What I Find Attractive in SINO

Sinophil Corporation (SINO, the “Company”) was originally incorporated as an oil and gas exploration company. In 1997, the Company changed its primary purpose to investment holding company. SINO is not yet in commercial operations and has generated losses in the last five years.SINO1

The Company has made investments in the gaming industry:

  1. 40% equity in Legend International Resorts Limited
  2. 3.75% equity in Metro Manila Turf Club, Inc.
  3. 3.9% equity in Belle Bay City Corporation

In March 1997, SINO entered into a Share Swap Agreement (“Agreement”) with Paxell Limited and Metroplex Berhd (collectively referred to as “Metroplex”) for a 40% interest in Legend International Resorts Limited (LIR-HK). However, conflicts between the parties involved caused the agreement to be rescinded on August 23, 2001 and in effect cancelling all obligations stated in the Agreement and reversing all the relevant transactions.

On March 30, 2007, SINO acquired the loan obligation of LIR-HK in Union Bank which was secured by 1 billion shares of SINO under the name of Metroplex. However, the same shares were also used by Metroplex to secure another loan from a different creditor, Evanston Asset Holdings Pte. Ltd. (“Evanston”). In 2012, SINO was informed that Evanston has undertaken foreclosure proceedings on the mentioned shares. As a conservative accounting measure, SINO recognize full impairment of P1,501,521,316 for the event.

Metro Manila Turf Club, Inc. (MMTC) was incorporated in 1993 and has a congressional franchise for horseracing which was granted in 1995. Belle Corporation (Belle) and SINO owns 100% of the MMTC as of December 31, 2007. As of December 31, 2009, Belle and SINO sold a combined 87.5% of MMTC to a group of investors. The 121 hectare land intended for the race track in Tanauan, Batangas was retained by Belle and SINO and was set aside for future real estate projects.

Belle Bay City Corporation (BBCC) is a landholding company that owned approximately 14 hectares in net land area in a reclaimed seafront along Roxas Boulevard in Parañaque. However, the 1997 Asian Financial Crisis rendered the project unfeasible. SINO initially has 4.5% interest in BBCC but was later diluted to 3.9%. In November 2012, the Company received 4,348 sq. m. land area valued P108.7 million from BBCC as a liquidating dividend. The Company recognized P33.3 million gain on the dividend.

None of the above mentioned information could interest an investor but a close scrutiny on the Company’s financial statements and the Company’s recent developments will make the Company interesting.

A substantial part of the Company’s balance sheet is the P1.6 billion under the available-for-sale account (AFS). Details of the amount will reveal that P1 billion of the recognized AFS are Belle preferred shares subject to a settlement agreement where Belle is obliged to transfer 235,583 sq. m. of developed Rancho Montana land located in Tanauan, Batangas in exchange for the cancellation of Belle’s preferred shares.[1] The Rancho Montana will be ready for sale next year.

On May 10, 2013, SINO’s Board approved a par reduction from P1 to P.25 [2] where P.75 will be applied to eliminate the Company’s deficit.[3] The Company’s move is called a quasi-reorganization.

The reasons for a quasi-reorganization is basically to:

  1. Provide a “fresh start” for the Company – A company with no deficit will recognize subsequent earnings as retained earnings and will not be applied as a deduction to the deficit. In other words, quasi-reorganization provides a clean slate for the Company.
  2. Express intention to declare dividends in the future – Since a company with deficit cannot declare dividends to its shareholders, quasi-reorganization provides a faster and easier way to eliminate deficit.
  3. Present an attractive balance sheet for potential investors

 With the above mentioned reasons, we can speculate three scenarios for SINO:

  1. Rancho Montana will be transferred to SINO within this year.
  2. Possible merger and acquisition of SINO by BEL
  3. Possible infusion of more assets by BEL
  4. Combination of all of the above

I am expecting scenario number 1 to be the most likely event. With SINO setting up its balance sheet for a “fresh start,” SINO’s management probably expects to recognize earnings in the future and that future earnings will probably be derived from the sale of Rancho Montana land.

