Roxas Holdings, Inc. (PSE: ROX)

Roxas Holdings, Inc. (ROX, the “Company”) has the following significant subsidiaries and associate:

ROX1

The Company is engaged in sugar milling and sugar refining business through its wholly owned subsidiary, CADP, CACI and its associate HPCo. The Company claims that their premium refined sugar is preferred by big industrial users including food and beverage and pharmaceutical companies which some customers have been in business with the Company for more than 15 years and some since the inception of the Company.

CADPI, located in Batangas, provides the refined sugar requirements of traders and industrial customers in Luzon while CACI and HPCo are based in Negros Occidental where there is substantial sugar activity and near the port of export supplies the raw sugar requirement of traders who deal with local and export consumers. In 2010, the Company expanded the sugar milling capacity of CADPI from 11,000 tons cane day (TCD) to 18,000 TCD and CACI from 11,000 TCD to 13,000 TCD.

The Company in an attempt to diversify its revenues and in response to the Biofuels Act of 2006 began construction of a bioethanol plant through RBC in 2008 which was completed in June 2010 and began its commercial operation in October 2010. RBC produces ethanol from molasses and has a capacity of 100,000 liters per day. RBC is capable of producing potable and industrial alcohol but currently only sells industrial alcohol or bioethanol fuel to domestic markets through direct selling to oil companies.

Other subsidiaries of ROX are the following:

ROX2

Comments:

The market fears that the sugar industry will not be as profitable as before if sugar tariffs will be reduced from 38% to 5% in 2015. Below is the gradual reduction of tariff rates according to EO 892[1]:

ROX3

The purpose of tariff rates is to make imported sugar much more expensive than the local sugar.

ROX4

High tariff rate in the sugar industry served as a barrier for entry for cheap imported sugar and allows the prices of local sugar to tread higher than the world sugar prices. We can then expect that as this barrier for entry diminishes in 2015, local sugar prices will trace world prices.

ROX’s plan to prepare for 2015 is to expand its sugar milling operations and diversify its revenue source through the construction of a bioethanol plant. The Company secured P6.1 billion loan to finance the plan. This plan of the Company became the past Management’s greatest mistake. Supply of sugar cane was not considered in the expansion causing the sugar mills to operate at less than its full capacity. The cost of producing biofuel was also not considered in the construction of bioethanol making the bioethanol operations a drag to the profit of ROX.

For the fiscal year 2011-2012, ROX placed a new CEO, Mr. Renato C. Valencia. Immediately, the new Management mandated to reduce overhead expenses to at least 10% to 20%. Salary of all officers and directors were reduced from 32 million to only 22 million. RBC was made sure to be fully operational in order not to drag the Company’s profits.

In a press release, Mr. Valencia’s comments hints what ROX’s business strategy will be,[4] “On the other hand, sugar is a commodity, characterized by high volumes, low and volatile prices and thin margins. Thus, only sugar businesses with the volumes, low-cost operations, broad and competitive product portfolio, and innovative management will survive and flourish.” (Emphasis added)

As a result of Management’s actions, ROX displayed the highest gross margin in the last five years and also the best profit figure in ROX’s history:

ROX5

ROX has also filed its application to operate a cogen power plant with a potential capacity of 25.52 MW for CADPI, 10 MW for CACI, 4 MW for RBC, and 6.5 MW for HPCo. ROX’s cogen power plant can take advantage of the feed-in tariff under the renewable energy act as biomass energy. Biomass energy has a minimum feed-in tariff of P6.63/kWh [6].

A capable CEO at the helm, increasing margin, impending shortage of bioethanol, and entry to energy production will allow ROX to realize its value of P5.60.

Other data:

ROX6

Sources:

  1. Executive order 892, http://www.tariffcommission.gov.ph/eo_892.htm
  2. World sugar prices, http://www.indexmundi.com/commodities/?commodity=sugar
  3. Local sugar prices, http://www.sra.gov.ph/wp-content/uploads/downloads/2012/12/MILLSITE-PRICES-RAW-SUGAR-AND-MOLASSES0001.pdf
  4. Press Release: “Roxas Holdings 8-mo. Income: P668M”, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5018_ROX.pdf
  5. Awarded Biomass Projects as of December 2012, http://www.doe.gov.ph/RE%20Regis&accred/Awarded%20Contracts/Biomass/Biomass.pdf
  6. Resolution No. 10. Series of 2012, Resolution Approving Feed-In-Tariff Rates, www.erc.gov.ph

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

Advertisements

2 thoughts on “Roxas Holdings, Inc. (PSE: ROX)

  1. Pingback: Unemployment, Energy Sector, Ethanol Plant, Stock Thoughts: MER | Fundamental Enthusiast

  2. Pingback: Is ROX worthy to squeeze more percentage gains? | Fundamental Enthusiast

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s