Gus Cosio says so

Ideas on the Philippine Stock Market

I second that emotion!

7:00 pm  Sunday  115 August 2010   Philippine Stock Exchange Index 3469.52 (Friday close)

Weak economic data and a gloomy Federal Reserve statement sent the DJIA falling by 3.3% this week on fears that the flagging economic recovery could turn into a double-dip recession.  As usual, markets across the globe put on a similar bearish sentiment.  The low volume of trading also reflects the generally quiet summer and investors anxiety over the market’s direction.  In New York, about 3.4 billion shares traded on the NYSE Composite volume, well below the average 5.4 billion shares normally traded.

Meanwhile, Germany reported that its economy grew by 2.2% in the 2nd quarter compared to the 1st quarter well above market expectations of 1.4% growth.  Such a quarter-on-quarter growth has never been recorded before in reunified Germany which should be welcome news since Germany provides the engine for Europe as a whole.

The rest of the capital market saw the volume of U.S. junk bonds exceed $155 billion, 80% higher than in the year-ago period.  Second and third tier companies are refinancing their debt at lower costs and investor demand has been quite robust.

These information taken together tells me that while there is reason to be cautious in the broad market, there are some spots where investors find value.  The Philippine market may just be one of them since in spite of a 15% rise in the PSEi YTD, constituent stocks remain relatively inexpensive.  While the global economic recovery is in question, recent history has shown that our economy has been relatively unscathed.

For particular stocks, GLO has declined further and while technical indicators show it as oversold, I think it would be dangerous to own this stock.  I would use any bounce on this issue to be an opportunity to sell.  GLO was emblazoned all over Bloomberg television Thursday morning as causing earnings decline for Singapore’s Singtel.  Globe’s showing was described by Bloomberg as “devastating” and such a statement leaves a scar in investors’ minds.

In contrast, the competitor that is gaining market share at GLO’s expense – DGTL – is seeing such a good earnings recovery.  Revenues for 1H2010 was Php 7,975.3 million, up 19.1% from 1H2009 of Php 6,693.5 million driven by the 30.6% growth in the wireless segment.  While operating expenses grew by 14.6% to Php 5,228.0 million from 1H2009 Php 4,562.4 million, EBITDA for the period was Php 2,747.2 million, up 28.9% from P2,131.1 million in 1H2009 due primarily to the higher service and non-service revenues generated by the wireless business.  Net income for the period was Php 145.4 million – a great recovery from the net loss of Php 638.0 million in 1H2009.  DGTL is a definite recovery story and even if telcos are not currently in fashion, these numbers tell a story of undervaluation in my mind which I will be willing to place a bet on.

MEG net income in 1H10 ended 10% higher YoY at Php 2.21 billion but some analysts were disappointed because consensus was for a 17% rise in earnings.  AGI, net income on the other hand, increased by 43% Y/Y in 1H2010 to Php3.69 billion paced by a 22% Y/Y jump in revenues to Php21.26 billion. AGI is generating earnings of Php595 million in 1H10 from strong growth of its Newport City .  AGI beat expectations due to better-than-expected results of its liquor and quick service restaurant unit which showed 47% % and 12% topline growth.  The Newport City enterprise could generate attributable profits of Php2 billion.  AGI is MEG’s parent and it looks to be a better play for me.

Remember when trading this week that emotion is a trader’s enemy.  One should not be trigger happy nor too gun shy in time as these.  The sentiment globally is negative, but local companies are doing well.  Investors everywhere are also looking for bright spots to put cash into whether in their domestic markets or overseas.  Keep in mind that cash is still abundant and investors will have to put it all to work eventually.  Seize the opportunity when it comes.

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August 14, 2010 - Posted by | Financial markets in Asia

35 Comments »

  1. Hi Sir,

    I was planning to average down on MPI and adding DMC to my portfolio. Would this week seem the right time to take on these stocks? I am comfortable with DMC at 20.35 because I was able to profit from it at 21.5. I was aiming to get in at 20 but is that too much to ask from the market?

    Thanks 🙂

    Comment by Cholo | August 15, 2010 | Reply

  2. I sold GLO last week after ex-date then transferred everything to TEL.

    Comment by iLikePassiveIncome | August 15, 2010 | Reply

  3. Sir Gus,

    The debt to equity ratio of DGTL is 19 (down from 59 in 2009), while that of TEL is 0.68 (up from 0.57 in 2009) and for 0.91 GLO. Is there a way to know the time horizon for the D/E ratio of DGTL to also go below 1?

