PH stocks: Buying at the top without getting trapped
Philippine Daily Inquirer
MANILA, Philippines—Buying at the top and getting trapped is a concern among many investors, especially when the local stock market is trading in uncharted territory.
Not a few say that local stocks have become expensive relative to bottom-line potentials. But while it has become challenging to find dirt-cheap stocks in the local market these days when it is hitting all-time highs, does it mean there are no more buying opportunities?
Not necessarily, stock experts say. The Inquirer’s Doris Dumlao polled four stock experts who selected stocks that they think still offer relatively good value or those that offer good growth prospects notwithstanding high valuations.
Unlike our previous quarterly surveys, no sector stood out as a clear favorite as the choices were spread out across industries, such as property, mining, conglomerates, power and banking.
Although index stocks are leading the stock market, the majority of our respondents’ picks were large-cap stocks that are listed on the Philippine Stock Exchange index. These, after all, are the ones with large following among foreign investors and enjoy high trading liquidity. Two of those that recently debuted on the local bourse likewise landed on the list.
Overall, it’s still a bull market, but the bulls are turning more selective.
AYALA CORP. (AC)
“The venerable AC is one of largest and oldest conglomerates in the Philippines and is into banking (BPI), telecoms (GLO), property development (ALI), utilities (MWC), electronics (IMI) and automotive sales. These holdings represent a balanced portfolio exposure to cyclical and defensive sectors. We think ALI and Globe Telecom (GLO) will be AC’s income drivers for the rest of 2012, as ALI’s aggressive project launches start to bear fruit and the increase in subscriber usage of data services continued to drive GLO’s leadership in the postpaid segment. In addition, AC and Metro Pacific Investments (MPI) recently forged a strategic partnership to pursue light rail projects. As of this writing, AC is trading at a respectable discount to our estimated net asset value (NAV) of P544 per share and but is slightly expensive in price to earnings (P/E)* ratio terms (17.5x 2012 forecast earnings).”
FIRST PHILIPPINE HOLDINGS (FPH)
“FPH has streamlined itself into a power generation (through FGEN and EDC) and real estate (through ROCK) holding company earlier this year. This renewed focus reduces the volatility in earnings which occurred in the last five years, as the effects of divestments of MER and its toll ways business made FPH difficult to value. We are eagerly anticipating the effects of this streamlining on earnings moving forward. As of this writing, FPH is trading at a significant discount to our estimated NAV of P177.00/share and has a very reasonable P/E* of around 13x forecasted earnings for 2012.”
MANILA ELECTRIC CO. (MER)
“Meralco is the largest power distribution company in the country covering Metro Manila and its outlying areas and continues to register increasing sales in terms of gigawatt—hours coupled with low systems losses. MER benefits from the economy’s growth as 46 percent of GDP comes from MER’s franchise area. MER’s planned coal, hydro and CNG plants in the Luzon grid will improve long term profitability, as these projects will provide a growth driver on top of the revenues capped by the Energy Regulatory Commission. As of this writing and despite a relatively high P/E* ratio of 20x 2012 forecasted earnings, there is still a respectable upside, as our estimated valuation is P295/share.”
EAST WEST BANK (EW)
“It is a direct participation in the high-growth and high-margin consumer banking sector, which offers an annual loan growth of 16 percent, double the standard banking growth of 8 percent, and a net interest margin of 6.6 percent, much higher than the normal banking margin of 3-4 percent. EW is embarking on an aggressive branch expansion program in support of its future growth, with a target of 245 new branches in three years to 367 branches from its 122 branches in end 2011. EW listed on May 7 at an initial public offering (IPO) price of P18.50, equivalent to a P/E of 12x and a price-to-book** of 1.2x, which compares favorably to industry figures of 14.4x and 1.4x, respectively. Based on earnings growth of 20-30 percent in 2012 and 2013, price targets are P22.20 in 2012 and P26.64 in 2013.”
GT CAPITAL HOLDINGS INC. (GTCAP)
“GT Capital is the investment holding company of the George Ty family in the Philippines with significant interests in five industries—Metrobank (25 percent, banking), Federal Land (80 percent, property), Global Business Power (34 percent, power generation), Toyota Motor Philippines (21 percent, automotive) and Philippine AXA Life (25 percent, bancassurance). The five constituent companies are leaders in their respective industries. Metrobank is the strongest bank in the country with capital adequacy ratio of 17.4 percent, backed by equity capital of P110 billion. Federal Land is considered one of the fastest-growing property companies with reservation sales of P9 billion in 2011 from P4.2 billion in 2010. Global Business Power is one of the largest independent power producers in the Visayas region with 627 MW of gross dependable capacity. Toyota Motor Philippines is the largest automotive company in the country being the exclusive importer, distributor and manufacturer of Toyota. AXA is the third-largest insurance company with market share of 12 percent. As such, the company is viewed as an excellent proxy to the long-term growth of the Philippine economy. GT Capital offers a well-balanced portfolio of investment-grade companies, with Metrobank as the core holding. Earnings are expected to grow historically by 65 percent to P5.5 billion this year from P3.4 billion in 2011. However, on a pro-forma basis, earnings are projected to grow 15 percent yearly in 2012 and 2013. GT Capital listed on April 20 at its IPO price of P455, equivalent to a P/E of 13x and a price–to–book** of 1x, as compared to industry holding companies’ ratios of 15x and 2.2x, respectively. We see a potential upside of 15 percent to P523 per share in 2012 and another 15 percent to P602 in 2013.”
SEMIRARA MINING (SCC)
“Semirara combines the twin opportunities of power generation and coal mining. It is the Philippines’ leading coal producer which this year will produce around seven million tons, 70 percent for domestic use by local power plants and 30 percent for export to China. In 2009, Semirara successfully acquired from Napocor the two Calaca power plants with a rated capacity of 600 megawatts, at very attractive terms. Calaca II plant has undergone its comprehensive rehabilitation in 2011 and is now operating at a de-rated capacity of 260 megawatts. Calaca I plant is now under rehabilitation and is scheduled to be operational in August 2012. At the same time, an expansion plan for another 600 megawatts is in the works with the first two plants of 150MW each under construction. Net profit for 2012 is forecast at P7.45 billion (70 percent from coal mining and 30 percent from power generation) equivalent to earnings per share of P21 or a P/E of 10.5x at the recent price of P220. Cash dividend yield is 5.45 percent. In 2013 net profit is expected to surge to P9.58 billion, or P27.00 per share for a P/E of 8.1x. It’s a compelling buy when compared to the PSEi PE ratio of 16x. Target price for 2012 is P242 and P290 for 2013.”
RTG & Co.
PHILIPPINE STOCK EXCHANGE (PSE)
“PSE’s growth has been steady and dividend pay-out sure and regular.”
METROPOLITAN BANK & TRUST CO. (MBT)
“Its principals are well respected and bank has consistently been a leading bank in assets base.”
ALASKA MILK (AMC)
“The company, recently bought by Dutch group Friesland Campina (RFC), has potential both in profit and growth, which attracted the foreign investor. It’s a good buy before delisting (targeted by the third quarter of 2013). Investors can sell over the counter after.”
Trust and investments group, BDO Unibank Inc.
SM DEVELOPMENT CORP. (SMDC)
“For its better-than-expected pre-sales growth.”
PHILEX MINING (PX)
“This is due to the expected recovery of gold prices.”
AYALA LAND INC. (ALI)
“This is due to an upgrade in sales and asset values.
*P/E (price to earnings) is a valuation ratio of a company’s current share price compared to its earnings per share. A P/E ratio of 10x, for instance, means that an investor is paying 10 times the amount of money the company is making or is expected to make in a given period.
** P/B (price to book) compares the market value of a stock to its book value. It refers to the ratio of the latest closing price to the latest quarter’s book value per share. P/B, a useful metric for value investing, is usually used in evaluating asset-heavy companies like financial institutions where P/E valuation is not applicable.
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