PAL shareholders to vote on Lucio's $505 million lifeline (Th:Oct28)

[ignissus]

Happy Thursday, Barkada --​

The PSE lost 22 points to 7230 ▼0.3%​

Thanks to everyone that sent me messages of support about yesterday's Q&A piece on my attitude toward SGP's FOO. It was great to feel that readers understood that my writing is just my opinion, and my opinion isn't law or actionable trading advice.

Shout-out to fellow Dune aficionados JP and dudshiit for getting yesterday's reference! May your families prosper and your moisture not be wasted.

Shout-outs to psestocktipsdaily, Enzo, JET, Froilan Ramos, Joe Latham, Lance Nazal, Just’n, Spyfrat's Call, Evolves Capital, Inc., psestocktipsdaily, Chip Sillesa, Lysender, and Jing for the retweets, and to Mike Ting and Evolves.co for the FB shares.

▌In today's MB:​

• Philippine Airlines to receive nearly ₱26 billion from Lucio Tan to keep it alive
• Wilcon Q3 profit ▲17% y/y, ▼3% q/q, 6M ▲111% y/y
• Pryce Corporation 9M net income grew 19% y/y
• Transpacific Broadband Group board approves start of negotiations with potential LEOSAT operators for February 2022 satellite broadband rollout

▌Daily meme | Subscribe (it's free) | Today's email​

▌Top 3 MB indices:​

 Fast Food      ▲3.50%
 MiddleClass    ▲1.21%
 POGO Gaming    ▲0.77%

▌Bottom 3 MB indices:​

 Logistics      ▼1.73%
 Cement         ▼0.60%
 Connectivity   ▼0.39%

▌Main stories covered:​

• [NEWS] Philippine Airlines [PAL 6.05 susp] to receive nearly ₱26 billion in new equity and debt from Lucio Tan to keep it alive... As part of PAL’s bankruptcy restructuring plan, PAL’s board approved an increase in PAL’s authorized capital stock (ACS) from ₱13.5 billion to ₱30 billion, approved Lucio Tan’s purchase of 10.2 billion shares for ₱12.75 billion at ₱1.25/share through a private placement with Lucio Tan’s Buona Sorte Holdings (BSH), and approved a 5-year term loan from BSH for ₱12.6 billion. After the transaction, BSH will own 46.77% of PAL, and together with the other Lucio Tan group companies (Cosmic Holdings Corporation and Trustmark), Lucio Tan will own and control 89.45% of PAL’s common stock. The price Lucio Tan paid himself for these shares was “deemed justified” by a PAL forecast “showing improved profitability and liquidity of Philippine Airlines by the end of 2025”. In response, the PSE issued a notice flagging the transaction as falling under the “Additional Listing of Securities” rule, which would require stockholder approval of the transaction, and a FOO or SRO for PAL shares at the same price Lucio Tan offered to himself. The PSE noted that a majority of the minority shareholders may waive this right to a FOO.
  • MB: This is Lucio Tan trying to catch his own falling knife. So much of PAL’s fortunes ride on a robust recovery of the tourism and international travel industry, and even PAL thinks that it might only show “improved profitability and liquidity” by the end of 2025. Yes, things look like they’re starting to improve with the Delta variant, both globally and in the Philippines, but all we have to do is think back to December 2020 for a time when we thought we’d rounded the corner on our way to a recovery. I hope for the Tan Family’s sake that PAL’s forecast, the basis of the valuation of the price they paid for those shares, includes a conservative allowance for future variants to prevent a straight-line recovery; that’s been our experience with this disease so far, and it could be a mistake to ignore the expensive and painful lessons that we’ve learned in this regard. I’m curious to see if the minority shares will reject their right to a FOO/SRO at the Kapitan’s price; we’ll just have to wait until the shareholders’ meeting scheduled for November 25 to see how they vote.
• [Q3] Wilcon [WLCON 31.65 ▲6.21%] Q3 profit ▲17% y/y, ▼3% q/q, 9M ▲111% y/y... Q3/21 profit of ₱622 million, up 17% from Q3/20 profit of ₱533 million, and down 3% from Q2/21 profit of ₱643 million. The home improvement and construction supplies retailer easily beat last year’s Q3 performance, but due to the movement restrictions applied as a result of the Delta variant, WLCON’s Q3 numbers under-performed its Q2 numbers by a small margin. The company reported that it opened 6 new large format stores during the first 9 months of 2021; because of that expansion, WLCON also saw a 11.4% interest expense increase related to the leases for these new stores. The new stores accounted for 10.1% of the 27% total net sales increase y/y. WLCON said that it was looking forward to a stronger Q4, with hopes that easing restrictions will allow its customers to “finish or start their home improvement projects in time for the Christmas holidays”.
