Gus Cosio says so

Ideas on the Philippine Stock Market

Cebu – an isalnd in the Pacific

cebupacific visual presentation

Cebu Pacific 3Q2010

I would like to share the latest disclosures of CEB considering that some of the major securities brokerage houses are issuing buy recommendations.  I’d like to keep people informed about the issue which I continue to like.  I particularly would like to point out their cost per Average Seak Kilometer which is an efficency measure that is crucial to Low Cost Carriers (LCC).  I think we can get a good picture of investment considerations for this stock from this presentaion.  Please click on the links above to read the contents.

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November 19, 2010 - Posted by | Financial markets in Asia

26 Comments »

  1. I must thank you Gus for highlighting the potential of ORE some weeks back. Though I only alloted 10% of my capital since I considered this as speculative. Your thoughts are very helpful for investors like me with limited time to scout the market. I have to admit though that the airline industry is not the place I would want to put my money into right now, LCC or not. The industry’s pricing power is just too constrained plus the risk of ballooning fuel costs. As I see it, CEB does not have a very strong moat to protect its foothold in the LCC industry and is always at risk of being overrun by its rivals, particularly if PAL gets its act together. Customer loyalty is hard to achieve in this industry where airfare price is its main selling point (pun intended). What’s stopping the other LCC players from matching CEB’s ticket price? One of its rivals, Jetstar, even has a price beat guarantee. The general trend of lowering air fares to lure customers is a huge dampener in the growth of the airline industry as a whole.

    YMMV

    Comment by jamie | November 19, 2010 | Reply

    • Jamie,
      I’d like to say that I am not recommending CEB for readers to buy. I think the information contained in the report and the report itself was something worth sharing. While I happen to like CEB (I’ve preferred the airline over PAL), I really do not expect that everybody would like it.

      Comment by Gus Cosio | November 19, 2010 | Reply

      • Sorry Gus, not my intention to insinuate that it is wrong for you to buy/like CEB. It’s just me sharing my line of thought on why I didn’t subscribe to the CEB IPO. I respect the opinion of others even if they are not the same as mine. At the end of the day, I am responsible for my own investment. We, avid readers of your blog, are just fortunate to have someone like you who freely shares valuable insights on various market issues.

        Comment by jamie | November 19, 2010

      • Jamie,
        It is alright that you disagree. That’s what markets are all about – different buyers and sellers. As to the CEB posted information that I posted, it is for the information of those who are not able to easily access information.

        Comment by Gus Cosio | November 20, 2010

  2. according to Philippine Star, pnoy is pursuing the open-skies policy. Wonder how that will affect CEB..

    In other news, MPI has entered MRT3.. In other words, I also bought some more. Funny thing though, I budgeted for 5k shares. When I posted, the price just went up and my budget was lacking 300 pesos :miffeD:

    Comment by jasper | November 19, 2010 | Reply

    • Were you still able to get? Sometimes this happens to me too and sometimes it still pushes through.. although my cash account will now have a negative balance..

      Comment by Ria | November 19, 2010 | Reply

      • yeah, but i had to decrease my order -1k shares. Its a real bummer. If MPI goes up again, I don’t think we’ll see these prices for a long time again. Or if at all.

        There is nothing not to like with MPI. Its a monopoly. You won’t wake up one day and hear some other conglomerate has been eating market shares from it. And even if a recession comes again, people will still need water and electricity. They’d stop going to SM before they stop paying their electricity bills. I really like the company.

        Comment by jasper | November 19, 2010

    • Jasper,
      When you are a low cost producer, competition is not really your problem because they would lose out in any price war. I do not think open skies will hurt CEB at all.

      Comment by Gus Cosio | November 19, 2010 | Reply

      • i do agree with sir gus. obviously ceb has already taken over pal through low-airfare cost approach. this price strategy is an exact application of the blue water strategy which the gokongwei’s has probably perfected over years of practiced on their businesses.

        pinoy only offer a pocket open-skies policy and not an all-out open skies policy. it is aim to have a regular air tranporation to local tourist areas across the country to promote and help tourism industry. if it is the case then ceb will be one of the beneficiary of the tourist influx in our country.

        Comment by richard | November 19, 2010

  3. CEB has good fundamentals. It plays on a different playing field than PAL and until the open skies policy becomes a reality, it doesn’t really have any competition.

    That said, CEB will remain volatile in the short term. It doesn’t have any sufficient support levels to combat the macro forces surrounding it. In other words, investors aren’t really comfortable yet with the what the true value of CEB should be and thus it will tend to follow the general market index. Stock market pricing is all about perception, and when the perception is blurry, it tends to follow where the light is.

