Victorias Milling Company, Inc. (PSE: VMC)

Business Profile

Victorias Milling Company, Inc. (the “Company”, VMC) is engaged in integrated raw and refined sugar manufacturing in Negros Occidental since its incorporation in May 7, 1919. VMC operates in a cyclical industry. Milling season for a sugar company usually starts in October and ends in May with June, July, and August as off-season. VMC claims to be the leader in sugar production in Negros Occidental with 28.26% share.

VMC entered into a rehabilitation plan with its creditors for their P7.9 billion liability and interests in 1997. The rehabilitation plan includes the following:

  1. Restructuring of the P4.4 billion debt over a period of 15 years beginning September 1, 2003 with an annual interest of 8% for peso denominated loan and 5% for foreign CDU loan as amended on May 4, 2012.[1]
  2. Conversion of P2.4 billion debt into convertible notes bearing 8% annual interest.
  3. Conversion of P1.1 billion loans to equity.

As of August 2012, VMC has serviced its creditors a total of P2.17 billion in principal and P3.18 billion in interests. The Company had already converted P428 million worth of convertible notes under the rehabilitation plan. On January 15, 2013, the Company intends to pre-pay P1 billion of the restructured debt. [2]

As of December 2012, VMC’s Bagasse-Fired Cogeneration power plant with 18 MW installed capacity was approved by the DOE. [3]

VMC’s other subsidiaries are as follows:

VMC1

Comments:

VMC released their annual report on December 17, 2012, presenting earnings per share of P.28. Assuming that all the convertible debt as of the end of VMC’s fiscal year of August 31, 2012 will be converted into shares we can still arrive at a diluted earnings per share of P.17 rendering VMC undervalued at a PE ratio of 8.35x at the price of P1.42.

Trading of VMC shares were suspended in 1997 and was lifted in May 2012. VMC’s stock price action since the lifting of its trading suspension is seen below:

VMC2

VMC’s stock price initially shot up to an intraday high of P5.50 and settled to below P1.60 range for the good part of 2012. There is a valid reason for VMC’s share price to stay at an undervalued price: huge selling of shareholders who held for the illiquid VMC shares for 14 years. Notable shareholders are CVI GVF (LUX) Master S.A.R.L. (CVI) and Narra Capital Investment Corp. (Narra) which are top 2 shareholders of VMC as of March 31, 2012[4] with 516 million (25%) and 191 million shares (9%) respectively. Narra increased its shareholdings to 224 million shares on April 11, 2012.[5]

CVI and Narra had been selling their shares since the lifting of VMC trading suspension:

VMC3

On January 8, 2012, VMC disclosed the purchase of Premier Network International Limited (Premier) of 23% interest of the Company [10] which was bought from CVI.

Trading in a PE ratio below 10x using diluted earnings per share, additional revenue stream with their baggasse fired power plant, prepayment of liabilities, and absence of huge sellers, VMC is bound to realize its value of P1.70.

 

Risks in investing in VMC: CVI or Narra might sell more shares in the market.

Other data:

VMC4

Sources:

  1. Amendments to Alternative Rehabilitation Plan and Debt Restructuring Agreement, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3394_VMC.pdf
  2. Conversion of notes into equity pursuant to Debt Restructuring Agreement, pre-payment of restructured loans, adoption of Election Manual and creation of Election Committee, nominees for Board of Directors, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-9067_VMC.pdf
  3. Awarded Biomass Projects as of December 2012, http://www.doe.gov.ph/RE%20Regis&accred/Awarded%20Contracts/Biomass/Biomass.pdf
  4. Top 100 Stockholders as of March 31, 2012, http://www.pse.com.ph/resource/corpt/2012/VMC_Top100_Mar2012.pdf
  5. Statement of Changes in Beneficial Ownership of Securities, http://www.pse.com.ph/resource/corpt/2012/VMC_23B_04192012.pdf
  6. Statement of Changes in Beneficial Ownership of Securities, http://www.pse.com.ph/resource/corpt/2012/VMC_23B_05302012.pdf
  7. Statement of Changes in Beneficial Ownership of Securities, http://www.pse.com.ph/resource/corpt/2012/VMC_23B_08152012.pdf
  8. Statement of Changes in Beneficial Ownership of Securities, http://www.pse.com.ph/resource/corpt/2012/VMC_23B_09192012.pdf
  9. Statement of Changes in Beneficial Ownership of Securities, http://www.pse.com.ph/resource/corpt/2013/VMC_23B_01102013.pdf
  10. Statement of Changes in Beneficial Ownership of Securities, http://www.pse.com.ph/resource/corpt/2013/VMC_23A_01082013.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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5 thoughts on “Victorias Milling Company, Inc. (PSE: VMC)

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