Happy Wednesday, Barkada --
The PSE gained 50 points to 6362 ▲0.8%
Shout-outs to LanAustria, Jonathan Burac, Bebe, Stephen Chiong, Dividend Pinoy | PGG, Makisig Tan, Nesums Aramur, Just’n, Palaboy Trader, Lance Nazal, leaf, psestocktipsdaily, Corgi Buttowski, arkitrader, Evolves Capital, Inc., Rolex Jodieres, meloi, and Jing for the retweets, and to Marvin Quezon, Froilan Ramos, Marvin Rodriguez Gonzaga, Evolves.co, and Mike Ting for the FB shares!
- Balai Ni Fruitas Q2 profit ▲350% y/y, ▲50% q/q
- Metrobank Q2 profit ▲95% y/y to ₱7.6 billion
- PSEi rebalancing implications from the 20% public float rule
- PLUS: Quick takes on C, SPNEC, and SM
▌Top 3 MB indices:
Code:
Hedgy Metal ▲4.55%
Connectivity ▲3.72%
Cement ▲2.19%
▌Bottom 3 MB indices:
Code:
Power Gen. ▼0.65%
MiddleClass ▼0.49%
Fast Food ▼0.23%
▌Main stories covered:
- [Q2] Balai Ni Fruitas Q2 profit ▲350% y/y, ▲50% q/q... Balai Ni Fruitas [BALAI 0.68 ▼1.45%] [link] Q2/22 profit of ₱9 million, up 350% from Q2/21 profit of ₱2 million, and up 50% from Q1/22 profit of ₱6 million, driven by improved gross margins, improved store performance, and what BALAI refers to as “continuous business expansion.” BALAI’s Q2 revenues were up 242% y/y to ₱84 million, and its H1/22 revenues were up 159% to ₱145 million. BALAI said that it was on-track to reach 80 Balai Pandesal stores by the end of 2022.
- MB: This report helps fill in a few holes in the financial record that BALAI carried into and through its IPO. While the company’s stock went on sale after the end of Q1 in 2022, it only had financial information up to the end of September 2021 that investors could use to evaluate the business, and to make things even more challenging, the company was still pursuing its strategy of “continuous business expansion” during that dark period between the end of the recorded financial data and the IPO. As of September 2021, BALAI had 69 stores, but that number grew 10% to 77 by the end of the year. After the IPO, BALAI said that it had 38 Balai Pandesal stores, and now at the end of Q2 it’s saying that it’s on track to hit 80 Balai Pandesal stores, But what about the other brands that BALAI owns and operates, like Balai Ni Fruitas and Fruitas House of Desserts? Where is the diagnostic data that would help investors track and evaluate the operational performance of the brands and products through information like same store sales data? A company as huge and complex as Jollibee [JFC 205.00 ▼0.19%] has no trouble providing segmented information for each of its many brands, including same store sales figures. BALAI has a much smaller portfolio, and yet it feels like we’re left trying to sift through the disclos to piece the story together. As an investor, I want to see which brands are performing, and use the guidance data in the prospectus, along with the updated economic data, to help me predict revenues going forward. I can do this with JFC. I can do this with Max’s Group [MAXS 4.63 ▼0.22%]. But here, I’m left just having to take it all at face value, which, again, wouldn’t be so bad if things weren’t changing so rapidly behind the scenes. This is BALAI’s first quarterly earnings disclosure, so I’m ok to wait and see if the company will improve its reporting in Q3, but this isn’t the Fruitas [FRUIT 1.04 ▲0.97%] group’s first time around the track. Help us see the whole picture!
- [Q2] Metrobank Q2 profit ▲95% y/y to ₱7.6 billion... Metrobank [MBT 48.90 ▲2.30%] [link] released guidance on its Q2 and H1 performance that said its H1 net income increased 33% y/y to ₱15.6 billion, on the back of a huge 95% Q2 net income increase to ₱7.6 billion. Since this was only the primer and not the full earnings disclosure, we’re left with only the highlights that MBT provided, such as gross loans growth of 9%, total deposits growth of 13% (to ₱2.1 trillion), and non-interest income growth of 8%. As part of gross loans, MBT mentioned that its corporate/commercial lending increased 12%, while its gross credit card receivables grew by 16%. Metrobank is the second largest universal bank in the country.
- MB: While the Q2 y/y number is absolutely massive, I think it paints an incomplete picture of what’s happening, in that it gives us the impression that MBT’s net income was generally much lower last year, and now it’s much higher. That’s not really the case. Sure, MBT’s Q2/22 profit of ₱7.6 billion crushed its Q2/21 profit of “just” ₱3.9 billion, but that Q2/22 profit was actually 5% lower than its Q1/22 profit, and 2% lower than its Q1/21 profit. But if you go back and read all of the analysis of that low Q2/21 figure, all you’ll see are reports about how that Q2 crushed the previous year’s Q2, which was during the height of the COVID lockdown. All I’m saying is that it’s easy to walk away from this headline with the idea that things have never looked better for MBT, when that’s clearly just not the case. This quarter was lower than last quarter, and it was lower than Q1 from a year ago.
