Oil price slide lifts some, trips some

AS OIL price bears grow in number amid the long-drawn slide in commodity prices, investors are wondering what stocks to avoid and which ones might get a little more push while fuel remains weak in an oversupplied market.

Investors would do well to note that the recent slump in the prices of commodities such as crude oil, gold, copper was partly brought about by the global economic slowdown, particularly in China. With world oil demand barely catching up to supply, there have been winners and losers.

“The Philippines has benefited and will further do so, as it imports most of its oil,” Lexter L. Azurin, equity research head and senior manager at Unicapital Securities Inc., said via e-mail. He said certain companies have outperformed their peers and are expected to stay ahead given the continued drop in commodity prices.

Cristina Ulang, research head at First Metro Investment Corp., said via text message that investors should consider which companies are expected to “ride the crest” of election spending and its subsequent boost to consumers spending.

Analysts polled said companies serving the food and consumer goods sectors, airlines and power companies commissioning new capacities may be smart choices.

Less fuel costs for airlines

One of the “winners” that analysts named was Cebu Pacific Air (CEB), which is the leading low-cost carrier in the Philippines with a dominant 60 percent market share of the domestic market. In the first six months of 2015, its passenger base grew 8 percent to 9.2 million.

Fuel costs account for about 80 percent of its total expenses, and given the drop in oil prices, it will continue to result into better margins moving forward,” Azurin said. “CEB continues to offer attractive promos to lure customers, providing easy access to travel affordable to other parts of the country.”

And CEB continues to expand its reach overseas, adding more long-haul flights. As of June 2015, CEB provides flights to 62 destinations, 93 routes, and 2,631weekly flights. CEB continues to dominate the domestic market against the 29 percent share of its nearest competitors Philippine Airlines (PAL) with 29 percent and Air Asia (11 percent).

PAL also performed well, having snapped a three-year losing streak when it reported a comprehensive income of $20.4 million for the whole of 2014 and expects to earn almost five times that for 2015 as it retires old aircraft and capitalizes on low fuel costs.

However, PAL could incur losses during the lean months (usually the third quarter) and needs to continue “restructuring” its costs base” to wring more profit out of revenue, PAL president Jaime Bautista said in a recent briefing. Part of the plan is to drop more “non-essential” items and employ new flying techniques to minimize fuel consumption.

Another winner, unanimously named by analysts, is D&L Industries Inc. (DNL). The food industry and oleochemicals supplier is enjoying lower raw materials cost that led margins to surge at record high in the first half of 2015.

“DNL continues to increase its market share in the country, specifically for its high-margin business (food ingredients, oleochemicals, and aerosols) segment,” Azurin said.

The company serves an alternative to the growing consumer/food industry in the Philippines, a country which is heavily driven by domestic consumption (70 percent of the total economy). “This was reflected by its 1H 2015 (first half) earnings, which grew 15 percent to P1.1 billion. YTD (year-to-date), DNL’s share price is up 28 percent,” Azurin said.

‘Losers’ in oil price decline

There are also clear “losers” in terms of stock prices and finances.

Oil companies are top of mind among the so-called losers in a low-price environment, given the costs of crude importation and refining as well as the lower margins from the pump. But Petron Corp. (PCOR), the largest top oil firm in terms of market share, was not as badly hit as expected and has been noted for its relatively good financial performance.

Hit largely by oil price declines in the latter part of 2014 and the first quarter of 2015, PCOR was earlier “battered” as crude oil price declines continued to affect its margins. But it has recovered since.

Ulang said Petron was “pleasantly surprised” in terms of recent earnings result, specifically in the second quarter.

‘Drops in major commodities’

Mining and oil exploration companies “took a beating” this year, following the slump in commodity prices, Azurin said. “Given the modest growth outlook this year from the world’s largest economies, specifically China, it has resulted into drops from major commodities (i.e., Gold -4 percent YTD; copper -16 percent YTD, and nickel -35 percent YTD),” Azurin said.

Among them are Philex Petroleum Corp. (PXP), the upstream oil and gas subsidiary of Philex Mining Corp.; Trans-Asia Petroleum Corp. (TAPET); the unit of Trans-Asia Oil and Energy Development Corp.; Oriental Petroleum and Minerals Corp. (OPM); PetroEnergy Resources Corp. (PERC); The Philodrill Corp. (OV); Basic Energy Corp. (BSC); Marcventures Holdings Inc. (MARC); Global Ferronickel Holdings Inc. (FNI); Nickel Asia Corp. (NIKL); Atlas Consolidated Mining and Development Corp. (AT); and Oriental Peninsula Resources Group Inc. (ORE).

Major mining firm Nickel Asia (NIKL), for example, saw prices tumble 35 percent this year as demand from the second-largest economy in the world, China, slumped, Azurin said.

“We are not recommending mining and oil stocks precisely because of the slump in commodity prices,” Ulang of First Metro said.