Infusion of more assets is also a likely event; Belle has a 121 hectares land in Tanauan, Batangas, considering that Rancho Montana is also located there we can expect Belle to initiate an asset for share swap with SINO to increase their interest in SINO and eventually (probably) merge the Company with other real estate businesses.

The merger scenario is taken from a quote of Belle’s Vice Chairman, Mr. Willy Ocier, where he said “We have identified several but we only want three. It will involve mergers and acquisitions. Once we have decided, we will jump in a big way.” [4] Belle has 45.49% effective interest in SINO.

How much do I think SINO’s share be worth? At a conservative book value of P.42 which is computed as follows:

SINO2

 Sources:

  1. Amended 2012 Annual Report, Related Party Transactions, Note 15, p.63, http://www.pse.com.ph/resource/corpt/2013/SINO_A17A_Dec2012.pdf
  2. Board approval of amendments to Articles of Incorporation re: reduction in number of directors and change in par value of common and preferred shares, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3835_SINO.pdf
  3. Additional information re: Board approval of change in par value of
    common and preferred shares; Trading halt, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-4061_SINO.pdf
  4. Clarification of news article: “Belle to spin off gaming”,  http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-4220_BEL.pdf

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

Update on ALCO

I posted last January about ALCO, the thesis was simple, given the capable management of ALCO the sale of the Company’s wholly owned subsidiary will add value to shareholders through lower finance costs and increase in cash balance.

I presented two assumptions regarding the sale of Irmo, Inc., ALCO’s wholly owned subsidiary:

With the disclosure of ALCO’s annual report, it appears that assumption #1 is the closest to actual:

ALCO1

The transaction above made significant improvement on ALCO’s finance costs and balance sheet:

ALCO2

What came to me as a surprise?

Sudden decline of ALCO’s gross profit margin:

ALCO3

Tentatively, the declining gross profit margin hints that the Company is facing a tough competition under the luxury property development industry that they tend to sacrifice gross margin to meet sales target. However, what hold me back from that conclusion is that the decline occurred only in the fourth quarter and not throughout the year.

Looking forward for their first quarter report.

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

ATN Holdings, Inc. (ATN/ATNB)

ATN holdings, Inc. (ATN, the “Company”) sources of revenue are from real estate and health care. The Company has the following corporate structure:

ATN1

PLDI and AHCDC are both engaged in the real estate industry while MCPI is in the health care industry. PLDI is the developer and major owner of the 48 storey Summit One Tower and its adjacent 6 storey parking building. AHCDC is engaged in developing residential properties around Ever Gotesco in Pasig City. MCPI has investments in outpatient clinics and claims that one hundred doctors manage the health care needs of the fifty thousand client patients.

The Company has investments in Transpacific Broadband Group International (TBGI) which has a market value of P37 million as of December 31,2012 and classified as “available for sale”.

TBGI was initially an investment agreement with Unipage Management Inc. (UMI) where the company invested P30 million for 30% interest and UMI invested P79 million for 40% interest in TBGI. In 2010, the agreement was terminated and UMI is selling TBGI shares in behalf of ATN. As of December 31, 2012, ATN has P65 million receivable from UMI.

ATN intends to pursue opportunities in renewable power generation by investing in a 30 MW solar photovoltaic power generation project under ATN Solar Energy Group, Inc. (ATN Solar) to be located in the 320 hectare property of PLDI in Montalban Rodriguez, Rizal. [1] ATN Solar 50% owned by ATN and 30% owned by TBGI already has a service contract for the Solar Power project as of December 2012. [2] As of March 31, 2012, ATN Solar is not yet in commercial operations and certain conditions are yet to be finalized including supply of material, project financing, and government permits.

