Double Dragon Prospectus at a Glance

Key points:

  •          DD’s current business is not that attractive
  •          DD’s value is largely derived from the anticipated success of CityMall’s strategy to expand in the Visayas and Mindano.
  •          DD could be valued at P2.55 assuming that CityMall is a success for the Company.

This post is a supplemental post to an article found here. The current business of Doubledragon Properties Corp. (DD, the Company) has the following performance:


Amazing at first glance but when compared with operating cash flows:


As revenues increase rapidly and cash flows bleeding, the only option that DD could do to fund the growth of its real estate operations is to raise capital or acquire more debt. Negative operating cash flow is not all bad. Rapidly growing companies are expected to have negative operating cash flow to fund growth.  DD generated negative operating cash flows due to the recognition of unrealized gains on investment properties as revenues, recognition of more accounts receivable sales, and build-up of more inventory. The risk that DD is most sensitive to is the lack of demand for the inventory they built.

DD’s most promising business development is its entry in the retail industry through CityMall Commercial Centers Inc. (CityMall) which will provide the company with recurring revenue stream and stable cash flows from rental income. The Company aims to open 100 CityMalls around the country and targets 1 million leasable sq. m. of commercial and office property projects by 2020. CityMall will provide prime spaces for the fast food brands of Jollibee group and will house SM Group brands with the acquisition of SM Investment Corporation of 34% interest in CityMall last February 17, 2014. The supermarket area of CityMall, is non-exclusive and will be open for all the top supermarket chains in the country.

What makes CityMall attractive that even SM group invested for a 34% stake?

CityMall will operate in the retail industry under community shopping centre (community centre) format. Below are key retail formats in the Philippines:DD3

Community centres generally have supermarket or hypermarket as its anchor locator along with various specialty stores. Investment in the community centres is a bet on the strong and rising consumer spending in the Philippines. Community shopping centres thrive despite the presence of large malls as consumers seek convenience in their shopping experience. DD plans to expand CityMall in Visayas and Mindanao and such strategy is well founded:


Majority of community centres are located in Luzon and Metro Manila while the community centres in Visayas and Mindanao are largely concentrated in Metro Cebu and Davao City. Clearly, there is room for growth in expanding community centre retail formats in Visayas and Mindano.

One of the competitive strengths mentioned in the prospectus is the local knowledge of Mr. Injap Sia of the Visayas and Mindanao markets. With that management experience in mind, DD is in the position to tap the potential markets in Visayas and Mindanao through the expansion of CityMall to these regions.


Currently, DD’s revenues are all non-recurring which means application of PE ratio on its current business to value the company will not be valid. Therefore price to book value multiples is the appropriate valuation metric for DD.

Computation of DD adjusted book value are shown below:


Comparison of DD’s price to book value ratio to other publicly listed companies:


Based on the table above, DD is valued higher than the established real estate companies that have stable cash flows from rental like RLC and MEG. PGOLD is DD’s most comparable company assuming that CityMall will be DD’s major revenue contributor in the future. That said, DD could be valued at least 3.5x P/BV or a target price of P2.55 (P0.73 x 3.5).



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 plans to initiate position in DD



1. I graduated in MBA (at last!) which means more time for blogging! 🙂

2. Joined social media sites:




I was looking for a platform where investors both sophisticated and newbies can interact and I think twitter is the best platform.

3. There is a new site where I am planning to participate actively:
I receive no financial benefits from the site but I like their concept of following the structure of I believe that someday filipinos will help each other in the journey of continuing education in stock investing and stockqoutient is that platform for those investors who are willing to help and willing to learn more.


More posts coming your way! 🙂

Aboitiz Power Case Analysis

How many people have you heard that said: “I wish I could have bought AP way back 2007 at P6”?


Instead of wishing something that will never happen (i.e. turning back time), let’s examine why AP increase from P6 to P35 and moved sideways from thereon so that through this analysis we will learn something that we can apply for future stock purchases.

The breakdown of our problem is:

  1. Why AP increased from P6 to P35 in 2007 to 2010?
  2. Why AP price moved sideways from thereon?

Why AP Increased From P6 to P35 in 2007 to 2010 and Traded Sideways Thereon?

In order to answer the problems, much insight can be derived from the following relationships:


Based on the charts presented above, the following can be observed:

  1. Capacity of AP’s power generation increased before price jumped from below P10 to P30’s level.
  2. The substantial increase in generation capacity was only reflected in the revenues of AP in 2010 thus the spike in the price in 2010.
  3. AP’s stock price is driven by the increase in revenues and EPS.
  4. The stock price moved sideways as generation capacity growth slowed down.

