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Saturday, February 23, 2013

Phoenix Petroleum Philippines, Inc. (PNX)

Company Profile:

PNX is engaged in the business of trading refined petroleum products, lubricants and other chemical products on a wholesale basis, operation of oil depots and storage facilities, and allied services mainly in Southern Philippines. Its products and services are distributed and marketed under the PHOENIX Fuels LifeTM trademark.

Phoenix Petroleum Philippines, Inc. (PNX) was originally incorporated on May 8, 2002 as Davao Oil Terminal Services Corporation and was registered with the Board of Investments in 2005 as a New Industry Participant with new investment in storage, marketing and distribution of petroleum products pursuant to the Downstream Oil Industry Deregulation Act of 1998.

The Company's operations are divided between trading, and terminaling and hauling services. Under trading, PNX offers its refined petroleum products and lubricants to retailers and commercial/industrial customers. The Company's terminaling and hauling services involve leasing of storage space in its terminal depot, and hauling and into-plane services, such as hauling of Jet A1 fuels to airports and refueling of aircraft, in Davao, Cagayan de Oro, General Santos City, Cotabato City, Ozamis City and Zamboanga City. Starting 2008, Cebu Pacific designated PNX as its exclusive logistics partner in these locations.

At present, PNX has five subsidiaries, namely, P-h-o-e-n-i-x Global Mercantile, Inc PFL Petroleum Management Inc., Phoenix Petroleum Industrial Park Corporation., Subic Petroleum Trading and Transport Phils., Inc., and PHOENIX Philippines Foundation, Inc.,

Income and Operations

PNX is the fourth largest importer among oil companies after Shell, Chevron and Petron. It has continuously expanded its network from 220 stations by the end of 2010 to 300 stations at the close of 2012. The Company increased its market share from 5.5% in 2011 to around 6% in 2012, excluding the LPG
and Export sectors.

Stocks Valuation

PNX recently enjoyed a modest surge in price after it announced issuance of cash and stock dividend. it currently trades around P10.50-P11.50 at 12xx PE.

Update: On March 11, 2013, PNX entered into a placing agreement to sell P130 million shares at P9.40 per share. The proceeds shall be used to pay debt obligations from expansion projects. A P.10 cash dividend were also declared payable on May 8, 2013.

What's to Like?

PNX is a rising oil player that relies more on higher volume than expensive pricing. Their operations are heavily focused in Mindanao areas, as evidenced by the 191 stations in said area. It has also invested on oil tank vessels which should help lower its future expenses.

Why Get Cautious?

PNX heavily relies on bank loans to finance capital expenditure. Simple accounting tells us that a long term obligation has corresponding interest that could gradually reduce earnings. Also, PNX takes substantial risk from volatile fuel prices and global conditions.

Buffett Recommends...

Investing in Phoenix Petroleum means you are comfortable with the changing oil prices, whichever direction it may go. The increase in market share is a good indicator of how much volume it will record for the upcoming years, and getting paid stock and cash dividends can be a good entry point to start investing.

Saturday, February 16, 2013

The Semirara Mining Accident

The west wall of Semirara Mining Corp.'s Panian pit collapsed last Feb. 13. As of 5 pm of Feb. 14, 5 miners are already confirmed dead, 5 still missing and 3 rescued alive. The authorities are still investigating the cause of the incident, but incessant rains is one of the possible reasons being looked at.

Semirara (PSE:SCC) is the biggest and only large-scale coal producer in the Philippines and is owned by the Consunji group, which has stakes in construction (via DMCI Holdings), utilities (Maynilad Water), toll roads, real estate, and power, among others.

This is the third mining related-accident reported in the last six months.

Last August, one of the tailings pond of Philex Mining Corporation's Padcal mine in Benguet province broke, spilling waste into the nearby Balog creek, which flows into the Agno River and the San Roque dam. Philex blamed incessant rains for the accident. Three months later, silt spilled from the Toronto mine of Citinickel Mines and Development Corp. in Narra, Palawan. The waste flowed into a river and irrigation canals affecting farms and a fish pond.

The Mines and Geosciences Bureau fined Philex and Citinickel for the mine spills, claiming both were negligent in their operations. The two companies were asked to clean up and rehabilitate affected waterways.

Citinickel is a subsidiary of Oriental Peninsula Resources Group Inc.

Philex, Citinickel's parent company Oriental Peninsula, Semirara are publicly traded companies.