 

 

 

 

The Good

Strong balance sheet

As of December 31, 2012, ATN has P414 million long-term debts of which P16 million are non-refundable deposits from clients and P376 million from deferred tax liabilities or a total P392 million float or debts that has negligible risk that a third party will demand payment.

Bank Loans are foreign denominated

ATN has P30 million yen denominated and P2.8 million dollar denominated bank loans. Due to the strengthening of peso, the Company recognized P6 million unrealized gain on these loans. In simpler terms, ATN can gain P6 million should they extinguish their foreign denominated debts.

It should be expected that this unrealized gain can still increase with the weakening of the Yen currency.

Trading at substantially below book

ATN has a book value of 3.05 as of December 2012.

Management has majority interest in the Company

ATN’s management is interesting. The CEO does not receive compensation for the last five years from the Company to signify his support and solidarity with the Company’s stockholders. The officers receive their compensation directly from the CEO.

The CEO also has high ownership in the Company which stands at 61% of the total outstanding shares as of June 30, 2012.

The Bad

Insiders that disagree with ATN management might sell more shares in the market

On December 28, 2011, the Company declared 2% stock dividend, increase in authorized capital stock from P200 million to P1.2 billion, and 1:6 share rights offering. [3] On May 3, 2012, Blue Stock Holdings Development, Inc. (Blue), a shareholder of 15% filed a complaint against the Company regarding the increase in authorized capital stock. [4]

On February 14 and March 4, 2013, Blue disclosed the sale of 6.383 million and 7.578 million ATN and ATNB shares respectively.

Unprofitable Health care business

The Company’s health care business does not contribute to ATN’s profit:

ATN2

The Company should be better off without their health care business. As of March 31, 2013, the Company appears to reduce their health care operations. The surge in net loss may probably be caused by settlement of employee obligations.

ATN3

Comments:

The Company venturing into the capital intensive solar energy power is not a smart move, in my opinion, considering that ATN generates poor cash flows. However, with approved feed-in tariff of P17.95 per kWh for solar power, the Company may be able to obtain the needed financing. I would appreciate though if the Company would find other ways to utilize its valuable 320 ha property.

I would like to see the Company refinance its debts and settle the Yen and Dollar denominated loans in its books to take advantage of the strong peso which the Company appears to be doing.

ATN4

In my opinion, ATN and ATNB is a company worth valuing half its book value or at P1.50.

Source:

  1. ATN Philippines Solar Energy to invest P5.68 B in 30-MW power project, http://www.philstar.com/business/721460/atn-phils-solar-energy-invest-p568-b-30-mw-power-project
  2. Awarded Solar Projects as of December 2012, http://www.doe.gov.ph/RE%20Regis&accred/Awarded%20Contracts/Solar/Solar.pdf
  3. Results of Board of Directors’ meeting: stock dividend declaration, stock rights offering, appointment of officer, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-8923_ATN.pdf
  4. Complaint filed with SEC re: Blue Stock Holdings Development, Inc. vs. ATN Holdings, Inc. et. Al for nullification, revocation and cancellation of increase in capital stock, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3309_ATN.pdf

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

Solid Group, Inc. (PSE: SGI)

The Company’s main source of revenue is its sale of mobile phone, broadcast/professional equipment & accessories, and prefabricated modular houses which contributed 76% of total revenues in 2011. Below is the breakdown of SGI’s sales account:

SGI1

The Company sells the mobile phone brand Myphone. Myphone is distributed by a wholly owned subsidiary Mytel Mobility Solutions, Inc. (Mytel) through 260 independent dealer networks. Effective The Company exhibited double digit growth since its venture in Myphone distribution on August 2007.

SGI2

An interesting development in the Company is the restructuring of its corporate structure to focus on real estate business and sale of mobile phones under the brand name Myphone. On May 11, 2012, SGI sold the assets of its wholly owned subsidiary Solid Broadband Corporation (SBC) for a consideration of P 1 billion cash to Skycable Corporation. [1]

The Company’s real estate investments include the Golden Hill Project, a property within the ASEAN Commercial Park in Nanning City, Guangxi Province, PRC. The Company, through Fil-Dragon, pre-sold the multi-storey residential and commercial condominium of Golden Hill Project. The Company received P29 million and P686.3 million in 2010 and 2011 respectively in the pre-sale.

