Q: How You Doin? A: Like an Empty Barrel Rising from a Frozen Lake
February 20, 2012
It’s been roughly three years since Corpecon Research became Corpecon Research. From five years of data-mining, Corpecon Data Services decided to go into Value-Investing of Philippine equities in February 2009. It’s been good. In 2009, we built our database. In January 2010, we released our first product, the 100-page Philippine Stocks Guide. In May, 2010, Angping and Associates Securities, Inc. subscribed to our research service, MyRA, and in November 2011, Nieves Securities, Inc. and PNB Securities, Inc. became MyRA subscribers as well. In this span of time, we can say that value-investing works in the Philippine Stock Market. The Pymwymi Fund is featured regularly to show that value-investing works in the Philippine Stock Market, but what about the other stocks we have recommended? Below is a status of stocks we recommended back in January 2011. As it came out, 2011 was a volatile year ending with a dud 2.4% return if you bought at the start of the year and sold at the end of the year.
The FGEN and FPH Combo
We said before that these two are the new AP/AEV combo. FGEN was PHP12.16 per share and FPH was PHP67 per share back then. Now they are PHP13.60 and PHP60.50, respectively. The share prices of the two would have been higher if not for affiliate EDC affecting them negatively. EDC’s Bacman power plant is late from starting, and it incurred a PHP5 bn impairment expense in writing off its North Negros power plant. Though FGEN has the only gain from the combo, we still like the two stocks. FPH just realized an extraordinary gain of PHP8.85 bn from the sale of MER shares, and it now owns 73% of Rockwell Land Corp. It finally has an identity of a property and power company. FGEN, on the other hand, has the prospect of fully owning its two main power plants by buying the 40% stake of BG Asia Plc. This is a big deal if consummated as it will elevate FGEN and FPH’s earnings to a new level.
RFM, the New URC
That’s what we said before, but unfortunately, the foodcos suffered from high raw material costs. From their stellar performance in 2010, their share prices plummeted in 2011. RFM was PHP1.69 at the start of 2011, and its share price went as low as PHP1.05 in September 26, 2011. Now, it’s back to PHP1.54 as wheat, milk and sugar prices have eased back to comfortable levels for the foodcos. We still like RFM. It is still undervalued, and a good foodco choice as the others are expensive (JFC, URC, AMC, SMB, GSMI, PF), very expensive. SMC is also undervalued, but it’s more of a food and power holding company now. We’re frowning a little on RFM decision to borrow money for plant expansion. But, it is acceptable as it will meet the demand for its food and beverage products in a short time.
ETON Mirrors SMDC’s Performance
ETON was PHP3.80 when we recommended it. It is now PHP3.10. What hounds this stock is the minimum 10% free float that it does not have yet. There is a risk of it being delisted next year if it does not comply with the PSE. ETON, however, has signified that it will do a secondary offering of shares to meet the 10% level. ETON has the highest discount of 81% to its Estimated Liquidation Value (ELV) among all the Philippine listed companies. This is the value when you immediately close shop the company and sell all its assets. This is a crazy-sale and unbelievable discount. We see ETON’s share price rallying if it remedies its free float problem pronto.
Previous Diamonds in the Rough
We said that even though COAT and GMA7 are textbook value-stocks, their share prices are slackers. From PHP2.38, COAT is now PHP2.61. GMA7 was at PHP7, and now it is PHP9.65. This just proves this whole write-up’s point. Value-stocks aren’t popular, but when their time comes, they rise BIG. COAT has not risen that much yet, and GMA7 is bolstered by speculation that TV5 will merge with it. These are sound stocks with market leadership and no debt. They were also undervalued. GMA7 is not now, but COAT still is. There is also a couple of slacker but fundamentally-sound stocks we like back in 2009-2010. They are even main members of the Pymwymi Fund. They are AC and UBP. UBP made a steady rise in 2009. It was PHP59.50 in January 3, 2011 and was flat in 2011. It is now PHP102.90. AC has been steadily rising since 2009 and suffered the 2011 volatility. It made a major rally from December 2011 and is now at the PHP400 level from just the PHP200 level in September 2011.
Value-stocks were likened to empty barrels stuck beneath a frozen river by the pioneer of value-investing. As the ice melts, the barrels surface. No matter how thick the ice is, it melts freeing the empty barrels deep beneath the frozen river. We have seen these barrels surface before in 2010 with AP, AEV, URC, AMC, SM and SMDC. GMA7, AC and UBP were stuck deep beneath the frozen river, and they have surfaced. There are empty barrels still surfacing such as CHIB and EEI. There are many barrels still stuck beneath the frozen river of the PSE, and their time will soon come. This is about investing and not trading. This is about making real gains and not chump change from trading that keep traders up at night. Analyzing that those barrels are empty of risk and leverage is the key, and it is just natural for them to surface from beneath the cold ice of criticism, neglect and doubt.
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.