Looking at Phoenix Petroleum (PSE: PNX)

Phoenix Petroleum Philippines, Inc. (PSE: PNX, the “Company”) derives most of its revenues from trading refined petroleum products. In 2005 until the first half of 2009, PNX sourced its petroleum products mainly from PTT Philippines Corporation and Total Philippines Corporation. Starting from the second half of 2009 until the present, PNX imports refined petroleum products from Singapore, Taiwan and various foreign traders from Thailand, Korea, and China.

PNX has witnessed its revenue growing since 2006 albeit with low and declining profit margins:PNX1

As of the end of 2013, PNX has 209 stations in Mindanao, 47 in Visayas, and 112 in Luzon. Below is the growth of PNX’s retail stations:

PNX2

PNX source substantial amount of revenues from sale of jet A1 fuel to Cebu Air, Inc. (PSE: CEB). PNX supplies more than 50% of CEB’s fuel requirements and handles all the logistical needs of CEB in Mindanao and partly in Visayas. [1] Logistical service involves the use of oil depots and storage facilities. [2] Relying on the numbers provided in PNX’s press release, it would mean that PNX derives a total of not less than 8.7 billion (half of CEB’s estimated fuel costs of P17 billion) sales from CEB or 20% of PNX fuel sales.

It would then be reasonable to assume that PNX’s revenue growth will be positively affected with the fleet growth of CEB and the increase in economic activity in Mindanao. A major threat for the business of the Company is that as an importation Company, PNX is at the disadvantage in the weakening of the peso.

PNX stock price and reason for plunge

PNX historically trades at 16.5x to 17x PE ratio. However, PNX’s stock price plunged from a 52-week high of P11 to just P4.90 range of a PE ratio of just 10.88x. The reason for the plunge in stock price is the smuggling case filed against the President and CEO of PNX, Dennis A. Uy.[3]

PNX3

In the information statement disclosed by the Company, PNX is very cooperative with the authorities by executing a Waiver of the Statute of Limitation (granting the BIR to assess the tax liabilities of the Company) and application for the Voluntary Disclosure Program of the Bureau of Customs on the period questioned (June 2010 – July 2012). [4]

The current P5-billion smuggling case filed was first filed against the President of PNX in 2011 but was later dismissed in January 2012 and the decision in January 2012 was affirmed by the DOJ in November 2012. I understand that there were new details that surfaced which enable the revival of the smuggling case against Dennis Uy in April 2013. In my opinion, the President and CEO of the Company is probably not being guilty taking hints from how cooperative the Company is in the smuggling case investigation.

In any way, guilty or not guilty, I believe that the Company will continue their dividend policy of declaring 30% of prior year net income as dividends will continue:

PNX4

I expect dividends to be the same as last year (.10 cash dividend and 30% stock dividend) given that PNX only managed to grow net profit by 2%.

Comment:
CLSA is selling huge number of shares in the market. Willing buyers of this stock should not go beyond P4.90.

Source:

  1. Press release, http://goo.gl/NnvJtB
  2. SEC 17-A 2012, note 28, p. 163
  3. DOJ reveses ruling, recommends smuggling case against Phoenix Petroleum, http://www.interaksyon.com/business/60351/doj-reverses-ruling-recommends-smuggling-case-against-phoenix-petroleum
  4. Information statement (SEC Form IS-20 DIS), Acts and Resolutions of the Board of Directors, p. 36,  http://goo.gl/65k5ZL

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.

Disclosure: No position

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One thought on “Looking at Phoenix Petroleum (PSE: PNX)

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