Comments:

SGI’s attraction is from the following:

  1. Ability to take advantage of the Philippines’ strong domestic consumption
  2. Strong balance sheet.

SGI is well positioned to take advantage of the Philippines’ strong domestic consumption. Other than SGI’s MyPhone brand, SGI is capable of exploiting the low cost housing in the Philippines under the MyHouse brand. Similar to myPhone, myHouse is a product designed to appeal to the masses.

SGI’s MyHouse brand is a modular housing technology that can be set-up for as fast as 30 days. MyHouse has the following models:

SGI3

SGI has a very strong balance sheet. Other than the fact that SGI’s 12 billion assets in the 3rd quarter of 2012 is 25% cash, SGI has a debt to equity ratio of .39x which means that debt is only 39% of SGI’s capital. However, closer scrutiny of the quality of these debts will bring more insights to an investor.

SGI has these notable liabilities:

SGI4

The nature of SGI’s customer deposits are cash received from pre-selling their condominium project in Nanning City, Guangxi Province, PRC. The bulk of SGI’s deferred tax liabilities arise from the unrealized gain from investment properties. Deferred tax liabilities will only be paid if SGI will sell the investment properties and the customer deposit will be reclassified as revenues as the construction of the condominium project in China progresses.

These liabilities are called “float.” These are liabilities that have negligible chance that a third party will require SGI to pay on demand. That said, SGI’s “true” liability is only 1,508,308,604 or a debt to equity ratio of .16x which means that SGI has more capacity to raise debt without posing much threat in the company’s liquidity or ability to pay.

Valuation

I expect SGI to report an EPS of P0.62 but normalized earnings should only be at P0.27. I expect SGI’s MyHouse brand will be well accepted by the masses and MyPhone will continue to grow its sales in high double digit growth. Considering SGI’s position to take advantage to the Philippines’ strong domestic consumption, SGI’s position to take advantage of the low-cost housing through myHouse and SGI’s financial capacity to seize these opportunities, SGI’s value should be at 10x its normalized EPS or P2.70.

Catalysts:

  1. Strong sales of SGI’s MyPhone brand.
  2. Reception of SGI’s MyHouse brand might be positive.
  3. Possible entry of SGI in the real estate industry under the low-cost segment.

 

Risks:

SGI’s myHouse may not replicate the success of myPhone.

Sources:

  1. Additional information re: Agreement between Solid Broadband Corporation and Skycable Corporation http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3906_SGI.pdf
  2. SGI Sec filings

Other data:

SGI5

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

Profiling: Alcorn Gold Resources Corporation

Alcorn Gold Resources Corporation (PSE: APM) is a holding company which is primarily engaged in the exploration of oil and mineral resource. APM has the following service contracts:

APM1

Among APM’s SCs, SC 14 (B1) is producing and SC 51 is at the most advanced stage of exploration. SC 14 (B1) North Matinloc is producing in a cyclical manner where 16,107 barrels of oil were extracted in 2011. SC 51, an onshore oil exploration interest of the Company in Norhtern Leyte, is expected to initiate drilling this year with Otto Energy as the Operator.

