Philippine Stock Market Research

Diamonds in the Rough (Second-liners Fit to be Kings)

October 4, 2010

With the PSEi at the 4,000 level, our choices for stocks to buy have decreased as a lot of stocks are becoming more and more expensive to build good upside with for the long term.  The PSEi has a basket of 30 stocks, but there are other stocks beyond that that may have strong fundamentals and good value.  We assessed and screened the rest of the listed Philippine companies outside our coverage in search of stocks that fit our investment criteria of having resiliency to downturns and sustainable growth.  Out of all these stocks, we’ve selected six.  Three, however, are performing above expectations and are suitable second-liner equity investments.  To level with market values, the following stocks’ blended multipliers should be 21.18x.

COAT (PHP2.59). The market leader in Philippine bio-diesel, powder coating and resins production is enjoying strong overseas demand for chemicals used in soaps, detergents and make-up.  COAT has a generous cash dividend history, and its financials reminds us of AMC, strong but not popular.  Investing is not a popularity contest though, and COAT is only trading with a 4.50x 2010F blended multiplier.  To level with market, COAT should be PHP5.62.

RFM (PHP1.75). RFM is basically a flour manufacturing company as almost half of its revenues comes from this business.  It has modest market shares in ready-to-drink juices, canned meat, processed meat and liquid milk but is making inroads in spaghetti and ice cream.  Selecta notably is the number one ice cream in 1H10.  RFM is also only trading with a 6.96x 2010F blended multiplier.  To level with market, RFM should be PHP2.86.

ETON (PHP4.10). ETON was born out of the strong demand for residential condominium and office buildings in the last three years spurred by the BPO sector and the public’s preference for dwellings near their place of work.  After only two years from its formation, the company has realized net income and is still experiencing rapid growth from strong sales and the ongoing construction of its various projects.  This trend is seen to continue in the next couple of years due to new projects rising from ones that are nearly sold and completed.  Real estate operations is also not funded mainly by debt but suppliers’ credits and customers’ liabilities.  ETON is only trading with a 11.98x 2010F blended multiplier.  To level with market, ETON should be PHP5.48.

Disclaimer

The Philippine Stock Market Research report is solely for information.  It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned.  The information herein has been obtained from sources believed to be reliable.  Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report.  All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice.  No liability can be expected for any loss arising from the use of this report or its contents.  As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report.