Sector Outlook: Property

We take a look at the financial data for five of the most popular listed Property stocks in PSE - DoubleDragon Properties (DD), Ayala Land, Inc (ALI), Megaworld Corporation (MEG), Vista Land & Lifescapes (VLL) and Century Properties Group (CPG).

Balance Sheet

As expected, ALI holds the largest assets for this group, as it is almost twice as big as its next competition, MEG. What was really glaring here is how small the other companies are.

Income Statement

Shariah Compliant Securities: Encouraging Muslim Investors

The Philippine Stocks Exchange has recently released a guideline for its Shariah stock market program. This aims to encourage Muslim Filipinos in the country, and also an estimated 1 trillion USD of global Islamic funds to invest in Philippine stocks. Shariah is the moral code of Islam which covers the rules, teachings and values adhered to by Muslims. The release of Shariah-compliant securities make it easier for Muslim investors to invest in the country, while also adhering to the teachings from their religion.

As of the initial list issued by PSE, there are 47 publicly-listed companies were considered Shariah-compliant based on these established criteria:

The Philippine Stocks Market 2013: A Year in Review

As December 30 and 31 are declared national holidays here in the Philippines, our last trading day for 2013 has ended by the close of the bell last December 27. How did our stocks index fare as compared to last year? Let us look at the comparative numbers below:

As you can see, The Philippine stocks' main index grew by a modest 1.33% from last year. After breaching an intraday record high of 7,403.65 last May 15, 2013 PSEi has since experienced an up and down ride, primarily attributed to tapering talks from the US Fed. It even reached an intraday bottom of 5,562.13 last August 28 with many stocks analysts signalling the start of the bearish cycle. In the end, the local bourse only managed to squeeze-in a 77.10 increase from prior year's close. PSEi increased by 32.95% last 2012.

A Look at Initial Public Offers in 2013

The Philippine Stocks Exchange expects a total of nine public listings for this year.

Philippine Business Bank (PBB)
Sector - Financials (Bank)
Initial offer price - P31.50 (Feb. 19)
All time high - P38.85 (Mar. 5)
All time low - P21.85 (Aug. 28)

PBB is a savings bank which focuses on corporate and small and medium enterprise markets. It provides close to a full range of banking services and products including cash management, retail and corporate lending, deposit products, international trade finance, treasury and trust products. Trade price now ranges from P24 to P24.60.

Now Is the Best Time to Use Your Emergency Funds

Most investment professionals would advice potential clients and investors to first set aside at least six months' worth of living expenses as an emergency fund before staking their hard-earned money to the uncertainties from investing. In every investment there is accompanied risk, and the emergency fund allow for us investors to still sleep soundly at night even if all our investments are not performing as planned.

credit to moneycrashers.com

Emergency fund really helps because it gives us some breathing room in case there are unfortunate circumstances that may come upon us. Even if we lose our major source of income, knowing we have set aside some money which we can readily pull off helps us to get back on track without significantly changing our way of living.

Is the Bull Run Over for Philippine Stocks?

Facts:

The Philippine stocks index fell by 15.69% since reaching an intraday high of 7,403.65 last May 15, 2013.

Last Thurday's trade marked the single biggest drop in PSEi since the global financial crisis in October 2008 when it fell by 6.75%.

The Philippine index recorded its highest return for the year when it closed at 7,392.20 last May 15, 27.17% higher from its year-end close. The market has since declined by 15.56% as of June 14 close.

The yearly gain for PSEi as of Friday is at 7.39%.

Bull Market exists when there is a presence of "optimism, investor confidence, and expectations that strong results will continue."

Bear Market is a condition wherein "prices of securities are falling and widespread pessimism causes the negative sentiment to be self-sustaining". The standard measure uses 20% of advance or decline rally.

Although the current sentiment is negative, we have not yet met 20% decline to warrant that we are already in a bear market. PSEi will enter into a bull market once it crosses below 5,913.76, a 20% decline from its record close.

What Fueled the Decline?

The Philippines posted an impressive economic growth of 7.8% for the first quarter of 2013. In general, the listed companies in the index has sustained their growth. The common question for every investors mind: What went wrong?

If we have to nitpick, the mining sector continues to disappoint, perhaps adding to the burden of government rules on obtaining permits and the incoming rainy season traditionally decreasing production outputs. Most analysts agree that what drove the Philippine stocks to plummet were more on the external factors. Foreign Portfolio Investments, or sometimes called "Hot Money" due to the ease in which investors can pull out their investments, have left the country and most likely went to US amid signs that their economy is on the mend.
Without these investments to boost the stocks prices, there would be massive selloffs as we have already experienced.

This is where we shouldn't let panic set in. While it is true that we are the mercy of the wealthy foreign investors, we also have to understand that the market is going through a cycle. The price of stock has become too expensive compared to other investments and fund managers are simply realigning their investments to optimize returns. The sharp decline should be viewed as an opportunity to buy as the fundamentals still remain sound.

Should you cut your losses or wait until the market goes back up? Should you keep liquid with cash or stay invested in stocks? Your investing strategy is your key to succeed in a volatile market. Timing is not as important if you stick with your plan, because even in a declining market, there is always an opportunity to earn.

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.    

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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.