Power capacity drives the revenues of AP. Revenue growth in effect drives the EPS of AP. The increase of EPS places AP at an attractive valuation.


Therefore, power capacity is the foundation of AP’s value (and to other power generation companies).

Warren Buffett loves a company with good economic moat and a good management. Economic moat is the barrier for entry of competitors. The power generation industry has a natural barrier for entry of being capital intensive and the 3-year lead time before the completion of a power plant construction. The power shortage in the Philippines assured AP that the electricity capacity that it produces have ready buyers. Combined that with a management that can deliver what it promised, AP delivered a lot of shareholder value to its investors.


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

Forecasting ACR’s 2013 and 2014 Earnings

Alsons Consolidated Resources, Inc. (PSE: ACR, the “Company”) is different from stocks which I consider cheap, at P1.40 ACR is trading at 17.5x PE ratio using 2012 earnings. A purchase of stock with high PE ratio is justified if there is substantial growth in expected future earnings. For example, stock A trades at P40 with earnings per share (EPS) of P1 or a PE ratio of 40x (P40 / P1). Assuming that by next year stock A’s EPS will jump to P30, then stock A is a bargain even at P40 because by next year stock A will be trading at 1.33x PE ratio (purchase price of P40 / EPS next year of P30).

ACR’s attraction is its move to concentrate its earnings source to power generation in Mindanao. ACR currently have 100 MW and 55 MW capacities through Western Mindanao Power Corporation (WMPC) and Southern Philippines Power Corporation (SPPC). ACR announced in a press release on March 22, 2013 the takeover of 98 MW Illigan Diesel Power Plant. [1] On July 9, 2013, ACR announced the buyout of the remainder 40% interest in Conal[2] hiking its effective interest in WMPC and SPPC to 55% from 37.40%. ACR expects phase one (105 MW) of its 75%-owned coal-fired power plant in Maasim, Sarangani, Sarangani Energy Corporation (SEC) to operate commercially in September 2015 and phase two (105 MW) to operate in 2016. [3] Other than SEC, ACR is in the advance stages of development for the 105 MW San Ramon Power, Inc. (SRPI) in Zamboanga. The completion of the construction is expected to be delayed for 6 to 12 months or a push back of the completion from 2016 to 2017-2018. [4] All in all, ACR expects a surge of its power capacity from 155 MW to 463 MW by 2016-2018 which is 25% of Mindanao’s projected peak demand of 1,829 in 2016. [5]

However, what matters most to investors are: how much will it contribute to ACR’s earnings and what should be the valuation?

For 2013, we should consider the following events:

  1. Increase of ACR’s interest in Conal to 100% from 60%.
  2. Takeover of 98 MW Illigan Diesel Power Plant.

Illigan Diesel Power Plant is 100% owned by ACR through Mapalad Power Corporation (MPC) while WMPC and SPPC initially contributes 37.40% earnings and was later increased to 55% with the 100% control of Conal in July. For conservatism, let’s assume that the increase of interest in Conal will have no effect in ACR’s earnings. In order to calculate for the estimated earnings contribution of MPC, 1) revenue contribution must be calculated and 2) applied with applicable profit margin.

Below is the calculation of MPC’s actual and estimated revenue contribution:


Note that MPC rehabilitated the 98 MW diesel power plant in Illigan. The power plant started operating at 10M-26MW for March to June which explains the small revenues it generated in the second quarter. It gradually increased capacity and was finally fully rehabilitated at 98MW capacity in September 2013. Thus, it is very conservative to assume that MPC will generate only P591 million revenues in the fourth quarter given that MPC will operate at 98MW capacity in the last three months of 2013.

In determining the applicable profit margin, looking at historical profit margin will be helpful in in order to determine the appropriate figure:


The sudden dip of ACR’s profit margin in the 3rd quarter of 2013 is alarming. It may mean inefficiency in operating the Illigan power plant which is likely because the power plant is already old. However, according to the management, the surge in cost of goods and services was caused by the increase in fuel usage of MPC but was pass-on to its customers. [6] However, should the fuel costs be “pass-on” ACR’s profit margin should have not declined from 40% in the 2nd quarter to only 16% in the 3rd quarter. Therefore, we can say that costs incurred in rehabilitating MPC’s Illigan power plant were also included in the cost of goods and services. For conservatism, let’s assume a profit margin of 20% for Illigan power plant.