  • MB: As we’ve mentioned before, it’s full-steam ahead for anything in the real-estate ecosystem, provided the country isn’t forced to apply lockdown policies to suppress mortality associated with a COVID variant. Shareholders will like to see WLCON finish off its 9-store expansion this year (just 3 more to go), and continue margin-buffing through its “product mix” adjustments that had a positive impact on margins. This is the same playbook for the Villar Family’s AllHome [HOME 10.60 ▲6.00%], which also relies on expansion and in-house product mix to drive sales and margin growth.
• [Q3] Pryce Corporation [PPC 5.48 ▲1.48%] 9M net income grew 19% y/y... The company, a real estate development holdco with interests in the LPG and medical oxygen sectors through its subsidiary, Pryce Gasses Inc, saw its 9M/21 net income jump over 19% thanks to both increases in the per unit price of LPG, and overall sales volume. PPC reported that its 9M gross revenues were up 24%, driven by a 20% jump in LPG sales revenues. PPC noted that the international market price of PPG increased over 65% y/y, and that despite this price increase, it still saw an increase in sales volume of LPG cooking gas. PPC also noted that its industrial gas sales contributed 7% to gross revenues, which was up from the usual 4% of gross revenues, due to an increased demand for medical oxygen due to the pandemic.
  • MB: PPC has caught my attention. LPG is clearly an energy source that is on the rise, and while PPC might not be a mega-player in the sector, they also don’t seem to be just sitting around and waiting for the mega-players to gobble up all the goodies, either. PPC says that it is currently constructing two marine LPG terminals (one in Misamis Oriental and another in Bohol), and that it will complete construction on the first terminal in Misamis Oriental before the end of this year, and complete construction on the Bohol terminal before the end of next year. This is really my first time paying any real attention to PPC, so I look forward to digging into their earnings report once the full document is released on PSE Edge. This was just the teaser, but it worked: I’m interested to find out more. I’m also interested to see if there are any further market opportunities for medical oxygen, under the assumption that the overall penetration of medical services in the Philippines should lead to increased consumption of this product even in the absence of a respiratory virus pandemic.
• [NEWS] Transpacific Broadband Group [TBGI 0.34 ▲3.03%] board approves start of negotiations with potential LEOSAT operators for February 2022 satellite broadband rollout... TGBI is looking to launch its satellite broadband rollout to customers in February of next year, and this disclosure simply says that the board has authorized management to enter into a contract with a company called ABS Global to develop and maintain several “low earth orbit satellites” (LEOSATs), and also for management to “engage in discussions” with “major” LEOSAT operators. The TBGI disclosure goes out of its way to mention one “major” LEOSAT operator by name: Elon Musk’s Starlink, a division of SpaceX. The disclosure even provided an “About Starlink” section, which it neglected to do for the other “major” LEOSAT operators in the space.
  • MB: The Starlink tease is very strong! Starlink itself has been signaling interest in the Philippines since at least January of this year (MB link), and was rumored to have been linked with Converge [CNVRG 32.95 ▲3.13%] in mid-February for rollout of some LEOSAT connectivity product by Q3 of this year. Is Starlink a viable partner for TBGI, or is it simply using Starlink’s name and the brand-power of its founder, Elon Musk, to pump interest in TBGI’s LEOSAT initiative? All I know is that February 2022 is going to be upon us very quickly, so regardless of whether its Starlink or any of the other LEOSAT providers, I think TBGI’s management team needs to get busy!

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[ruthchirie]

@ignissus PAL is a dumpster fire and all we can do is watch.

(Also, you're posting early today)

 

[ignissus]

@ruthchirie Sorry for the early post. When I used the "timed post" feature of another site (cronnit), it got my account banned as a spammer. So I'm kind of sensitive to it now.