    Comment by Mars | November 20, 2010 | Reply

    • So how does what I said help you as an investor? It means don’t panic if CEB goes up and down next week. If you’re already holding CEB there’s no point reacting to it in the current market conditions unless you like profiting from its volatility (like me). I personally think that it will bounce between P130 and P120 next week. I don’t think its capable of breaking the P133 resistance level yet without a good market sentiment but it will eventually break (I personally believe it will in the 1st or 2nd week of December). And even if the market is really bad, it has a very strong support level at P115-P116.

      So if you don’t have the stomach for volatility stay away from it but I would recommend buying it if your looking for long term stocks.

      Comment by Mars | November 20, 2010 | Reply

  4. Sir Gus, what do you think of PX?

    Comment by Nel | November 20, 2010 | Reply

    • Nel,
      PX is a core holding for as long as I like mining sector.

      Comment by Gus Cosio | November 21, 2010 | Reply

  5. Hi guys,

    What are your thoughts on this:

    If company A(listed) would buy company B(not listed) but is a major part of company C(listed) and will surely monopolize the market, would you go all in on this?

    Thanks

    Comment by Ria | November 20, 2010 | Reply

    • Ria,
      Difficult to comment on hypothetical cases.

      Comment by Gus Cosio | November 21, 2010 | Reply

  6. Hi Sir Gus. What’s your take on AGI? DGTL seems to be flat in spite of their impressive 3Q report. Happy with ORE. Was given 3800 allotment for NIKL. Thanks so much.

    Comment by Shan | November 20, 2010 | Reply

    • On one hand, DGTL still seems to be growing. Its market cap is just 10B, and the company is really worth more than that, and its not altogether hard for them to reach 20M subscribers sooner or later. The Gokongweis also seems to have the magic touch in that JGS has risen 1600% (1.58p to 26p) in two years.

      However, its a test of patience to wait for its rise knowing there are other opportunities out there (i.e. TEL has become cheap and offers 9% dividends). Also, and I’m just guessing here, it might be that 20M subscribers would be as good as it gets as competition is really intense.

      So for me personally, I’m willing to add another 10k shares to my portfolio this year and nurse it until dec next year. It seems to me that the company is in a critical time and it would be a shame to sell now and not see it till the end.

      Comment by jasper | November 20, 2010 | Reply

      • Hi Jasper. I enjoy reading your insights as much as Sir Gus’s. Will still hold on to DGTL till next year. How about AGI? Any views on it?

        Comment by Shan | November 21, 2010

      • I really liked mcdonalds and I was looking at who owned it here. But when I viewed the AGI annual report it seemed that they were not giving any dividends.

        See, I don’t think I’m a good enough stock picker so I’m thinking that if a stock I own goes down, at least I will have some dividends to offset the loses. Like with GLO, the loses I had was bad. But without dividends it would have been worse.

        well to cut it short, I came too late to understand AGI’s potential and by the time I took another look it was 10p already. So now, I just placed it on my “one that got away” list and doesn’t actively follow it as of the moment.

        Comment by jasper | November 21, 2010

  7. Sir,
    Any thoughts on AP. I see that its not in your portfolio anymore. RSI pretty much on the roof already.

    Regards.

    Comment by Mark Anthony | November 20, 2010 | Reply

    • Mark,
      I made a mistake on AP by taking my profits too soon and not being able to buy back when it recently corrected. I continue to follow it because it is an excellent stock that I would like to buy at the appropriate occasion.

      Comment by Gus Cosio | November 21, 2010 | Reply

  8. Sir Gus,

    May I have your email address just to exchange some information?

    thanks

    Comment by alex | November 21, 2010 | Reply

  9. DGTL is a stock worthy of keeping.Its strategy is working well and GLOBE poor 3Q results is a testimony that it is taking its toll on the competition.

    Comment by jack | November 21, 2010 | Reply

  10. Mining Stocks will be “Talk of the Town” starting tomorrow cause of NIckel Asia IPo :))

    Comment by Jenny | November 21, 2010 | Reply

  11. I tend to agree that DGTL is now a worthy stock for the medium term. I just took a position lately after the release of their 3rdQ report. I intend to add more depending on its next movement.

    Comment by Rufo B. Orel | November 22, 2010 | Reply

  12. Sir Gus,

    What would be the price action upon exercising of the over-allotment option of CEB?

    Thanks

    Comment by eccentric | November 27, 2010 | Reply


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