    Comment by Mal | August 15, 2010 | Reply

    • Mal,
      I do not know when DGTL’s DE will start to fall below 1, but with profitability growing, it will probably not take long. From what I gather, some of the debt is convertible to equity.

      Comment by Gus Cosio | August 16, 2010 | Reply

      • Thanks, Sir Gus. I wondered about it as I studied DGTL’s 17Q. Another question is why didn’t they break down the monthly ARPU by service segment.

        Comment by Mal | August 16, 2010

  4. Hi Gus,

    Thanks for your updates on international market. which of the one do you consider a core holdings? TEL or DGTL?

    I have DGTL but I’m planning to buy TEL as my core holdings for the next 2 years…it is the right time to buy or I wait for further decline due to ghost month and international condition.

    Comment by alssy | August 15, 2010 | Reply

    • Alssy,
      TEL will probably move lower in the days to come. It would be a good time to accumulate in the coming days. I would buy it on market down days. Remember, over the last 2 years TEL gave 141 pesos dividends in March 2010 and 78 pesos this August. If you buy TEL below 2400 and hold it till march, imagine what your dividend yield would be. As for DGTL, I get the impression that their capacity building efforts is starting raise the company’s productivity and profitability. I see it as a good recovery story. What is stuck in my mind is that 3 years ago DGTL traded 2.12 when they had much less capacity compared to today. There must be some valuation adjustments to come and it would be an upward adjustmetn of course.

      Comment by Gus Cosio | August 16, 2010 | Reply

      • Hi Sur Gus,

        What would be the reason for TEL’s decline today and the expected decline in the following days? Is it because today is the ex-div date? Thank you.

        Comment by Dex | August 16, 2010

      • Dex,
        You are correct. It is adjusting for the dividend.

        Comment by Gus Cosio | August 16, 2010

      • Thanks! another chance to accumulate. I was able to buy @ 2410 when it dipped last month. Now, our wish for it to be below 2400 seems to be coming very soon 😀

        Comment by Dex | August 16, 2010

      • oh it is below 2400 already! Il try queueing at 2380

        Comment by Dex | August 16, 2010

      • Sir Gus, how is the dividend computed? for example I want to know the amount that Im going to get for keeping the shares. I only have 250 shares, is it as simple as 250×78 (TEL’sdiv per share)? Will it automatically show under my trading cash balance on the pay date or will it be credited somewhere else?

        Thanks in advance for any advise.

        Comment by Dex | August 17, 2010

      • Dex, to compute for your dividend: 250 shares x 78 x 90% = P17,550. There’s a 10% final withholding tax on dividends received by an individual.

        As to how you would receive the dividend, it depends on your broker. If you have online brokers, for Citiseconline the dividends will be credited to your account with them usually 3 days after the published date of payment. For First Metro Sec, the amount is directly credited to your savings account that is tied to your Stock Trading account.

        Comment by deuts | August 17, 2010

      • Deuts, thanks a lot for your response. I appreciate it.

        Comment by Dex | August 17, 2010

  5. If US Economic Recovery falters GOLD will rise as a safe assets and also dollar and PX as a Gold Mining Stocks will rise….then other mining stocks will follow…

    Comment by jenny | August 16, 2010 | Reply

    • Jenny,
      If you recall, mining and other hard commodity stocks were very strong in 2006 to 2007. This was because the global economy was very heated up. Mining stocks follow commodity cycles. Gold has been very high for a year or so and the high price of gold is already reflected in the price of PX. The other mining stocks are moving because they are already starting to produce, e.g. AT and ORE. The sustained strength in mining stocks will come when demand for base metals move on the upswing cycle again.

      Comment by Gus Cosio | August 16, 2010 | Reply

  6. Any thoughts why FPH and EDC prices are up today? Thanks.

    Comment by trixia | August 16, 2010 | Reply

    • yeah, been wanting to buy my last 1000 EDC shares for a few weeks now. I bought my last one at 4.43. Kept waiting for it to fall below 4.5 again but it does not obey my wishes and keeps going up :/

      Comment by jrebong | August 16, 2010 | Reply

  7. MER is coming down to 180. Is it advisable to own MER and MPI together? Though the pe ratios are a little too high for me normally.

