Is ROX worthy to squeeze more percentage gains?

ROX was profiled here. Today, ROX disclosed the following:

Press Release: “RCI sells 31% share in RHI to First Pacific”

First Pacific Company, Ltd. bought 31% of ROX for P8 per share. According to the SEC Regulation Code, Chapter VI, Protection of Shareholder Interests, Section 19.1:

“ Any person or group of persons acting in concert who intends to acquire at least fifteen per cent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty per cent (30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders

Theoretically, First Pacific Company, Ltd. is required to make a tender offer to stockholders at P8. I say theoretically because I may miss out a provision or law that may circumvent the SEC regulation code.

At ROX’s last traded price of P6.81, shareholders are bound to profit 17% should there be a tender offer.

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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Stock thoughts: PXP, ROX

PXP

PXP disclosed the sale of PERC shares to RCBC:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-1723_PXP.pdf

PERC shares are sold to RCBC clients on a slight discount to market. If “clients” view PERC as short term, then we can expect profit taking should the power plant go to commercial operations in August.

 

ROX

A strategic investor may buy 20% of ROX:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-1724_ROX.pdf

The funds to be raised will be used for plant modernization.

ROX’s strategy is good for shareholders:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-1693_ROX.pdf

Investing toward efficiency rather than on expansion would increase ROX’s profit margins allowing their products to be price competitive against imports.

Unemployment, Energy Sector, Ethanol Plant, Stock Thoughts: MER

Unemployment

Social Weather Stations (SWS) estimates unemployment rate at 24.6% .

I don’t get it. If that would be the unemployment rate then should we be at a recession?

National Statistical Coordination Board (NSCB) estimates unemployment rate this January at 7.2%.

http://www.nscb.gov.ph/secstat/d_labor.asp

I prefer to rely on NSCB data.

I am open for any alternative thoughts.

 

Energy Sector

Few take the energy security seriously. In the coming years, assuming the Philippine economy continues to grow; there will be an electricity shortage.

 

How will an individual investor play this opportunity? Invest long-term on stocks that are into electricity trading and electricity generation.

My opinion only.

Ethanol Plant

Gokongwei plans more power and ethanol projects in Negros:

http://business.inquirer.net/108007/gokongwei-plans-more-power-ethanol-projects-in-negros

Gokongwei is planning to do what ROX is already doing. Lol

More on ROX:

https://fundamentalenthusiast.wordpress.com/2013/02/03/roxas-holdings-inc-pse-rox/

MER

MER is seeking for more power?

http://business.inquirer.net/108021/meralco-turns-to-psalm-for-additional-power

Increase in electricity volume sold by MER means an increase in the revenue of MER.

More on MER:

https://fundamentalenthusiast.wordpress.com/2012/11/10/manila-electric-company-pse-mer/

On the Money, Stock Thoughts: BSC, ROX, VMC

On the Money

Last Jan 23, I posted that on the money has an insightful guest. It’s now available here:

http://www.youtube.com/watch?v=cjV3I2YuiAs

BSC

BSC on the rise on this disclosure:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-1425_BSC.pdf

More on BSC here:

https://fundamentalenthusiast.wordpress.com/2013/02/12/basic-energy-corporation-pse-bsc/

 

ROX

Pedro E. Roxas bought 22,000 shares of ROX  last Feb 8:

http://www.pse.com.ph/resource/corpt/2013/ROX_23B_02122013.pdf

I would not be surprised if he was the one who bought plenty of shares yesterday.

 

VMC

VMC’s stock price is steadily declining despite plans for diversification:

http://business.inquirer.net/107003/victorias-milling-plans-diversification

Old shareholders kept on selling?

If that is the case, there is nothing to worry and I will not sell any of my clients’ shares in VMC but I will also not add.

Treat Everything as Case Study, Stock Thoughts: ROX

Treat Everything as Case Study

This blog is not a place where you can find advisories. Never will you read me saying “BUY” or “SELL” a certain stock. Treat the posts here as case studies. Understand the reason why I buy or sell a stock and try it out on a different stock or on a company that you are interested in. Please do not hesitate to share your own ideas. I and the rest of the readers here would be glad to read about it.

This blog is for YOU reader. It is for YOU to learn. It is for YOU to EMPOWER yourself and take control of your investments.

ROX

An interesting stock that is trading at below book and at a PE ratio below 6x. The market gave ROX such valuation due to the obvious reason that ROX is in the sugar industry. However, the market failed to see the entry of ROX and VMC to the energy industry through their cogeneration plants that can take advantage of feed-in tariff rate of 6.63/kWh. Worth noting is that ROX and VMC’s entry to the energy industry will not require huge capital expenditures and years to construct. ROX and VMC’s cogen plants might be able to go online within this year. Also, ROX’s new management seems to be overlooked by the market.

