Solid Group, Inc. (PSE: SGI)

The Company’s main source of revenue is its sale of mobile phone, broadcast/professional equipment & accessories, and prefabricated modular houses which contributed 76% of total revenues in 2011. Below is the breakdown of SGI’s sales account:

SGI1

The Company sells the mobile phone brand Myphone. Myphone is distributed by a wholly owned subsidiary Mytel Mobility Solutions, Inc. (Mytel) through 260 independent dealer networks. Effective The Company exhibited double digit growth since its venture in Myphone distribution on August 2007.

SGI2

An interesting development in the Company is the restructuring of its corporate structure to focus on real estate business and sale of mobile phones under the brand name Myphone. On May 11, 2012, SGI sold the assets of its wholly owned subsidiary Solid Broadband Corporation (SBC) for a consideration of P 1 billion cash to Skycable Corporation. [1]

The Company’s real estate investments include the Golden Hill Project, a property within the ASEAN Commercial Park in Nanning City, Guangxi Province, PRC. The Company, through Fil-Dragon, pre-sold the multi-storey residential and commercial condominium of Golden Hill Project. The Company received P29 million and P686.3 million in 2010 and 2011 respectively in the pre-sale.

Comments:

SGI’s attraction is from the following:

  1. Ability to take advantage of the Philippines’ strong domestic consumption
  2. Strong balance sheet.

SGI is well positioned to take advantage of the Philippines’ strong domestic consumption. Other than SGI’s MyPhone brand, SGI is capable of exploiting the low cost housing in the Philippines under the MyHouse brand. Similar to myPhone, myHouse is a product designed to appeal to the masses.

SGI’s MyHouse brand is a modular housing technology that can be set-up for as fast as 30 days. MyHouse has the following models:

SGI3

SGI has a very strong balance sheet. Other than the fact that SGI’s 12 billion assets in the 3rd quarter of 2012 is 25% cash, SGI has a debt to equity ratio of .39x which means that debt is only 39% of SGI’s capital. However, closer scrutiny of the quality of these debts will bring more insights to an investor.

SGI has these notable liabilities:

SGI4

The nature of SGI’s customer deposits are cash received from pre-selling their condominium project in Nanning City, Guangxi Province, PRC. The bulk of SGI’s deferred tax liabilities arise from the unrealized gain from investment properties. Deferred tax liabilities will only be paid if SGI will sell the investment properties and the customer deposit will be reclassified as revenues as the construction of the condominium project in China progresses.

These liabilities are called “float.” These are liabilities that have negligible chance that a third party will require SGI to pay on demand. That said, SGI’s “true” liability is only 1,508,308,604 or a debt to equity ratio of .16x which means that SGI has more capacity to raise debt without posing much threat in the company’s liquidity or ability to pay.

Valuation

I expect SGI to report an EPS of P0.62 but normalized earnings should only be at P0.27. I expect SGI’s MyHouse brand will be well accepted by the masses and MyPhone will continue to grow its sales in high double digit growth. Considering SGI’s position to take advantage to the Philippines’ strong domestic consumption, SGI’s position to take advantage of the low-cost housing through myHouse and SGI’s financial capacity to seize these opportunities, SGI’s value should be at 10x its normalized EPS or P2.70.

Catalysts:

  1. Strong sales of SGI’s MyPhone brand.
  2. Reception of SGI’s MyHouse brand might be positive.
  3. Possible entry of SGI in the real estate industry under the low-cost segment.

 

Risks:

SGI’s myHouse may not replicate the success of myPhone.

Sources:

  1. Additional information re: Agreement between Solid Broadband Corporation and Skycable Corporation http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3906_SGI.pdf
  2. SGI Sec filings

Other data:

SGI5

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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2 thoughts on “Solid Group, Inc. (PSE: SGI)

  1. Pingback: Coursera, MVP’s message to Graduates, Stock Thoughts: APM, SGI | Fundamental Enthusiast

  2. Pingback: SGI Update | Fundamental Enthusiast

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