Happy Thursday, Barkada --
The PSE gained 48 points to 6122 ▲0.8%
Thanks to
Padilla GJ for getting a laugh out of my mini-rant against the term "phygital", to /@pentecostal1ness for spotting a Reddit script error, to
Jing and
Dax for the meme appreesh, to
Ollie Tan for picking up what I'm putting down about the market's lack of respect for CREIT, and to /@churchboi, /@rocvisc17, and /@laboringbro, for stopping by the Reddit thread to share their strong opinions about pasta shapes!
Shout-outs to Pao, LanAustria, Joey V, RV | Currently applying to be Jaechan's lipbalm, Just’n, LanAustria, Kenneth Villadelgado, Bien EC, Stephen Chiong, Rolex Jodieres, Jay Agonoy, Jonathan Burac, mArQo, Dividend Pinoy | PGG, Palaboy Trader, leaf, Lance Nazal, meloi, arkitrader, Chip Sillesa, and Jing for the retweets, and to Genesis Umali, Froilan Ramos, Padilla GJ, Evolves.co, and Mike Ting for the FB shares!
- Q3 earnings season arrives with a batch of zombies
- Q&A: What does all this “y/y” and “q/q” stuff mean?
- PLUS: Quick takes on:
- ADB is too busy to talk ETM
- CNVRG has a big fiber footprint
- PERC has a new Japanese investor
- FMETF went down (again)
- BNCOM is diverting IPO proceeds
- IDC is raising around P100m
▌Main stories covered:
- [NEWS] Q3 earnings season arrives with a batch of net “losers”... Technically, Wilcon [WLCON 28.60 ▼1.38%] got the Q3 earnings party started on Wednesday with its disclosure, but yesterday we saw a series of rapid-fire earnings reports from some of the smaller stocks on the PSE, and the results were all “fine”. MEDCO Holdings [MED 0.23 ▼4.17%] [link] lost ₱0.7 million in Q3, up from the ₱1.2 million that it lost in Q3/21. Lodestar Investment [LODE 0.58 unch] [link] lost ₱0.4 million, which is marginally worse than the ₱0.3 million it lost last year. NiHAO Mineral Resources International [NI 0.82 unch] [link] lost ₱1.2 million in Q3, which was much worse than the ₱0.1 million that it lost in Q3 last year. GEOGRACE Resources [GEO 0.18 ▲1.11%] [link] lost ₱0.2 million, a huge improvement over the ₱0.6 million it lost last year. And finally, Dizon Copper-Silver Mines [DIZ 3.40 ▼2.86%] [link] lost ₱0.1 million this quarter, as opposed to ₱0.5 million in Q3 last year.
- MB: What do all of these stocks have in common, besides losing money year after year? They’re non-operational. Not one of these companies is running something that you’d recognize as a “business”, though their stocks are still trading on the PSE, and each has a skeleton crew retained just to meet the PSE’s disclosure requirements. Many other stock exchanges have a “net income from continuing operations” clause that is meant to filter zombies like MED, LODE, NI, GO, and DIZ out after a period of time. Perhaps the PSE tolerates their inclusion because it pads the “number of listed companies” stat, or perhaps they’re allowed to stay so long as the PSE receives its fees and dues, but realistically, the PSE should look into developing a mechanism that protects minority shareholder interests while resolving some of these long-lingering issues. How to deal with zombie companies? How to deal with repeat reporting offenders? How to deal with involuntary delisting generally in situations where a company has violated the rules so severely that it must remain suspended for over a year? Growing the number of companies on the PSE is good, from the point of view that the PSE is a mechanism for companies to access capital for growth, but keeping them on the PSE past their expiration date doesn’t serve that primary mechanism, and opens the door for lame backdoor shenanigans that undermine transparency and legitimacy on the PSE. I’m excited to see what the rest of the PSE has to offer, though! Bring it on, Q3!
- [Q&A] What does all this “y/y” and “q/q” stuff mean?... I get this question a lot, and there’s no shame in not knowing what these terms mean; nobody is born into this world with an innate understanding of financial jargon. I usually try not to use jargon whenever possible, but when we are talking about financials, and comparing financials to other years or other quarters, “y/y” and “q/q” become very useful to quickly explain what is being said. So let’s learn them! First up is “y/y”. Plainly stated, “y/y” stands for “year-on-year”, which is a short-hand way of saying that the number mentioned is being compared to the number from the same quarter in the previous year. For example, if I write “Q3 net profit up 32% y/y”, that means that this year’s Q3 net profit was 32% higher than the Q3 net profit in 2021. It’s possible to compare other units of time in a y/y basis (like half-years or first 9 months), but the majority of the time, it’s used to compare a certain quarter against that same quarter in the previous year. Next up is “q/q”, which stands for “quarter-on-quarter”, and is a short-hand way of saying that the number mentioned is being compared against the previous quarter, regardless of year. For example, if I write “Q3 sales down 75% q/q”, that means that this year’s Q3 sales were 75% lower than the sales from the previous quarter, which would have been Q2 of the same year.
