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:


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


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:


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:


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.


  1. Press Release: “CEB welcomes 5th aircraft delivery for the year”,

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.


Selected Stock Updates: CEB, FGEN, and LPZ


CEB reached its conservative valuation of 63.

My projection for CEB’s 2012 earnings is at 6.27 which translates to 62.70 should it be valued at 10x PE ratio. PAL is the only comparable publicly listed airline company in PSE so we could not determine on what multiple should CEB trade. Conservative investors may stick to 10x PE ratio while risk takers can gamble for a 15x PE ratio.


I like FGEN. This is a stock that I consider to be the most conservative. Conservative because buying this stock is like seeing the future. Earnings are very predictable and immune to economic recession. A stock I can comfortably buy even at 23.50.:)

I failed to add this in my own portfolio though. The reason is that I was in CHIB when FGEN’s major business developments happened. Although FGEN’s earnings are predictable, CHIB’s short term capital gains are much more predictable (at that time).

On hindsight I should have bought FGEN!lol

Read about FGEN here.


A stock I bought for speculation.:)

Recent hint on what GLO would do is disclosed here:

Part of the news that alarmed me was the portion where the debt is convertible to equity! If that would be true then LPZ valuation will fall at the lowest end of our valuation model (6.51).

Of course, I’ve done my due diligence and the financial obligations that GLO are buying are NOT* convertible to equity!

*I hope I did not miss such an important fact!

Cebu Air, Inc (PSE: CEB)

Cebu Air, Inc. is the leading low-cost carrier (LCC) in the Philippines. It pioneered the “low fare, great value” strategy in the local aviation industry. The Company was incorporated in August 26, 1988 and was granted a 40-year legislative franchise to operate international and domestic air transport services in 1991.

The core element of the LCC strategy is to offer affordable air service to passengers. This is achieved by having high load, high frequency flights, high craft utilization and a young and simple fleet composition and having low distribution costs.

As of  June 30, 2012, the Company has a fleet of 38 aircrafts with an average age of 3.6 years, ten (10) A319, nineteen (20) A320, and eight (8) ATR 72500, and serves 52 domestic routes and 28 international routes with a total of 1,885 scheduled weekly flights.

The Company will be the only airline to operate a Manila-Hanoi service starting March 17, 2012. The Company will reopen their Manila-Xiamen service and begin its first international flights from Kalibo, international gateway to world renowned Boracay Island with its Kalibo-Hong Kong flights on March 23, 2012.

The Company is currently expanding its fleet taking a delivery of twenty (23) Airbus A320 and thirty (30) Airbus A321neo aircraft and two (2) Airbus A320 aircraft on operating lease agreements between 2012 and 2021.

The Company operates from four hubs:

  1. NAIA terminal 3 located in Pasay City, Metro Manila
  2. Mactan-Cebu International Airport located in Lapu-Lapu City, Metro Cebu
  3. Diosdado Macapagal International Airport, Clark, Pampanga
  4. Davao International Airport, Davao City, Davao del Sur.

By the end of December 2011, the Company flew close to 12 million passengers from January to December 2011 or an increase of 14% from 10.5 million passengers in 2010. The growth was driven by the 12% increase in domestic passengers to 9.22 million from 8.23 million in 2010. International passengers increased by 22% which numbered over 2.27 million in 2011.

The growth in passengers was attributable to the following:

  1. Additional 13% seat capacity in 2011 contributed by the arrival of five brand-new Airbus A320.
  2. Low fares due to the unbundling of baggage allowance.
  3. Added flights to seven (7) international destinations since the start of 2011.
  4. Maintained its high load factor of 88% and 86% for domestic and international flights respectively.

The Company bagged the Budgie$ Friendliest LCC Award at the 2011 Low-Cost Airlines World Asia-Pacific Conference in Singapore and considered as the 3rd Best Budget Airline by Smart Travel Asia in 2011 Best in Travel Poll.

In January 24, 2012, the Company disclosed the groundbreaking ceremony of the Philippine Academy for Aviation Training, Inc. (PAAT) a joint venture with CAE, Inc., world leader in aviation training. It is expected to start operations in the third quarter of 2012 and will have the capacity to train over 2,500 pilots annually.

The training facility will be a one-stop training facility for CEB and a hub for training services for other airlines.  The training center will initially be equipped with two Airbus A320 Full Flight Simulators (FFS) with capability to expand by two additional simulators. Training is expected to be added for other aviation personnel in the future.


In order to project CEB’s profit, one can look at the available seat per kilometer (ASK)[1] statistics that airline companies are required to disclose.

Below is the actual ASK of CEB:

Assuming that the % change per month remains the same, we can project the year end ASK:

CEB generated P2.20 for every ASK in 2011. This 2012, CEB generated ASK in a range of P2.05~2.20. Using a conservative assumption of 2.05, we can get total passenger revenue of P29.9 billion [14 millon ASK x 2.5] . Assuming a revenue mix of 79% passenger revenues to gross, we can arrive at gross revenue of 37.9 billion [P29.9 billion / 79%]. Applying a profit margin of 10%, we’ll get a net income of 3.8 billion or an EPS of 6.27 [ P3.8 billion / 606 million shares].


  1. Cebu Air operating Statistics,

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.