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Sunday, December 16, 2012

EEI Corporation

Company Profile

EEI Corporation (PSE:EEI) was incorporated on April 17, 1931 as a machinery and mills supply house for the mining industry. The Company eventually expanded into provisioning construction services and a broader range of industrial machinery and systems. EEI is a member of the Yuchengco Group of Companies, a conglomerate with interests in banking, financial services and property development.

EEI has been involved in the installation, construction and erection of power generating and transmission facilities, oil refineries, chemical production plants, cement plants, food and beverage manufacturing facilities, semiconductor assembly plants, road, rail and bridge infrastructures, and high rise landmarks. It also operates a steel fabrication plant.

Income and Operations

As of the end of third quarter 2012, EEI Corporation's consolidated net income registered at P728.37 million, up 25% compared to P581.53 million earned during the same period in 2011. Consolidated revenues were at P10.14 billion, 63% higher than P6.24 billion posted in the previous year.    

Stocks Valuation

EEI currently trades at 11.6x PE. Its stock price have seen an upsurge from P3.44 in the end of 2011 to P10 as of Dec. 14, 2012. That is 190.70% increase in just almost a year!   

What's to Like?

As of 3Q2012, EEI holds the contracts for large construction and development projects, including: Uptown Mall and BPO offices for Megaworld Corporation in Taguig; The Third Atrium Headquarters expansion for the Asian Development Bank in Mandaluyong City; The Green Residences of SM Development Corporation in Manila; The Asphalt Plant Facility for Petron Corporation; RCBC Savings Bank and Corporate Center in The Fort; JG Summit Naptha Cracker Plant for Daelim Philippines Inc.; and Maibarara Geothermal Power Plant for Petroenergy Resources Corporation to name some.    

EEI has prided itself in providing quality service and has built a good reputation in its 81 years in operations. They cater a very broad range of customers that make good profits on their own, so that the risk of default on collections would be very minimal. Not relying on a single large customer makes EEI so stable to invest on. It also has a global reach, owning 49% of Al Rushaid Construction Company Ltd. in Saudi Arabia and 100% of EEI Corporation (Singapore) Pte Ltd.      

Why get Cautious? 

While its revenues and net income continue to grow, its profit margin has actually declined from 11.57% to 9.5%. The decrease can be attributed to higher construction contracts. This is not necessarily a bad thing. It simply means that EEI has to bid a little higher than previous years for the contracts they want to have. Competition plays a major factor on this, with its possible emerging rival being Megawide Corporation (PSE:MWIDE). As long as they can operate near a 10% margin then it will not be a major concern.

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Domestic construction is strong as seen in demand for high-rise buildings, electromechanical and industrial work. The government's public-private partnership projects are anticipated to boost the growth of construction industries in general, and EEI is well-positioned to take advantage of the favorable outlook. The demand for the stock is still high as it continues to post new highs and there may not be any major pullbacks in the stock price to consider as an entry point. Buying below P10 and investing until construction developments in the Philippines have substantially declined will be a very good strategy. 

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The information provided in our review may not be as relevant today given the time gaps and change in varying economic conditions. While we strive to account every business possibilities that may affect a company's profitability, this is not a recommendation to buy or sell these particular stocks. We cannot be held liable for any investment decisions made in consequence to our articles.