Below is the calculation of estimated earnings of ACR’s in 2013:


Based on our calculation above, we can expect ACR to report earnings attributable to parent of P582 million which is a little higher than P508 million reported in 2012.

How about for 2014? For 2014, let’s consider the increase in ownership in Conal.


For 2014, we can expect earnings attributable to parent of P930 million or an EPS of .148. With an estimated EPS of .148 for 2014, ACR is trading at 9.45x PE ratio.

One more thing to consider

ACR’s sale of 60% interest in Lima Land, Inc. for 1.36 billion [7] appears to be at a huge gain. Below is my calculation based on the figures provided in the 3rd quarter of 2013:


Considering one-time gain, we can expect ACR to report earnings in 2013 attributable to parents of P1,081 million. (Warning: Make sure not to use PE multiple valuation on earnings that includes one-time gains.)

Using conservative assumptions in estimating forecasted earnings, in my opinion, ACR is an attractive investment for those willing to hold for 2-5 years.


  1. Press Release: “Alsons Consolidated 2012 Profit up 12%, as it takes over Iligan Diesel Power Plant”; Board approval of cash dividend declaration, Annual Stockholders’ Meeting on May 24, 2013 with record date of April 15, 2013,
  2. Press Statement: “Alsons Consolidated Resources, Inc. Acquires EGCO stake in Conal Holdings Corporation”,
  3. Press Release: “Alsons Power’s 13 Billion Peso Sarangani Energy Plant to Operate First 105 Mega Watt Phase by 2015”,
  4. Clarification of news article: “Alson’s Zamboanga City power plant faces delay”,
  5. Press Statement: “Alsons Power current capacity to more than double in 3 years – will supply over 1/4 of Projected Mindanao Peak Demand by 2016”,
  6. SEC 17-Q September 2013, Management’s Discussion and Analysis of Results of Operations and Financial Condition, p.29
  7. Signing of Share Purchase Agreement by Aboitiz Land, Inc. with Alsons Land Corporation re: acquisition of 60% interest in Lima Land Inc.,

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: I own ACR shares

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:


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]


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:


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%.

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


  1. Press release,
  2. SEC 17-A 2012, note 28, p. 163
  3. DOJ reveses 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,

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

Philippine Banking Industry 101

In understanding an industry, one must take note of the following important details:

  1. How the industry generate revenues?
  2. What are the regulatory risk surrounding the industry?

How does the banking industry generate revenues?

It is common knowledge that the banking industry profits by extending the cash deposited by the depositors to willing borrowers. To illustrate:


However, it was least known that bank profits more through rediscounting loans extended to borrowers. It is in this picture that the Bangko Sentral ng Pilipinas (BSP) plays a major role in a bank’s profit. Rediscounting loans is like borrowing money from the BSP with the loans receivable from the borrower as collateral. To illustrate:bank1012

What are the regulatory risk surrounding the industry?

The regulatory body that greatly affects the banking industry is the Bangko Sentral ng Pilipinas (BSP). Every time news comes out like BSP maintains key interest at record lows, what was referred as “key interest rates” are overnight borrowing and lending rates. Overnight borrowing rates or reverse repurchase rates (RRP) are the rates used in rediscounting loans.[1]

Changes in overnight borrowing rates should be followed by bank investors since change on the rates will affect bank profits.

Is there a way to anticipate interest rate changes?

Definitely! Interest rate changes can be anticipated by watching the inflation rates. The BSP adopts the inflation targeting framework since 2002. In other words, should inflation go beyond their target, the BSP will certainly increase the interest rates. For 2014, the BSP targets inflation rates of  4 ± 1 percentage points.[2] Therefore, should inflation go beyond 5%, expect the BSP to increase interest rates.

Obtain the inflation rate information from the BSP through here.

Schedule of releases of key statistical information (includes inflation rates) are found here and exact dates here.



  1. Lending rates,
  2. Inflation Targeting: The BSP’s Approach to Monetary Policy,


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.


Stock investing basics, Interview with Elliott Morss

Stock Investing Basics

Last January 25, 2014, I was invited as a resource speaker about stock investing basics in University of Negros Occidental- Recoletos, Bacolod City. My audience were college senior students, and MBA and PhD students.

To those who are interested:

Stock Investing Basics V.2

If you have any suggestion regarding the presentation, please leave it in the comments below.


Interview with Elliott Morss

To those who are interested, you may view an interview with Elliott Morss regarding my opinion in the Philippine economy and Philippine stock market: