Gus Cosio says so

Ideas on the Philippine Stock Market

Steady Money

5:30pm  Monday  16 November 2009  Philippine Stock Exchange Index  3011.36 (-0.76%)

Monday trades opened with a sell off in PX which set the tone for the early session. This was  second day of PX’s rapid decline.  FPH, FGEN, MEG, BPI and SM had also added to the decline, but UBP and RLC have come to the limelight today bucking the trend.  There was also a huge block sale of 56.094 million shares of SMPH.  That surely puts whatever selling pressure there is on SMPH out of the way.    The Philippine market was the only one going against today’s trend among neighboring equity markets as Japan’s GDP  4.8% for the 3rd quarter boosted Asian stock prices.

The market is definitely looking for value.  I can sense that with the good support we are seeing on the mid-cap stocks.  UBP and RLC are just 2 shining examples, stocks that are intrinsically very strong but are selling at very low earnings multiples.  Had the market not been weak, I think PNB could have flown given its good earnings report.  At current prices, I can just imagine what the dividend yield on this stock can be, given that it is trading around half of its book value.  A stock like EEI looks to be hovering just below its resistance which I place at 2.50; I think that if the market were stronger today, it could have broken that resistance.  While we are in construction related stocks, I believe that DMC will be a future favorite given its portfolio of construction, property, power, energy, tollways and water.  It is developing to be an infrastructure conglomerate which serving very healthy markets.

The I-Remit story is also unfolding and this is being reflected by the surge of the stock from below 4.00 a share to 6.00.  The talk of a merger in the making between I and its affiliate Sterling Bank remains to be the speculative force behind the stock’s move.  The question is, does it make sense for the companies to merge?  In my view, it does make a lot of sense.  A remittance company has quite a limited scope for rapid earnings growth.  What it has is steady money flow from its existing OFW customers.  For a small bank like Sterling which has captured a good niche in the consumer and SME markets,  the synergy from a merger poses a very tempting growth story.  I would suggest that we keep an eye on the disclosures of I because it as also a good candidate for a home run.

Another banking story is MBT which has recently been upgraded by a few houses.  They think that MBT’s earnings will move to higher normalized RoE of 13.4% from the end of 2009 to 2011.  They think that a price to book ratio of 1.4X would be reasonable for the stock.  the current price to book is 1.1x.  As a comparison, BPI is trading more than 2X book value; there’s no reason why MBT should not move higher if market remains steady.

I guess what should occupy us is the general trend of prices.  The index is down 22.96 points today, but  21 points of this was on account of PX.  MER pulled it down by another 2 points and FPH and BPI by another point or so.  The stocks that were up strongly had very little weight – URC and RLC.  These two issues have slowly but surely gained ground.  What I’m seeing is that the market does not look negative judging from where a number of stocks are now trading.  With a good number of plays still in the offing, I remain constructive and will continue to be engaged in a number of stocks.  With Japan growing as it did in the last quarter, there is good reason to be optimistic in our neck of the woods.

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November 16, 2009 - Posted by | Financial markets in Asia

5 Comments »

  1. Sir Gus,

    SPH is disposing of its 30,301,000 treasury shares, meaning it is selling it to the market again?

    Comment by wren | November 17, 2009 | Reply

    • Hi Warren,
      I just saw the disclosure now, after I received your comment. I must admit, I went long the stock last week because of the volume spike. This is a stock that I like. I’m not inclined to sell though because I suspect that the reason they passed the resolution is that they are preparing for a block sale of these shares. These guys were not born yesterday. They had probably been discussing the alternatives and passed the resolution after they’d covered the bases. I’ll sit it out while the market is on a positive mood.

      Comment by Gus Cosio | November 17, 2009 | Reply

  2. Hi Sir Gus, it appears that PIP is on the move this week, on relatively strong volume. i guess you were right last week about this small cap

    Comment by J | November 17, 2009 | Reply

    • Well Jon,
      It feels like this stock will be one of those that will be working on a range. You know this year, PIP paid 25 centavos dividends. At today’s close of 2.24, that works out to an 11% yield. even if they pay only the regular 10 centavos, that will still be 4,46% which is higher than any time deposit rate for small amounts. I’m quite certain that they can pay at least 10 centavos next year. I’m even betting for a repeat of the 25 centavos. Remember, candidates buy a lot of soft drinks during campaign season.

      Comment by Gus Cosio | November 17, 2009 | Reply

      • Nice observation there, Sir Gus! Once again, thanks for your insights! I’m excited for EEI as well.

        Comment by J | November 17, 2009


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