Not just yet for Sino and the market

While the market made a weak closing to end the month of May, it came in strong last week to start the month of June.  It regained previously lost territory with the industrials sector leading the advance with a weekly gain of 2.52 percent, followed by the services, financials and holdings firm sectors at 2.40, 1.82 and 1.54 percent each.

The property sector slightly tempered the market’s advance as it suffered a weekly loss of 0.10 percent.  This pulled down the  benchmark Philippine Stock Exchange index or PSEi to settle at 6,762.62 and end with a weekly gain of 114.97 points or only 1.73 percent.

Within last week, too, the Standard & Poor’s 500 and Dow Jones Industrial Average hit new all-time highs, especially lifted last Friday by news US employers added 217,000 jobs to nonfarm payrolls in May as the unemployment rate stayed put at 6.3 percent.

These were considered steady—though slow—signs of improvement of the labor market.

With the US market also fueled further by reports of rising manufacturing growth, retail sales and housing, nothing seems to be in the way to slow down its current advance. Yet, a good number of market insiders are now occupied with the subject why the market should fall.

As observed in a report, US investors were paying $17 for every $1 in earnings (or a price-to-earnings ratio of 17 times) for companies in the S&P 500 index. This was still up from the historical average of around $15, the report added.  And, even if the present pricing level could be overlooked, there is this lurking fear that companies may turn in dismal second-quarter results.

Speculative plays

Brimming with appetite for exciting stock plays out of the market’s robust status, investors also engaged in speculative plays last week.

Creating a stir was Sinophil Corp. (Sino), a dormant investment holding subsidiary within the Sy family-controlled corporations.  The Sy family will consolidate into Sino all gaming interests of their property developer company, Belle Corporation (BEL).

Under the plan, BEL will infuse all of its interest in Premium Leisure Amusements, Inc. (PLAI) and 34.5 percent ownership in Pacific Online Systems Corp. (LOTO), and change Sino’s corporate name.

PLAI is part of a consortium given a license by the Philippine Amusement and Gaming Corp. (Pagcor), to build City of Dreams in Entertainment City. City of Dreams will be operated by its partner Melco Crown (Philippines) Resorts Corp.

As disclosed, BEL “will retain ownership of the land and buildings of City of Dreams Manila, from which it will continue to receive rental income.”

Saddled with losses, Sino will go through a quasi-reorganization.  It will reduce the par value of its common and preferred shares to P0.25 from P1 along with its authorized capital to P4.03 billion from P16.13 billion which, among others, will eliminate its retained deficit of some P3.5 billion.

Next, the authorized capital stock of the company will be raised to 27.5 billion common shares at the new par value of P0.25 per share or to a total of P6.88 billion.  Belle will subscribe to 24.7 billion common shares worth P6.18 billion.

Before voluntary trading suspension on May 30 and June 2, the Sino plan seemed to have been a tightly kept secret.  Trades on May 28 showed as follows: It opened at P0.35, hit a high of P0.355, then low of P0.345 and closed at P0.35; total volume was 380,000 shares and value turnover was P132,650.

On May 29, however, signs that some parties in the know could not resist to partake some quick earnings could be observed.  Sino shares traded as follows: Open at P0.35, high of P0.385, low of P0.35 and close of P0.365; volume dramatically ballooned to 20 million and value turnover proportionately rose to P7.48 million.

When trading resumed on June 3, its share price immediately hit freezing point at P0.54 on a volume of 12.45 million shares and value turnover of P6.72 million.  This was followed by another freeze-price of P0.81 the following day, June 4, on a volume of 55.42 million shares and value turnover of P44.89 million.

Again, Sino shares hit the freezing price level of P1.21 on June 5, on a volume of 91.31 million shares and value turnover of P110.48 million.

On June 6, last Friday, the trading dynamics on Sino seemed to have observably changed.  It opened at P1.21, hit the high of P1.65 and the low of P1.19, and closed at P1.40 on a volume of 579.57 million shares and the whopping value turnover of P805.18 million.

Bottom line spin

Posting the concern of readers on what to do following the trading developments on Sino last Friday, two veteran traders felt insiders already started to pocket trading profits.

Based on last Friday’s high and low prices of P1.65 and P1.19 per share and at the average earnings multiple of 20 times (that is, to pay P20 for every P1 of the company’s earnings), they calculate the company will need to generate the high of P2.67 or low of P1.64 billion net income or the equivalent of P0.0825 to P0.0595 per share.  In addition to other risk unknowns, “these figures no matter how hard you try to imagine it will not certainly materialize very soon,” they said.

In the same manner, the trading dynamics of the overall market, despite strong signs, may slow down or move sideways in the coming days.  Record advances may happen but “not just yet.”

(The writer is a licensed stockbroker of Eagle Equities, Inc.  You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com)