    Comment by jrebong | August 16, 2010 | Reply

  8. Nearly half of my investment is at DGTL at an average of P1.44 per share. Hope it starts rising….soon….. 😀

    Comment by deuts | August 16, 2010 | Reply

    • Yes hopefully had a pilot buy today

      Comment by Foreign Investor | August 16, 2010 | Reply

    • hmm, actually lets hope not. Not until we’ve been give more chances to accumulate some more. Lets say at least two more months? :peace:

      Comment by jasper | August 16, 2010 | Reply

      • Lets see pal. But it will take some time since the volume isn’t that stable. It has to be growing day buy day. momentum is still with PNB i believe

        Comment by Foreign Investor | August 16, 2010

      • Actually I don’t mind if it’ll take 2-3 months to reach the 2peso per share level, for as long as it’s traded at P1.5 to 1.6 soon… 😀

        Comment by deuts | August 16, 2010

      • Absolutely

        Comment by Foreign Investor | August 16, 2010

  9. I missed the phenomenal volume(1.17B) and price increase(+4.27%)in Metrobank today. One thing I learned is that volume precedes price and with the huge volume in MBT mainly due to the 43.1% increase in its 2nd quarter profit(1.7B), one would really be seriously considering to buy the stock. Is it still a wise decision to buy the stock at these levels or the expected increase due to its 2ndQ profit is already factored in the current price. Thanks a lot!

    Comment by Anthony | August 16, 2010 | Reply

  10. Dear Investors, Sir Gus,

    MPI had a really low volume today 4,080,790.00 —> i think this is going for a temporary decline? This might be due to being over traded, I am saying this since the volume has been declining for more than a week. Any thoughts?
    Regards

    Comment by Foreign Investor | August 16, 2010 | Reply

    • lets hope so. I’ve been waiting to add to my position. I still am short of my target volume.

      Comment by jrebong | August 16, 2010 | Reply

  11. Regarding DGTL. It’s earning now, but i think the hesitancy comes in part to the fact that, if you look at the last 9 quarters (Q1-Q3 from 2007-2009), there would be periods of positive earnings proceeded by losses. In fact, DGTL lost in 6/9 quarters. A positive first half wouldn’t erase such a record. However, if DGTL can sustain for at least this year then perhaps more people will notice.

    Comment by jrebong | August 16, 2010 | Reply

  12. Sir,
    Whats your take on EDC. So far it has been on the rise. Im only 50% invested and looking at AP, EDC, DMC and MPI. Just do not know what to prioritize at current price levels. Any suggestions?

    Comment by CM | August 16, 2010 | Reply

  13. LPZ reported a net income of 11.376 Billion for the first 6 months of 2010 which is 24x the net income for the same period of 2009.

    http://www.pse.com.ph/html/ListedCompanies/pdf/2010/LPZ_17Q_Jun2010.pdf

    Comment by Anthony | August 16, 2010 | Reply

    • Thanks for the info, Anthony. Wow.

      “Buy stocks when they are nearer to their highs for the year.” Should we?

      Comment by Aika | August 16, 2010 | Reply

  14. Dear Sir Gus and fellow investors,

    I was studying the charts of one my favorite stocks MPI and was quite curious with my observation of its pattern in the last two months. I noticed that there is a tight price area around the third week of July coupled with a volume dry-up (from around 61.7M, it went down to a volume as low as 1.46M for two weeks). Moreover, right after the volume dry-up was a dramatic volume up (~64M). The combination of tightness in prices and dried-up volume is generally constructive according to this book I’m reading titled “How to Make Money in Stocks”. What’s your opinion on this? Does the pattern make sense?

    I am quite convinced that MPI has good fundamental characteristics, I was just wondering when’s a good time to enter.

    Thanks!

    Comment by Aika | August 16, 2010 | Reply

    • Aika,
      A few weeks back when MPI was at 2.60, I thought that it was a buy. I still think that it is a buy if you have at least a 6 month time horizon. At 2.90, I consider it still a buy because I think it is worth at least 4.

      Comment by Gus Cosio | August 16, 2010 | Reply

      • Thank you, Sir Gus.

        Comment by Aika | August 18, 2010


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