I also have a terrible memory, so if I'm done at 3am and then go back to sleep, I sometimes forget to open up the laptop during family breakfast to post. So I just get it done!

 

[charlesj8362]

@ignissus Try Social Rise if you need to schedule posts. No user has reported any issues with Reddit because of using it.

 

[ignissus]

@charlesj8362 Does it allow me to post with flair? I can’t post to this sub without posting with flair!

 

[charlesj8362]

@ignissus It does.

 

[ignissus]

@charlesj8362 I’m in!

 

[ignissus]

@charlesj8362 Is there a text-post character limit? I tried it out today, and the post cut-off about 1/3 of the way down...

 

[charlesj8362]

@ignissus I'm sorry for the issues this has caused. There's no character limit; it was an encoding issue - fixed now.

 

[ignissus]

@charlesj8362 Thank you! No issues caused. I checked in on the post just after it went live, and everything worked (better than Cronnit, tbh) except for that text thing.

Once I confirm that the text fix is good, I'll have full confidence in Social Rise!

 

[charlesj8362]

@ignissus Sounds good! Best of luck with your newsletter.

 

[judaskisser]

@ignissus This is early. My coffee's not ready yet. Thank you, as always!

 

[ignissus]

@judaskisser I was waaaay over caffeinated. It may have influenced my decision-making on the early post.

 

[lanacoco]

@ignissus ah lovely you noticed PPC! I am treating it as an almost pure play LPG retailer than a real estate holdco as 95% of their revenue is from LPG and industrial gas retail, the last 5% or less is from selling memorial lots and pharmaceutical products. PPC has a 5 yr average ROIC of 17.38%, better and increasing FCF and profit margins compared to its peers (against PCOR's and PNX's LPG margins) and with zero to almost negligible debt- all being in a commodity business of retailing LPG.

However, is there really a moat for them? Given that its commodity business and margins fluctuate on LPG spot prices. Yes, they're the dominant player in VisMin (next to PCOR ofc) but what stops other players with deep pockets from entering the fray? Would the headstart in existing infra they had good enough? (they started LPG retail after the 1997 Financial crisis)

Okay im getting carried away sorry hahaha. I hope this shed some light, MB!

 

[ignissus]

@lanacoco I'm just getting started with PPC, so this is fantastic context, thank you!

LPG demand growth is part of my overall thesis, and it does seem like this company is a really "direct" LPG play. My biggest concern taking a look so far is that the stock doesn't have a great deal of liquidity.

The moat aspect is an issue, but I presume that the moat is exactly what PPC was thinking about when they chose to construct the two marine terminals. Deep pockets can eventually solve all problems, but it's not trivial to build facilities like that.

 

[lanacoco]

@ignissus You're welcome! Loving your replies on discord too! (I am also there actively contributing hehe)

Yes. Every year they've been shedding their real estate properties in favor or LPG. But true, its really hard to accumulate. I've been accumulating for god knows ever since lol But the buybacks they've been doing is good for the liquidity. The fund for it is almost depleted but they're planning to do another 500m round of buybacks afterwards.

I think so too. But the thing is I hope they wont stumble like PCOR aggressively expanding or PNX divulging from retail gas stations. Also, its just I cant accept wholly the fact that they can maintain an absurd ROA given that its a tight competition by having the logistical advantage. There should be more, or else they're just delaying the inevitable by adding more terminals. Imagine if SPI enters the LPG retail?

 

[cre8id]

@lanacoco A friend told me that one good thing about doing business with PPC is they lock-in the price of LPG for 1 year, so you are protected from fluctuations for that period if you source out from them.

 

[lanacoco]

@cre8id Well for people doing business with them, yes, its a good thing but not for PPC. Having fixed contracted price protects consumers but not the margins of the supplier. However, this would be a good route PPC could follow to have a more loyal customer base if only they're not selling a commodity product. hehe

 

[cre8id]

@ignissus I heard they were going to put up 3 terminals (Palawan, Bohol, and Misamis Oriental)?

 

[ignissus]

@cre8id Maybe a third terminal is in the works? The press release only mentioned the MO and Bohol terminals... nothing about Palawan. That said, I didn't read any past disclosures yet.

I will read, though, since PPC now has my attention!