2GO Group, Inc. Turnaround

I covered 2GO in my past post and stated that the Company has a long way to go before it could turn around its operations. In the first half of 2013, 2GO reported a net income of half a billion or 586 million. What makes the earnings even more amazing is that it is not through one-time gains or dramatic reduction of depreciation expenses but from continuing operations. The management made some changes: retiring old and inefficient ships, increasing the frequency of trips, passing some fuel costs through surcharges, and increase in rates.

The management’s strategy paid off with an 8% profit margin in the first half of 2013 and will likely increase in the foreseeable future with more cost reduction plans that are yet to be implemented. The recent tragedy that involved 2GO will have no financial impact and may present an opportunity for the Company.

The tragedy will cause no financial impact to the Company as the Company is insured by the following: [1]

2GO1

The tragedy presents an opportunity for the Company because of the possibility of the revocation the franchise of Philippine Span Asia Carrier Corporation (formerly Sulpicio Lines).[2] Currently, 2GO has 96% of the sea passenger market share and 31% of the sea freight business. 2GO’s significant competitor is Philippine Span Asia Carrier Corporation (PSACC) which is said to hold 40% of the market share. [3]

All in all, with or without the revocation of PSACC’s franchise, 2GO is an attractive investment which reported an EPS of P.24 in the first half at a price trading at a range of P1.50~1.70.

Sources:

  1. 2GO SEC 17-A 2012, Insurance Coverage, p.16, http://www.pse.com.ph/resource/corpt/2013/2GO_17A_Dec2012.pdf
  2. End Sulpicio Lines’ death Ship, http://www.journal.com.ph/index.php/news/national/57222-end-sulpicio-lines-death-ship
  3. Sulpicio Line’s maritime migraine, http://www.businessmirror.com.ph/index.php/en/news/opinion/18824-sulpicio-lines-s-maritime-migraine

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

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