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.

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.

Petron Corporation (PCOR)

Company Profile

Petron Corporation (PSE:PCOR) was incorporated in 1966 as Esso Philippines, Inc. and later renamed to Petrophil Corporation when the Philippine National Oil Company (PNOC) acquired Esso. In 1994, PNOC sold 40% of its shares in PCOR to Aramco Overseas Company B.V. (AOC), a wholly owned subsidiary of Saudi Arabian Oil Company (Saudi Aramco).

PCOR's principal business involves the refining of crude oil and the marketing and distribution of refined petroleum products, mainly for the domestic market. The Company sells a full range of refined petroleum products, including industrial fuel oil, diesel, gasoline, liquefied petroleum gas (LPG), jet fuel, kerosene, asphalt, solvent and mixed xylene and propylene. Straight-run fuel oil, diesel, and mixed xylene and propylene are exported while lubricating oils and greases are manufactured at PCOR's Lube Oil Blending Plant at the Pandacan Terminal. From the refinery, PCOR moves its products mainly by sea to its 31 depots and terminals situated all over the country. Through this nationwide network, PCOR supplies fuel oil, diesel, LPG and jet fuel to various industrial customers, power companies and international and domestic carriers.

As of end of December 2011, Petron's major shareholders comprised of Sea Refinery Corporaion, Petron Corporation Employees' Retirement Plan (PCERP), and San Miguel Corporation.

At present, PCOR has seven subsidiaries, namely, New Ventures Realty Corporation, Petrogen Insurance Corporation, Overseas Insurance Corporation, Ltd., Petron Foundation, Inc., Petron Freeport Corporation, Petron Marketing Corporation, and Petron Singapore Trading Pte. Ltd.

Income and Operations


After posting a P2.1 billion loss in the 2nd quarter of 2012 for its consolidated operations, the company managed a turnaround in the 3rd quarter recording a modest P500 million net income. For the first three quarters of 2012, Petron realized a consolidated net income of P932 million even while the company
continued to experience depressed margins because of volatility in global oil markets in the 2nd and 3rd quarters of 2012.  The Malaysian operation contributed P155 million in consolidated net income.

Looking at Petron Corporation's Revenue-Net Income chart, its revenue from the 2nd quarter of 2012 is slightly higher than 3Q, but it reported a net loss of P2.057 billion, mainly because of lower gross profit.

Why did PCOR report a net loss for the 2Q of 2012? Its 2.16% gross margin is too low to cover administrative expenses. Another factor is the high interest expense and financing charges. PCOR recorded P5.124 billion for the full year 2011, but as of 2012, its IEFC has already reached P5.76 billion. The higher finance charges were attributed to losses from commodity hedging transactions. It is common practice for volatile commodities such as oil to hedge its prices as protection from price movements and market conditions. It is a double-edged sword though, as the financial situation may move in an entirely different position than what you hedged it for.


Stocks Valuation

PCOR has been moving sideways for most of 2012. It currently trades at a very high 123x PE, but seems to have found a strong support at P10.20-P10.40.

What's to Like?

Petron Corporation is still one of the leading oil companies in the country today. The reputation and the network they built can't easily be outdone and temporary setbacks will not bring this company down. Its somewhat disappointing results may prove to be a good entry point if you're patient enough to wait.

Why Get Cautious?

The drastic decline in gross profit brings into question the management ability of the company. Granted most of it can be pinned to their petroleum products' higher average cost per barrel, but they can easily pass the charges to their customers as the oil prices are still deregulated. I also view their losing hedging positions as uncalculated risk given that it has continually dipped for the past few years.

Buffett Recommends...

How much trust are you willing to put on its management, particularly San Miguel Corporation, its largest stockholder, that they can turn this situation around? That should be the main question you should ask if you are considering investing or is currently invested in Petron Corporation. If you are not confident that the current management is doing their best to run this company, then no amount of profit can satisfy you no matter how patient you get.

Energy Development Corporation

Company Profile

Energy Development Corporation (PSE:EDC) was incorporated and registered with the Securities and Exchange Commission (SEC) on March 5, 1976 to primarily engage in the business of exploring, developing and operating geothermal energy projects in the Philippines. It began commercial operations with the commissioning of its first steamfield in 1983, and expanded to provide geothermal drilling and consultancy services. EDC became a subsidiary of Red Vulcan Holdings Corporation on November 29, 2007. 

EDC operates 12 geothermal steamfields in five geothermal service contract areas where it is principally involved in the production of geothermal steam for sale to the National Power Corporation (NPC), privately-owned distribution utilities, large industrial customers, pursuant to power purchase agreements and power supply agreements. EDC also has drilling activities in Papua New Guinea. The Company is also into hydro power generation through its 60% equity interest in FG Hydro which operates the Pantabangan and Masiway Hydroelectric Power Plants in Nueva Ecija. The Company likewise provides drilling services to the Lihir Gold Limited in Papua New Guinea.

In September 2011, the SEC approved the incorporation of Bac-man Energy Development Corporation and Kayabon Geothermal, Inc. as wholly-owned subsidiaries of EDC Geothermal Corporation, to carry on the general business of generating, transmitting, and/or distributing energy derived from any and all forms, types and kinds of energy sources for lighting and power purposes and whole-selling the electric power to power corporations, public electric utilities and electric cooperatives.

Income and Operations

EDC's sales volume are primarily derived from Leyte, Mindanao, Tongonan I, and Palinpinon geothermal power plants and Pantabangan-Masiway hydro power plants. Their main customers are the National Power Corporation, electric cooperatives and industrial customers in the Visayas region and the Wholesale Electricity Spot Market. The electricity generated by the Company’s geothermal power plants is transmitted to customers i.e., distribution utilities, electric cooperatives or bulk power customers by the NGCP through its high voltage backbone system.


On May 5, 2010, BGI, the Company’s wholly-owned subsidiary through EDC Geothermal Corporation, submitted the winning bid of US$28.25 million for PSALM’s auction of the 150 MW Bac-Man Geothermal Power Plants located in the towns of Bacon, Sorsogon Province and Manito, Albay Province. The power plants were turned over to BGI in September 2010, and are currently under rehabilitation to restore capacity and reliability.

Stocks Valuation

EDC currently trades at 16.6x PE. The stock has had unsteady price movements, which primarily depended on news on its Bacman plant rehabilitation.

What's to Like?

For awhile it looked as if EDC was solely dependent on its Bacman plant to drive future sales growth. A closer look on their financials gives us other projects that can potentially make up for the delay in rehabilitation of Bacma plant. The Nasulo steam field has an available capacity of 20MW and is expected to be operational by 2Q14. The there is also the 86MW Burgos Wind project located in Norther Luzon.

Why Get Cautious?

Delays in the rehabilitation of Bacman power plant raises questions on the ability of management's commitment to address the issue. Barring further delays, the plant is now expected to be fully operational by 2Q13, one quarter later than the original target.

Update: In January, 2013, EDC resumed commercial operations in Bacman unit 1 and 2. By the end of February, the two units had to be shut down again after a turbine blade was sheared of at the second unit, prompting EDC to take precautionary measures. At April 5, EDC disclosed that Unit 1 of Bacman power plant is up and running at 55-megawatt capacity. The company did not mention when the unit 2 operations will resume.    

Buffett Recommends...

EDC is a pure play on renewable energy since all of its power plants are renewable energy plants, making the company a major beneficiary of rising coal and oil prices. It does not offer a huge upside if Bacman plant encounters further delays. It would be more prudent to wait awhile until stock prices have substantially decreased or Bacman becomes fully operational before committing to invest long term.

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.

Buffett Recommends...

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.