Weed between the linesBy Conrado Banal
Philippine Daily Inquirer
If we read between recent headlines, things might not be as they seem – whether in financial markets or in the justice system.
Tons of unwanted weed could be seen between the official lines of our beloved boys in the Palace, who tried to sell us some fantastic explanation on the actuation of our dear leader, Benigno Simeon (aka BS).
We witnessed last Monday a huge protest march against the pork barrel system—viewed as an expression of public disgust over the scandal. But a few days after the rally, our leader, BS, decided to damn public perception. He went about, seemingly nonchalantly, with his rather accommodating actions in the case of the alleged mastermind of the P10-billion scam, Janet Lim-Napoles.
At the very least, some people would see his actions as insensitivity to public mood. Yet, his boys managed to spin tales about the Aquino (Part II) administration’s desire to protect Napoles from apparent assassins. The actions of our leader, BS, in the Napoles case were not special treatments, according to his boys, because he just wanted to be sure she would stay alive to face trial for the pork scam.
What exactly would such an explanation imply about our police force—something about their incompetence?
To protect Napoles from assassins, the administration confined her in an air-conditioned room at the Makati city jail—as if assassins would have no way of breaking into it.
Based on the Palace spin, all those moves would allow Napoles to face the music, thereby exposing the involvement of lawmakers in the scam. Now, she could only rat on the lawmakers, who were her accomplices in the alleged scam, if she would become a state witness.
But as a number of senators pointed out, Napoles could never be considered a state witness in the case because she was the supposed mastermind. If she would not keep her mouth shut, she would incriminate herself, in effect, digging her own grave. Oops, wrong metaphor! I mean, she would admit her guilt.
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If we read between some recent financial market headlines about the declining stock market and the weakening peso, it seemed that the markets ignored the so-called real economy—what was actually on the ground.
The Philippine GDP grew by 7.5 percent in the second quarter, doing better than our neighbors. In the first half of 2013, the GDP grew by 7.6 percent, better than the 6.4 percent recorded in the first half of 2012.
Why then was the stock market going down, with this section reporting that the gains early this year vanished in a matter of days? Certain analysts blamed it all on the fear factor, as the public anticipated ill effects of economic developments abroad, particularly the United States, on the domestic economy.
The stock market did not collapse. It showed none of the wholesale panic seen in the 1997 Asian financial crisis, perhaps because some people saw things differently in individual companies and they decided to stay in the market. Maybe they read between the economic headlines and found out some interesting facts about those individual companies in their financial statements and disclosures.
As the undisputed leader in the budget air travel market, Cebu Pacific Air, for instance, earlier caught market analysts’ attention. They figured that the company could realize revenue of at least P11.5 billion in the past quarter.
It turned out Cebu Pacific missed the forecast (i.e., guesswork), posting revenue of P11.2 billion in the past quarter. That was bad, according to the market!
But official figures showed that its revenue was actually more than 6 percent higher than the level seen in the same quarter last year, even higher than the historical average growth rate of 3 percent. With revenue of P38 billion in 2012, the airline posted a yearly revenue growth of almost 12 percent.
Guess what? Its stock price was down 24 percent from a year ago, even approaching the “low” in forecasts of some analysts. Perhaps the market perceived some failings of the company, such as the accidents at the Davao airport, which could cast a shadow on the reliability of the budget airline sector.
But Cebu Pacific reported a steady increase in tickets sales, precisely because of its business model as a budget carrier. It is also embarking on a fleet expansion program.
We also have the case of Aboitiz Power, which analysts downgraded last week to a “hold,” although the issue has always been a “buy” in market advisories in the past months.
Based on its reports, Aboitiz Power last year posted revenue of P62 billion, up by more than 14 percent from 2011 level. Its income grew by 13 percent to P24 billion, from P21 billion in 2011, despite the increase in its expenses and debt service due to the revenue growth.
Other indicators showed the company did better than industry averages, such as its 14 percent return on assets (ROA), 29 percent return on equity (ROE), 16 percent return on investment (ROI).
The market can see the company is expanding by buying power plants from the government. Why was its stock price down then? Well, “external factors,” according to analysts.
At the same time, Security Bank has been known in the stock market as an outstanding performer in terms of income, although its stock price declined sharply in the last few days. It was actually down by 19 percent from its end-2012 price. Go figure!
Its official reports showed that, as of the last quarter, total assets (P294 billion) grew by 25 percent year-on-year, coming mainly from a 37-percent increase in deposits (P179 billion), which in turn funded the 21 percent increase in its loan portfolio.
Here are other interesting figures on the bank: net income at P1.7 billion and net interest income steady at P4 billion; capital adequacy ratio at 18 percent (versus BSP-set minimum level of 10 percent; tier one capital ratio at 16.2 percent (versus 7.5 percent minimum requirement), and finally total capital at P38 billion.
Why is its stock price also declining? According to analysts, the market got used to the bank reporting huge non-interest income in the past, such as the P4.2 billion of the second quarter of 2012, as against only P1.3 billion.
Its financial statements showed that, this time, the bank posted a much lower gain in securities trading, amounting to P279 million. Last year the same item showed a gain of P3.2 billion.
The bank actually sold its holdings to fund its growing lending business and branch expansion, which should generate the deposits to fund the growth in its loan portfolio. After all, banking is all about deposits and loans.
In other words, the bank has seen the future and it decided to invest in it, things that perhaps the market could only read between the head lines.