APM has the following mining claims:

APM2

On December 12, 2012, the shareholders of the Company approved the resolutions of the Board of Directors to: [1]

  1. Increase the capital stock and change of par of the Company from  P3 billion with a par value of P.01 to P10 billion with a par value of P1.
  2. Change of name from APM to COSCO CAPITAL, INC.
  3. Spin-off of the oil and mineral assets to a wholly owned subsidiary.
  4. Confirm the subscription of the Lucio Co Group of 4,987,560,379 APM shares at P15 each through share for share swap of the following companies: [2]

APM3 APM4

Below is the basis of the P74,813,405,682 (4,987,560,379 shs x P15) subscription price: [3]

APM5

APM, to be renamed as Cosco Capital, Inc. upon approval by the Securities and Exchange Commission is intended to be the Lucio L. Co Group’s holding firm. Lucio L. Co Group cosnists of Lucio L. Co, Susan P. Co, Ferdinand Vincent P. Co, Pamela Justine P. Co, Camille Clarisse P. Co, Katrina Marie P. Co and Jose Paulino Santamarina. The Company expects the holding firm’s market capitalization to increase to P93 billion (or a per share market value of P15 [P93 billion/6 billion shares]) and the Company’s public float to fall to 6% from the current 30-35%.

Sources:

  1. Stockholders’ approval of increase in authorized capital stock, change in par value, subscription by Lucio L. Co Group, change in corporate name, reorganization and spin-off of oil and mineral assets and operations; appointment of officers, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8957_APM.pdf
  2. Additional Information re: subscription by Lucio L. Co Group, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-9279_APM.pdf
  3. Supplement to previous disclosure re: subscription by Lucio L. Co Group, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-9383_APM.pdf

Alliance Global Group, Inc. (PSE: AGI)

Business Profile

Alliance Global Group, Inc. (the Company, AGI) derives its revenues from three significant business segments, Food & Beverage, Real Estate, and Quick Service Restaurant.

Food & Beverage segment contributes revenue significantly through the Emperador Distillers, Inc. (EDI), a wholly owned subsidiary. EDI sells brandy, vodka, and tequila.  Brandy was sold under the labels Emperador and Generoso while vodka and tequila under the brand name The BaR. Emperador is the largest selling brandy in the Philippines and was recognized in 2006, 2006, and 2007 by Reader’s Digest as the Most Trusted Brand.

EDI has been the growth driver of AGI posting 17.35 billion or 106% and 2.31 billion or 38% revenue and net income growth respectively from 2010 to 2011. AGI is expecting EDI to contribute 4 billion net income in 2012.[1]

Real Estate segment revenue stream emanates from AGI’s 58% interest in Megaworld Corporation (MEG) and 50% interest in Travellers International Hotel Group, Inc. (Travellers).

MEG pioneered the idea of “live-work-play” development concept. MEG sold 10,451 residential units worth P37.1 billion in 2011 claiming the top spot in term of units, sales value, and total saleable area. As of June 30, 2012, MEG contributed 30% and 42% to AGI’s revenue and net income respectively.[3] MEG expects to earn P7 billion in 2012 which is an increase of 15% from 2011’s P6.1 billion core income.

Travellers has a provisional license issued by the PAGCOR to participate in the Bagong Nayong Pilipino Entertainment City Project. In partnership with Malaysia-based Genting Group, Travellers jointly developed the Resorts World Manila (RWM) which is a leisure and entertainment complex comprising of gaming facilities, restaurants, hotels, and shopping outlets.

RWM recognized P26.3 billion revenue in 2011 from P14.9 billion in 2010 or an increase of 76% year-on-year. The increase in revenue translated to 50% leap in net income or an increase to P4.8 billion net income in 2011 to P3.2 billion in 2010.

Quick Service Restaurant segment is the Company’s 49% interest in Golden Arches Development Corporation (GADC). GADC is engaged in operations and franchising or the McDonald’s brand. Currently there are 329 restaurants nationwide with 185 stores company-owned.


Comments:

AGI’s management is admirable on how they maintain shareholder value. They managed to exhibit high digit net income growth and pays dividend that yields above 2% since 2011.

In the first half of 2012, the Company managed to report an increase of 33% in net income. The increase was not only attributable to the inclusion of Travellers International Hotel Group, Inc. in the presentation of their financial statements but also due to the favorable performance of Emperador Distillers, Inc. and Megaworld Corporation.