- MB: The COVID crisis, and all the craziness that it caused on the earnings of our companies, demonstrated the usefulness of comparing present performance on a y/y and q/q basis. When COVID demolished 2020 and then, unevenly and negligently smeared poo across 2021, the result was almost comical if it wasn’t at the same time tragic. Comparing a relatively normal quarter with anything that was “touched” by COVID lockdowns would often result in hundred or thousands of percentage points of increase. Is it useful to know that a company delivered 1,500% more profit this Q3 this year as compared to the previous when it wasn’t even open? Not really. And that’s when q/q comparisons became crucial to help track the recovery of various companies over time. Even when times are normal, it’s useful to take a peek at the y/y and q/q comparisons to properly contextualize a certain result. A company is likely to sing its praises very loudly if it delivers a y/y growth, but what questions arise if you soon discover that this quarter represents a q/q decrease? As with anything analytical, these are just tools to help uncover questions that we can ask that might lead us to interesting insights. There is no “one stat to rule them all”, so it’s useful to be fluent in the shorthand used to compare different stats across different time periods!
- [NOTES] Quick takes from around the market...
- Asian Development Bank (ADB) [link] declined a chance to speak to MB about its pioneering “ETM” financial vehicle for the early retirement of coal-fueled power plants, citing heavy workload. I was hoping to do another “Inside the Boardroom” special edition with ADB on the special purpose vehicle that ADB helped create to alleviate ACEN of its coal power plant.
- MB Quick Take: Oh ADB, we’re all busy. But I understand. Still, I hope that someone will be able to put aside some time to help us better understand the importance of this “mechanism” to the health and wellbeing of Filipinos. Coal power kills 25 people per terawatt-hour of electricity generated.
- Converge [CNVRG 12.66 ▲1.44%] [link] said that its fiber “footprint” to over 600,000 kilometers as of the start of October. CNVRG said that it is “on track” to achieve its 2022 targets through its “Go Deep” and “Go National” strategies. “Go Deep” pushes development of last-mile fiber connections to reach underserved near fiber trunk lines, and “Go National” pushes trunk lines into new regions and islands to open up new markets.
- MB Quick Take: This is a nice bit of news to combat the negativity that we’ve seen against CNVRG, but really we’re all going to be looking at the Q3 and Q4 financials to see how sharp the decline is in new user sign-ups. The proof will be in the financial pudding.
- PetroEnergy Resources [PERC 4.42 ▼4.74%] [link] said that its Japanese strategic investor, Kyuden International Corporation (KIC), has completed the initial closing requirements on its investment in a 25% stake in PREC’s subsidiary, PetroGreen Energy Corporation (PGEC). The buy-in by KIC will reduce PERC’s ownership stake in PGEC to 67.5%, and will reduce the stake of EEI Power, a subsidiary of EEI [EEI 3.20 ▲2.24%], to 7.5%.
- MB Quick Take: The Yuchengco Family has come to life over the past couple of months. This investment by KIC brings a wealth of experience operating thermal, geothermal, hydro, and nuclear power facilities in Japan. Interesting set of skills to bring onboard.
- FMETF [FMETF 93.60 ▲0.32%] [link] was halted for over an hour because the iNav price tracker was not updating in real-time. FMETF was halted at 10:25am, and was re-activated by 11:25am once the issue was resolved.
- MB Quick Take: I’m glad that these problems are resolved so quickly, but this is the second time in a little over a month that the PSE has had to halt trading in FMETF stocks to fix an iNAV tracker problem. The PSE’s only ETF was down 45 minutes the first time, and 60 minutes the second time. It’s not trending in the right direction.
- Bank of Commerce [BNCOM 8.00 ▲0.63%] [link] notified that it will divert ₱940 million of its IPO proceeds that were supposed to be spent on IT infrastructure upgrades into additional capital for its lending activities in Q4 of this year. BNCOM’s board decided to re-allocate the funds because it’s already exhausted the portion of the IPO proceeds that were supposed to go to lending and securities purchases, and it discovered, through negotiations with IT services vendors, that payments for IT upgrades can “stretch over multiple years”.
- MB Quick Take: I find it a little rich that a company as sophisticated as BNCOM, with its pedigree as a member company of the San Miguel Group, would just find out all of a sudden that IT upgrades don’t just cost ₱1 billion in one downpayment. That said, I don’t think that BNCOM should necessarily be married to keeping that ₱940 million in a silo, waiting to be deployed on IT spending. If I were a shareholder, I’d want the company to deploy the capital in the most profitable way possible, without sacrificing any of the IT-related goals that it set when it took my money in the first place. It still feels... counter-intuitive that a board of directors should be able to unilaterally divert the funding as it sees fit, without input from the people it took money from.
- Italpinas Development [IDC 0.80 ▲9.59%] [link] board voted to authorize the issuance of 20% of the company’s unissued shares through private placements. IDC plans to put the proceeds toward the acquisition of properties.
- MB Quick Take: IDC has around 629 million common shares issued and outstanding, but it recently (November 2021) raised its authorized capital stock to 1.3 billion common shares. That means that it has around 670 million authorized, but unissued, common shares just sitting on the sidelines waiting to be sold. The board has authorized the management team to sell up to 20% of this unissued batch, which would be around 134 million shares. At IDC’s current price of ₱0.75/share, a private placement sale of that entire amount could raise around ₱100 million. The proposal will need to get shareholder approval before it goes ahead.
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