More info here:

https://fundamentalenthusiast.wordpress.com/2013/02/03/roxas-holdings-inc-pse-rox/

Roxas Holdings, Inc. (PSE: ROX)

Roxas Holdings, Inc. (ROX, the “Company”) has the following significant subsidiaries and associate:

ROX1

The Company is engaged in sugar milling and sugar refining business through its wholly owned subsidiary, CADP, CACI and its associate HPCo. The Company claims that their premium refined sugar is preferred by big industrial users including food and beverage and pharmaceutical companies which some customers have been in business with the Company for more than 15 years and some since the inception of the Company.

CADPI, located in Batangas, provides the refined sugar requirements of traders and industrial customers in Luzon while CACI and HPCo are based in Negros Occidental where there is substantial sugar activity and near the port of export supplies the raw sugar requirement of traders who deal with local and export consumers. In 2010, the Company expanded the sugar milling capacity of CADPI from 11,000 tons cane day (TCD) to 18,000 TCD and CACI from 11,000 TCD to 13,000 TCD.

The Company in an attempt to diversify its revenues and in response to the Biofuels Act of 2006 began construction of a bioethanol plant through RBC in 2008 which was completed in June 2010 and began its commercial operation in October 2010. RBC produces ethanol from molasses and has a capacity of 100,000 liters per day. RBC is capable of producing potable and industrial alcohol but currently only sells industrial alcohol or bioethanol fuel to domestic markets through direct selling to oil companies.

Other subsidiaries of ROX are the following:

ROX2

Comments:

The market fears that the sugar industry will not be as profitable as before if sugar tariffs will be reduced from 38% to 5% in 2015. Below is the gradual reduction of tariff rates according to EO 892[1]:

ROX3

The purpose of tariff rates is to make imported sugar much more expensive than the local sugar.

ROX4

High tariff rate in the sugar industry served as a barrier for entry for cheap imported sugar and allows the prices of local sugar to tread higher than the world sugar prices. We can then expect that as this barrier for entry diminishes in 2015, local sugar prices will trace world prices.

ROX’s plan to prepare for 2015 is to expand its sugar milling operations and diversify its revenue source through the construction of a bioethanol plant. The Company secured P6.1 billion loan to finance the plan. This plan of the Company became the past Management’s greatest mistake. Supply of sugar cane was not considered in the expansion causing the sugar mills to operate at less than its full capacity. The cost of producing biofuel was also not considered in the construction of bioethanol making the bioethanol operations a drag to the profit of ROX.

For the fiscal year 2011-2012, ROX placed a new CEO, Mr. Renato C. Valencia. Immediately, the new Management mandated to reduce overhead expenses to at least 10% to 20%. Salary of all officers and directors were reduced from 32 million to only 22 million. RBC was made sure to be fully operational in order not to drag the Company’s profits.

In a press release, Mr. Valencia’s comments hints what ROX’s business strategy will be,[4] “On the other hand, sugar is a commodity, characterized by high volumes, low and volatile prices and thin margins. Thus, only sugar businesses with the volumes, low-cost operations, broad and competitive product portfolio, and innovative management will survive and flourish.” (Emphasis added)

As a result of Management’s actions, ROX displayed the highest gross margin in the last five years and also the best profit figure in ROX’s history:

ROX5

ROX has also filed its application to operate a cogen power plant with a potential capacity of 25.52 MW for CADPI, 10 MW for CACI, 4 MW for RBC, and 6.5 MW for HPCo. ROX’s cogen power plant can take advantage of the feed-in tariff under the renewable energy act as biomass energy. Biomass energy has a minimum feed-in tariff of P6.63/kWh [6].

A capable CEO at the helm, increasing margin, impending shortage of bioethanol, and entry to energy production will allow ROX to realize its value of P5.60.

Other data:

ROX6

Sources:

  1. Executive order 892, http://www.tariffcommission.gov.ph/eo_892.htm
  2. World sugar prices, http://www.indexmundi.com/commodities/?commodity=sugar
  3. Local sugar prices, http://www.sra.gov.ph/wp-content/uploads/downloads/2012/12/MILLSITE-PRICES-RAW-SUGAR-AND-MOLASSES0001.pdf
  4. Press Release: “Roxas Holdings 8-mo. Income: P668M”, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5018_ROX.pdf
  5. Awarded Biomass Projects as of December 2012, http://www.doe.gov.ph/RE%20Regis&accred/Awarded%20Contracts/Biomass/Biomass.pdf
  6. Resolution No. 10. Series of 2012, Resolution Approving Feed-In-Tariff Rates, www.erc.gov.ph

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