On October 5, 2012, the Company converted MEG warrants with an exercise price of P1 for 3.07 billion.[4] This transaction can generate a one-time gain of approximately P4.3 billion assuming MEG remains at above P2.40 since the warrants that are converted were issued to AGI at no cost in 2009.

Sources:

  1. Clarification of news article: “AGI Sees P10-B Core Earnings,” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6787_AGI.pdf
  2. Clarrification of news article: “AGI Sees P10-B Core Earnings,” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6783_MEG.pdf
  3. Press Release: “AGI Reports Earnings of P8.41 B in 1H 2012 Up 33 percent,” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6164_AGI.pdf
  4. Exercise of MEG warrants by AGI and New Town Land Partners, Inc., http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-7256_AGI.pdf

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

Solid Group, Inc. (PSE: SGI)

Solid Group, Inc. (PSE: SGI)

The Solid Group, Inc. (Company, SGI) is primarily engaged in sale of mobile phonesprefabricated modular house & offices, and real estate. Below are the Company’s subsidiaries:

The Company’s main source of revenue is its sale of mobile phone, broadcast/professional equipment & accessories, and prefabricated modular houses which composed the 76% of the total revenue of 2011. Sale of mobile phone through its subsidiary, My Solid, contributed the most in the Company’s revenue growth. Mobile phone units sold in 2011 jumped to 2 million units from 739,721 units in 2010 or a revenue growth of 94% from P1.4 million in 2010 to P2.9 million in 2011.

The Company sells the mobile phone brand Myphone. Myphone is distributed by a wholly owned subsidiary Mytel Mobility Solutions, Inc. (Mytel) through 260 independent dealer networks. Effective June 1, 2012, My Solid and Mytel will be merged with the former as the surviving entity.

An interesting development in the Company is the restructuring of its corporate structure to focus on real estate business and sale of mobile phones under the brand name Myphone. Except for 2010, the company exhibited double digit growth since its venture in Myphone distribution on 2007.

The Company’s real estate investments include the Golden Hill Project, a property within the ASEAN Commercial Park in Nanning City, Guangxi Province, PRC. The Company, through Fil-Dragon, pre-sold the multi-storey residential and commercial condominium of Golden Hill Project. The Company received P29 million and P686.3 million in 2010 and 2011 respectively in the pre-sale.

The Company, through ZTC, started the construction of Tri Towers condominium building in 2007. The location map of the project is seen below:

Tower 1 was fully completed in 2009 and construction for Tower 2 was started in 2011. The construction of Tower 3 has not yet started.

The Company estimates to spend P650 million capital expenditures for 2012 for real estate and broadband infrastructure. This expenditure shall be lessened as the Company sold the assets of its wholly owned subsidiary Solid Broadband Corporation (SBC) for a consideration of P 1 billion cash on May 11, 2012. The assets are sold to Skycable Corporation. [1] I estimated the company to recognize a gain of 300 million in this transaction since net assets of SBC are recorded in the books of the Company at P667 million as of 2011.

The Company has the following risks on its assets:
1.   Risk of expropriation under the Agrarian Reform Act of its properties in Pililla, Rizal and Pamaldan, Cabanatuan City with a carrying amount of P3.3 and P7.9 million respectively.
2.   A land with a carrying amount of 309 million is subject to claims by third parties.

In 2005, ZTC received notification from Urban Roads Project Office (URPO) of the Department of Public Works and Hughways (DPWH) that the location of the Tri Towers condominium might be affected by the plans of the National Government of the Philippines for the construction of the proposed 2nd Ayala Bridge. However, the URPO stated that it has not yet undertaken the detailed engineering design that will ascertain if the location of the ZTC’s property will be affected by the road’s right-of-way.

Other data:

Sources:

1.   Additional information re: Agreement between Solid Broadband Corporation and Skycable Corporation http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3906_SGI.pdf

PD. No SGI shares