- [UPDATE] PSEi rebalancing implications based on the 20% public float requirement... As indicated in Monday’s writeup, the PSE will now require, after this month’s rebalancing, that every firm on the PSEi maintain a public float of at least 20% of its outstanding shares to retain index membership. Of the 30 companies that will comprise the PSEi at the end of this month, only three PSEi members will be in danger of exclusion due to this rule: ACEN Corp [ACEN 8.50 unch] (15.9% public), Emperador [EMI 18.94 ▲0.32%] (15.01% public), and San Miguel [SMC 104.50 ▼0.48%] (15.98% public). PSE President, Ramon Monzon, said that he expects these companies will “take the necessary corporate action to address this concern” if they wish to remain components of the PSEi Index. But what would that look like? It’s theoretically possible for the companies to achieve a higher public ownership percentage through selling primary shares (new shares in the company), secondary shares (shares owned by controlling shareholders), or a blend of the two. Assuming for sake of argument that each company wants to stay in the PSEi, and that each elects to sell primary shares to satisfy the requirement, that means that ACEN will need to sell 2.05 billion new common shares worth ₱17 billion, EMI would need to sell 0.8 billion common shares worth ₱15 billion, and SMC would need to sell 1 billion common shares worth ₱10 billion.
- MB: As you can see, it’s no small thing for these firms to remain in compliance with the new PSEi standards. If all three of these companies elected to sell primary shares through a follow-on offer, the combined value of ₱37 billion in new equity would more than double the combined value of all of this year’s IPOs. While the next rebalancing isn’t until February, that’s only 6 months away, and that’s not a lot of time for deals of this magnitude. Of course, there are many open questions. Do they want to retain PSEi membership? If they do, will they use it as an opportunity to take some money off the table and sell some secondary shares through a follow-on offering or private placement? We’ve seen enough companies back out of follow-on deals due to “market conditions”, but things haven’t really improved. There are clearly liquidity benefits to membership in the PSEi, but will these companies think that the juice is worth the squeeze?
- [NOTES] Quick takes from around the market...
- Chelsea Infrastructure [C 1.19 unch] [link] will launch a online booking system for its new “Chelsea Travel” concept, which unifies the booking processes of three C subsidiaries, Starlite Ferries, Inc., The Supercat Fast Ferry Corporation, and Trans-Asia Shipping Lines, to provide an “easy, fast and stress-free booking experience”. Obvious “discovery” problems aside (the name “Chelsea” is dominated by Google results that have nothing to do with Dennis Uy’s passenger ferry businesses), the real challenge here is for C to make its roll-on/roll-off ferries segment profitable. It’s been a huge drag on profitability since COVID obliterated travel, and lost over ₱100 million last quarter alone. But it’s not like this segment was moving in the right direction before COVID struck: the last time C’s roll-on/roll-off segment was profitable was way back in 2017.
- Solar Philippines NEC [SPNEC 1.61 ▼1.23%] [link] released the preliminary terms and conditions of its stock rights offering, with updated dates for the transaction. Pricing will happen on August 18, with the ex-date set as August 22, a record date of August 25, an offer period from August 30 to September 5, and finally a listing date of September 15. All of these dates are tentative, SPNEC will sell 1,875,649,995 common shares, at a price of between ₱1.50 to ₱1.76, with an entitlement ratio of 1 SRO share for every 1.28 SPNEC shares owned. The only interesting thing here is to watch how SPNEC’s market price might move in, around, and (possibly?) out of that price range in the two weeks before the offering gets officially “priced”. As we saw with MREIT [MREIT 15.96 ▼0.25%], changes in market valuation can have a huge impact on pricing.
- SM Investments [SM 769.00 ▼1.41%] [link] merger with Allfirst Equity Holdings, Inc. (Allfirst) was approved by the SEC on August 1. Allfirst is the parent company of Philippine Geothermal Production Company. The merger was facilitated through a share swap that saw SM issue and pay 21.5 million SM common shares to Allfirst shareholders, in exchange for the remaining 81% of Allfirst. The transaction brought SM’s ownership stake in Allfirst up to 100%. In its disclosure, SM said that it expects the merger to be “earnings-per-share accretive” to SM shareholders.
MB is written and distributed every trading day. The newsletter is 100% free and I never upsell you to some "iNnEr cIrClE" of paid-membership perks. Everyone gets the same! Join the barkada by signing up for the
newsletter, or follow me on
Twitter. You can also read my daily Morning Halo-halo content on
Philstar.com in the
Stock Commentary section, and in the Saturday edition of the
Daily Manila Shimbun.
Subscribe here
Read today's full newsletter here
