Chemrez and the market
The market slightly slipped as investors sold shares to further take advantage of higher prices in order to play safe and keep the profits earned following mixed market developments in the United States, China and Europe last week.
As a result, the main index ended with a weekly loss of 29.55 points, or 0.43 percent, to 6,817.71 last Friday.
Also, the 6,800-6,900 index band of the market became its Maginot or resistance line—the market’s possible equilibrium or turning point.
Advances and declines
After last month, the market’s daily advances or declines had been confined to the lower two-digit figures that also contributed to lower net weekly advances or declines.
The only exception was on May 9. Trading for the day ended with a gain of 82.05 points, or 1.21 percent. This, in turn, enabled the market to end with a weekly gain of 104.29 points, or 1.55 percent.
When trading closed last Monday at 6,811.34, the market ended with a day’s loss of 35.92 points, or 0.52 percent, on a volume and value turnover which, more or less, point to profit-taking as the underlying cause.
On Tuesday, the market ended with a gain of 41.47 points, or 0.61 percent, when it closed at 6,852.81, resulting from a bigger value turnover over the same type of stocks traded the previous day.
The advance was reinforced by an additional gain of 27.63 points, or 0.4 percent, when the market closed at 6,880.44 the following day, Wednesday, on substantially bigger value turnover.
On Thursday, trading continued on the same variety of stocks. Volume also continued to be substantial but was not supported by a commensurate value turnover. This led market buoyancy to turn weak, settling at 6,849.33—down 31.11 points, or 0.45 percent.
This was further followed by another loss of 31.62 points, or 0.46 percent, on Friday, when the market settled at 6,817.71 on the same variety of stocks traded during the week.
Notice that in all of the market’s movement for the week, trading was confined within the range of 6,801.88 to 6,906.63, before it closed last Friday at 6,817.71.
Chemrez
One stock that seems to share a similar predicament as the general market’s current makeup is Chemrez Technologies Inc., with the trading symbol and alias of COAT.
It was listed on Dec. 8, 2000 as Corro-Coat Inc. and had a change of name on June 9, 2006 following stockholders’ approval for the purchase of Chemrez Inc. and its biodiesel project, at which a public offering was conducted late the same year to raise additional funds for the project.
COAT is a leading manufacturer of resins, oleochemicals and specialty vegetable oil-related products.
It had a great year last year: It’s net income hit P390.97 million, with revenues of P4.04 billion and total assets of P4.07 billion. It had an equivalent to earnings per share (EPS) of P0.24 and asset turnover of at least 1.0x.
Its net earnings was 26 percent better than the company’s reported 2012 net income of P0.19 a share. Obvious source of such increase in earnings came from the company’s revenue growth of 27.7 percent and slight improvement in operating efficiency that resulted in a return on sales (ROS) of 8.86 percent.
Last week, the company submitted its first quarter 2014 financial report. The report shows that the company has P5.39 billion in total assets, of which P4.28 are current assets.
Also, the company is said to have total liabilities equivalent to P1.09 billion, all of which are recorded current. Stockholders’ equity is reported at P4.30 billion and retained earnings at P1.91 billion.
For the quarter, the company is reported to have realized revenues of P1.20 billion, equivalent to an increase of 16.27 percent as compared to 2013’s first quarter record.
Because of the increase in revenues, it was able to end up with a net income of P97.26 million, or P0.07 a share and offset the impact of the increase of gross expenses that amounted to 91.15 percent as compared to the 89.21 percent seen in the same period last year, resulting in a net income of P69.73 million or P0.05 apiece.
Earnings for the first quarter is said to be the company’s lowest among the four quarters of the year. Nonetheless, the company’s first quarter earnings of P0.7 is still 16.67 percent higher than last year’s average quarterly net earnings of P0.06 a share.
Maintaining this difference up to the end of the year, COAT’s PE multiple will go down to about 13.5 to 14.5 times earnings only.
Bottom line spin
If the market continues to slide this week, it could very well end up breaking down. On the other hand, it could by the same token shoot up and break out within the week on new positive leads.
COAT is at the same crossroads. Its closing price last Friday was only three points away from its 52-week high of P4.20. But its stock, despite slowly rising to about 40 percent since December, is starting to trade actively, with its price heading higher. As company earnings could only grow by about 16.67 percent this year, COAT’s market price could very well break down already. Yet, COAT’s price seems to go against the market’s present negative predicament.
Last December, the government approved the increase in the mandatory blend of biodiesel from 2 percent to 5 percent, which would effectively increase supply requirement to more than double. It may be implemented very soon.
When this happens, COAT is one player that can very well answer the increase in demand and enjoy the resultant rewards. Accordingly, its biodiesel plant is said to be operating at no more than “30-percent capacity, contributing 13 to 15 percent in total revenues.”
This may be the reason why its price has started to go up, and seemingly continues to head higher.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach Market Rider at [email protected], [email protected], or at www.kapitaltek.com.)
