1.54 per share have raised additional capital of 12.8 Billion Pesos to CHP but 7.9 Billion of the new capital raised were used to pay the parent CEMEX. It can be noted from CHP’s latest presentation that no additional funding from CEMEX was highlighted. Despite all the negatives, CHP has seen gradual rise. With the fundamentals so bad – negative free cash flows of 1.9 Billion Pesos and debt covenant amendme...

Jollibee peaked at 328.40 sometime in January of 2019. Before that, JFC acquired 100% of Smashburger an American fast-casual hamburger restaurant chain a for a total of around US$210 Million (around 11 Billion Pesos). JFC was then hunting for acquisitions in its bid to become a top 5 restaurant companies in the world. It appears that JFC felt that its growth in Philippine market where it is the dominant player has started to stall and it has to sustain its growth by acquisition. Smashburger was a loss maker. It was not profitable when JFC acquired the American hamburger chain. The losses of Smashburger were immediately felt in the results of JFC. The consolidation of the losses of Smashburger to the financial statements of JFC marked the start of the decline of JFC from its peak. The market was sending a message that JFC had it wrong. The message was like – acquiring a loss maker is not the way to grow. Then in September 2019, JFC acquired another loss maker Coffee Bean ...

Just January of this year (2020) SMPH hit a high of 43.35, now it is at 29. It is down some 33%. It shed almost a third of its high. The COVID-19 pandemic exposes the qualities of every company listed in the stock exchange. The pandemic highlighted SMPH as a money printing machine. With the economy mostly shuttered, SMPH was still able to generate 10.4 Billion Pesos of net income and 9.4 Billion Pesos of cash flows from operations. Although, it is facing a 43.8 Billion Pesos of current debts payable within the next 12 months. There is no doubt that SMPH will be able to refinance the same given its still strong cash flow generation despite all the pandemic restrictions. To illustrate its financial strength, SMPH can generate revenue and cash flows of at least 60 Billion Pesos in the succeeding periods without even spending a single peso for capital expenditures to conserve cash. At the end of June 2020 it has available inventory units of 12,000 units that could easily translate t...

SM Prime Holdings Inc. (SMPH) – Real Estate Domination Posted on  March 4, 2018  by  ideasprime In 2017 SM Prime Holdings (SMPH) reported an impressive 15.8% growth in net income.   The reported net profit results show SMPH domination in Philippine real estate. The growth came mostly from the expansion of malls/retail space for rent and the consistent 7% annual growth in same-mall-sales.  In 2017, it opened 6 new malls adding a gross floor area of around 377,000 square meters. Same-mall-sales represents the growth of consumption spending of the Filipinos.  It is a reflection of the growth in spending power of the population as a result of the growth in the over-all economy. SMPH  as of year-end 2017 has 67 malls in the Philippines and 7 malls in China.  The malls lay the “golden egg” for SMPH.  The malls are cash gushers creating money year after year after they have been established.   The more mature the mall is, the more it is pr...

With ABS-CBN off-the air, GMA7 is now the undisputed leader in broadcasting in the Philippines. GMA7 has moments of surged in the wake of the killing of the franchise of ABS-CBN. It went as high as 8.50 but then after it began to descend back to earth. We tried to look its financials to look for clues on why GMA7 is not flying right now. It strikes us that GMA7 has a huge unfunded pension to its employees. As of the end of Q1 2020 it has a total of 3.1 Billion Pesos of pension liability and unpaid other long-term employee benefits. That is 47% or almost half of the total liabilities of GMA7 which stood at 6.6 Billion Pesos. While GMA7 is debt free, funding its pension liability could take significant resources out of the shareholders. Dividend distribution might be lowered down in the future as the demand to fund the huge pension liability and employee benefits increases. Beyond the resources required, the huge unfunded pension gives us a preview on the Human Capital management p...

The 1H 2020 results of Globe Telecom (GLO) showed a slowdown in the net cash flows from operating activities by -31% to 24.3 Billion Pesos. The result marked the effect of the COVID-19 pandemic on the telecommunications industry in the Philippines. The slowdown in the operating cash flows indicates that it has to conserve cash. Let it be noted that Globe was fast in letting go of its employees and in closing some of its store fronts. Globe has to conserve cash especially that based on its first half results it has total loans payable before the year ends of 22 Billion Pesos while its cash balance stood at only 14.8 Billion Pesos. It has limited resources at it disposal at this time. With cash flows from operations slowing, GLO has to borrow more to fund its capital expenditures. With no less that the President of the Republic calling them to improve their services before the year ends, Globe can not abandoned their capital expenditures using the pandemic as an excuse. The President...