Philippine Stock Market Research

Reading Between the News Headlines

February 18, 2011

Below is a string of our comments on the news that flooded the market this past week.

URC-ing Rising Raw Material Prices and Competition

URC reported revenues of PHP16.7 bn in 1Q11 from PHP14.4 bn in 1Q10 and a net income of PHP1.3 bn in 1Q11 from PHP2.0 bn in 1Q10.  The main reason for the net income decrease is the PHP2.5 bn increase in cost of sales.  Raw material prices have been increasing and URC did not defend margins by raising prices during Xmas season.  We think that URC does not want to be the “bad guy” by raising prices.  It is also under attack by competition especially in chocolates from Goya (Delfi foods, Inc.) and Choco Mucho (Multirich foods Corp.).  The quality and taste of those two are pretty high and good.  Goya is even exported to Singapore and Australia.  We see URC raising prices soon (or it may already have this quarter) along with its competitors in the food and beverages sector.  We still like URC but this year may not be as grand as 2010’s.  Catch it at PHP30.

Don’t Forget Your COAT

The news goes like this…

Listed Chemrez Technologies, Inc. will invest P368 million in a new biodiesel plant that will allow the company to export “green technology products.”…Chemrez’s consolidated net income for the January to September 2010 period rose by 4% to P387.5 million from P371.9 million in the same period the previous year…

Somewhere between that Feb. 17 Businessworld article is the plant’s capacity, 50% of the output being exported and COAT’s new product that cleans oil spills.  What caught our eye is the plant’s cost of PHP368 mn and COAT’s 9M10 net income of PHP387.5 mn.  If you think about it, COAT generated nine months’ income for a new plant.  It even has change and a quarter of 2010 earnings to probably pay its shareholders 2011 cash dividends.  This is the beauty of debt-free companies with residual values.  All that is left is for this bargain stock’s share price to fly.  If you have that deep angst of missing the run-ups of the likes of AP, AEV, JFC and AMC, COAT will be your remedy.

Muhammad ALI

The last ALI Analysts’ Meeting was like being invited to ALI’s war room where the president presented again its four pillars and the CFO and IR Officer revealed the following figures, a 24% revenue growth in 2010, a 35% net income increase and increasing margins in most of its major businesses.  Not satisfied with the record PHP20 bn capex in 2010 for 10,115 units launched, ALI has a PHP33 bn capex and 20,258 units for launching this year.  This significantly dwarfs the past capex and launchings of ALI.  We like ALI’s aggressiveness.  Its earnings are trying to catch up with its expensive share price.  ALI has a 126x blended multiplier way above the 24x mark separating bargain and expensive stocks.  We prefer the cheaper AC (22x) for an exposure in ALI, and we are keen to see more results such as the ones presented to us last week.

Property Glut? On a side note, there have been news of a property glut fear similar to the one we had in ’97.  ALI’s four pillars actually answer this.  Unlike before, we didn’t have the BPO or O&O industry, 25% of OFW remittances flowing into the property sector and the local tourism culture we have now.  We just had GDP growth to support purchases of residential condos and other properties before.  Condos are also made affordable now.  To actually see an impending or present glut, these four factors should be monitored, and we don’t see a glut now or in the horizon.

ABS and GMA7 Both Claim Lead for Nth Time!?!

You are not the only one annoyed by this every time it comes out.  This came out last Feb. 16 in Businessworld.

GMA Network, ABS-CBN Claim Lead

Broadcast giant GMA Network, Inc. yesterday claimed the lead in national television ratings, citing data from Nielsen TV Audience Measurement for the period Jan. 1 to Feb. 13. “Superior ratings” were due to new programs, it said in a statement.  GMA Network said it had a 33.2% audience share based on overnight data, higher than ABSCBN Corp.’s 31.8% share and TV5’s 14.9%…

ABS-CBN however said it kept the national lead, citing data from Kantar Media.  “Based on the data that we have from Jan. 1 to Feb. 11, we have different figures. ABS-CBN posted 36% compared with GMA Network’s 34%,” Ramon R. Osorio, ABS-CBN spokesman, told BusinessWorld.

If we were to standardize this to see who’s really the best, we would pick the AC Nielsen data.  Both GMA7 and TV5 use this and it has a longer history than Kantar Media.  More importantly, if you want to reach the most viewers, the channel with the highest Urban Luzon ratings is the best.  This is 77% of households nationwide.  This is where the most consumers are.  GMA7 has a 9.8% lead against ABS’ 26.7% in this area according to AC Nielsen.  Kantar Media says… well, it didn’t say anything but national.  A Strong Buy to GMA7.


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