Immediate Effect

Semirara’s stock price plunged two days after the news of the mine accident went public. From its close of P257.8 last Feb 13, it has gone down by 10.24% or P26.40 per share to close at P231.40 Friday. DMCI Holdings which has stakes in Semirara also suffered, decreasing by 4.39%.

What to Do?

The answers to following questions will be the key on knowing what moves to make:
1. How much will it affect the earnings prospect of the company?
2. For how long will it take to rehabilitate and eventually start operations?

There is an opportunity to take advantage and buy cheap because of the negative news, but expect the stock to be very volatile especially when investigations are still ongoing.

Patience will be the key to making the right decision. In Philex Mining's case, the stock was trading at around P24-25 per share before the Padcal leak incident. It dipped to P20 after the news came out, but still managed to rise to P23 about two weeks after. When it became clear the PX will be facing a serious fine and it would take until 2Q13 to complete the rehabilitation and for Padcal to be fully operational, the stock dipped to P14 per share in October. Then the government imposed a P1 billion fine and PX shares bottomed at P12.52 early December. That was the point when the stock was just too cheap to ignore. As of Friday, PX stocks closed at P18.50 per share.

It has not fully recovered, but Philex had gained ground by showing it is resilient to adversity. They took responsibility from the implications of the incident. No one can really say what will happen to Semirara, but it is imperative that the management show decisive measures in handling the incident.

Sunday, February 3, 2013

Alliance Select Foods International, Inc. (FOOD)

Company Profile:

Alliance Select Foods International, Inc. (FOOD), formerly Alliance Tuna International, Inc. started commercial operations in 2004 to engage in manufacturing, canning, importing, and exporting of food products such as marine, aquaculture and other processed seafoods. FOOD exports to Europe, North America, Asia, Africa and South America, and is a "private label manufacturer" of canned tuna and processes and tuna cans using its customers' brands.

The primary product of the Company is canned tuna in the institutional and retail can sizes. To enhance margins, FOOD also processes the by-products and scraps from its tuna processing operations into fishmeal and sells these to the domestic and export markets. The Company has a marketing representative office in Bangkok, Thailand to tap the network of buyers and brokers who use Thailand as a base to buy canned tuna.

In 2008, the Company established a subsidiary, PT International Alliance Foods Indonesia, which acquired the assets of an Indonesian tuna cannery located in Bitung, in the island of North Sulawesi. FOOD has significant investments in similar-typed businesses in New Zealand and US.  

Income and Operations

FOOD currently has ownership interests in below companies:

from FOOD's Sept quarterly report

PTIAFI is primarily engaged in canned fish processing exclusively for international market.

PFNZ is engaged in the business of processing, manufacturing and distributing smoked salmon and other seafoods under the Prime Smoke and Studholme brand.

BGB is primarily engaged in manufacturing salmon and other seafoods with plant operations in General Santos City.

AMHI is a special purpose entity with primary function as a property holding company. It allows the members of the group the use of its properties under lease agreements.

ASFIC does not have any revenues or expenses as its sole purpose is solely to acquire investments.

SPENCE specializes in the production of smoked salmon and other seafoods with plant operations in the US.

FOOD enjoyed a 79% increase in revenues primarily due to contributions from recently acquired Spence.  Last June 2011, it declared a stocks right offer to fund its investments acquisitions.

Stocks Valuation

FOOD currently trades at 19x PE and recently enjoyed a steady rise. Consumer companies are valued higher in anticipation for the increse in consumption in the coming elections.

What's to Like?

FOOD is aggressively acquiring similar-typed companies that can help boost its profits and sustain their growth. The addition of product lines from tuna products to include salmon and other seafood addresses the changing food consumption patterns.

Their revenue sources is heavily concentrated on Europe, but takes advantage of lower production costs by keeping their operations in cost-effective locations. They have also managed to sustain their gross profit at around 12-14%.

Why Get Cautious?

Their operations is heavily affected by global economy. The problems in Europe has somewhat subsided a little but is still something to watch out for. Their financial results can also be inadvertently affected by the strong peso, as the revenues they earn are usually denominated in foreign currencies.

Buffett Recommends...

Alliance Select Foods International, Inc. gives investors a chance to invest outside the Philippines. Their operations does not so much rely on financial conditions inside the country, but on global conditions as a whole. The situation in Europe may even benefit FOOD if it turns for the worse as consumers will tend to spend on cheaper priced commodities such as processed canned foods. It is up to FOOD on how they react and take advantage of the circumstances ahead.

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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.