CEB Update

CEB was previously covered here. As an update, CEB now operates 46 fleets and still boasts to be one of the youngest fleet in Asia with an average fleet age of 3.97 years. [1] The Company continues to post growth in revenues but with declining operating earnings:

CEB1

For 2013, the Company showed favorable trend which finally showed an increase in operating earnings:

CEB2

The increase in operating income was due to the improving operating margins of the Company which is at 13% in the first half of 2013 far from the historical 5~10% operating margins in 2012. However, the improvements of the operating profit margin was offset by depressed profit margin which declined to 7% from 10~11% in the past year. The cause of the decline is the weakening peso that hurt company by unrealized foreign exchange losses of P1.3 billion in the first half of 2013. The losses were caused by the weakening of the peso from P41.05 to P43.20 in relation to the Company’s long-term dollar denominated loans.

At first glance, the wisest thing to do is to wait for the strengthening of the peso or events that may strengthen the Peso before buying CEB but CEB’s business are showing so much promise as shown below:

CEB3

Passenger growth always surpasses prior year figures. Assuming the same trend will continue, we can estimate passengers for the year 2013 to reach P15.8 million. CEB takes P2.27~P2.31 revenue per passenger. With passenger estimate for 2013 and revenue per passenger information we can have forecasted 2013 profit for CEB:

CEB4

Using 10x PE ratio we will arrive at a target price of 52.50 for CEB. However, if peso unexpectedly strengthens back beyond P41.05 the Company deserves a higher valuation.

Source:        

  1. Press Release: “CEB welcomes 5th aircraft delivery for the year”, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-6108_CEB.pdf

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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