Philippine Stock Market Research

Diamonds in the Rough II  (Third-liners or “The Other Guys”)

October 10, 2010

We screened the rest of the Philippine stocks outside our 41-stock coverage in search for value and found six stocks.  ETON, RFM and COAT as previously reported have been outperforming investors’ expected minimum returns.  The other three stocks may not be outperforming their investors’ expected minimum returns, but two have sound fundamentals and discounts to market while one has acceptable fundamentals and a discount to market.  To level with market values, the following stocks’ blended multipliers should be 19.08x.

SPC (PHP4.15). Everyone knows about AP, FGEN and EDC.  But what about SPC?  SPC runs the Naga Power Plant Complex in Cebu under a ROMM (Rehabilitation, Operation, Maintenance and Management) Agreement with Napocor.  Under its subsidiaries, SPC also runs the 146.5 MW Panay Diesel power Plant and the 22 MW Bohol diesel Power Plant.  Following the trend to coal, SPC will be operating a 200 MW coal-fired power plant in 2011.  This will elevate SPC’s valuation next year.  SPC is only trading with a 17.39x 2010F blended multiplier.  To level with market, SPC should at least be PHP4.35 this year.

CHI (PHP2.30). ALI’s 47.26%-owned affiliate owns and manages the 50-hectare Cebu Business Park (CBP) which includes Ayala Center Cebu and the Amara residential project.  CHI has defensive properties as almost 60% of its revenues come from lease income from Ayala Center Cebu and The Walk, the 2,110 sqm retail component of Asiatown I.T. Park.  It is the 24-hectare project of Cebu Property Ventures Development Corp. (CPVDC), CHI’s 76%-owned subsidiary.  CHI is also only trading with a 10.44x 2010F blended multiplier.  To level with market, CHI should be PHP3.08.

Note: CHI is a property company, and it is noteworthy to mention its NAV per share of PHP4.13 which it currently has a discount to.  We also failed to mention ETON’s NAV per share in the previous report.  It is PHP4.35 per share, and ETON currently has a discount to it.

PHN (PHP12.24). PHN is a roofing material manufacturing and educational services holding company.  Yes, it is not as sexy as AGI, AC or SM.  The roofing materials business is highly cyclical and very competitive, and the education business only serves as a 26% shield against the shortfalls of the former business.  Somehow, revenue growth has averaged at 13% in the last four years.  PHN also has a solid balance sheet.  It is highly liquid with minimal debt and this sets as a premise to capabilities and possibilities of business acquisitions to fix profitability.  PHN is only trading with a 6.65x 2010F blended multiplier.  To level with market, PHN should be PHP20.69.  However, with the risks involved in its main revenue source, it is advisable to discount this target by a quarter to PHP15.52.

So why are we scraping the bottom of the barrel for second and third-liners?  Are the stock choices so limited now as the PSEi has become expensive at the 4,000 level?

After assessing the Philippine Stock Market, we are expecting a Long-Term Bull Run that will take our index further up the charts.

So scraping the barrel from the top to the bottom prepares us for this to achieve superior gains.

We shall share our Philippine Stock Market Outlook for 2011 to 2012 in our next report.

Pymwymi Fund Performance

The Pymwymi Fund is up 62.3% while the PSEi is up 41.0% from the start of the year to October 8 , 2010.  The Pymwymi Fund’s performance notably bests two ICAP Stock Funds with the highest year-to-date yields.  They are the First Metro Save and Learn Equity Fund, Inc. (up 58.62% from the start of the year) and the Philam Strategic Growth Fund, Inc. (up 54.2% from the start of the year).


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.