July 26, 2021

FILRT

It was recently disclosed that there are plans for FILRT to acquire 3 additional office buildings from its sponsor FLI. Those would be PBCOM Tower in Makati, Axis Tower 2 in Alabang, and Cebu Tower 2 in Cebu IT Park. The infusion of assets would certainly increase the dividend income but it was not disclosed when that would happen. There is however a "Right of First Refusal" agreement between FILRT and FLI. This agreement technically means that those buildings are going to be offered only to FILRT not unless FILRT will refuse and by then FLI can offer it to somebody else.

DMC

August is nearing and there is speculation that ACEN is going to be added to the index because it meets the PSE's criteria. The speculation has been around since April and obviously, one of the stocks in the index has to be replaced in case the rebalancing pushes through.

PSE does not disclose the rules on how they select the index stocks but many know that it has something to do with the stock's full market capitalization. One method is to weigh the market capitalization using its free-float level percentage. On the other hand, First Metro uses VWAP (volume-weighted average price). Nevertheless, whatever methodology there is, there are 3 common possible candidates. One of which is DMC while the other two are BLOOM and FGEN. Though many analysts speculate that it is going to be DMC.

With the assumption that DMC is the candidate for delisting from the PSEi, we should expect the stock price to get affected. Many fund managers or ETFs that use the PSEi as their basis will have to sell their DMC holding. We do not know how low DMC's price is going to go down since there is no accurate data to know how many of the institutions use the PSEi and their allocation percentage for DMC. For an investor who cares much about capital gains, this might give them a blow.

Whatever happens, one thing for sure is that the rebalancing is not going to affect DMC's fundamentals.  The business will push through and dividend investors might probably accumulate more shares at a bargain price. As of this writing, DMC's dividend yield is around 8% and can get higher if the stock price drops further.

PNX

I stumbled upon this article with regards to Phoenix’s maturing debt maneuver (https://business.inquirer.net/327622/biz-buzz-phoenixs-maturing-debt-maneuver?fbclid=IwAR36Ggc7tJ8FLN_5vBoO8gpiOL6rs7cqX5Bw9rgTYCh76J0KW_hRb9obiGQ)

The gist of the story is that the company managed by Dennis Ang Uy (DAU) has a bond that is about to mature. Instead of thinking about directly paying for the bond, they are trying to instead offer a 7% to 7.5% yield to the creditors if they allow them to roll over their debt for another 6 to 12 months. They do however claim that they can pay for the bond if the creditors are not interested.

If we are the creditor, the 7% interest rate is tempting. However, no company is in its right mind to prolong their debt and give that high interest rate because liabilities keep on adding up. Thus we can only speculate that PNX is in a bad financial state and is buying more time. We can support our speculation by looking at their quarterly financial report and they are indeed not earning much. I mean where else are they going to get money to pay for their debts? Money doesn't grow on trees that's for sure.

If they are having issues allocating funds for paying their bonds and their operational cost, we can imagine the stress we have to take if we're invested in their preferred shares. For a bond alone that they are having issues and offering some spin-offs to pay, what else more for preferred shares where dividend payments are not mandated by law. Bonds and Preferred shares are marketed as a somewhat safe and secured investment but it's not if the company can't pay for it. The risk of losing our entire capital is high. The dividend yield isn't worth it.

Ghost Month

August is coming and it's ghost month. For those unaware, it is a Chinese tradition where many avoid investing during August because it brings bad luck. Looking at the historical data, many of the stocks dip on August and eventually resumes by September. Non-believers of course takes this opportunity to buy more shares at a discounted price.

The thing about ghost month is that we don't know if many are still into that tradition whether it is the ghost month that caused the dip of prices or some other event. Nevertheless, it doesn't hurt to prepare for buying opportunities for dividend stocks. Personally, I am not waiting for the ghost month because it is pointless since we're already in a down-trend bearish market anyway.

AREIT

As opposed to what happened to DDMPR, investors are holding their shares even on a negative market sentiment caused by the COVID Delta variant. They have secured the "Safety Seal Certification"  from DILG that serves as a recognition and validation that they meet the safety standards to continue to operate amid the pandemic. It seems like AREIT will remain resilient while there's still no sign of light at the end of the tunnel brought by this pandemic. Dividends will remain stable.

DDMPR however as of this writing has dropped to the 1.8 PHP/sh level that gives an attractive dividend yield of approximately 6%.

July 20, 2021

FILRT

A recent disclosure was released a while ago stating that the offer price will be at 7 PHP/sh. The reason for the change of offer is not stated. The original offer is at 8.30 PHP/sh which is forecasted to have a dividend yield of 5.3% for the year 2021. With a 15% decrease in price, we should expect a dividend yield of at least 6%.  

DDMPR

It was eventually disclosed a few days ago that the proceeds from the IPO have been allocated to the Central Hub project of DD and JFC. This was expected because Injap has been transparent about where the proceeds will go before the IPO. What I did not expect is that the Central Hub project is going to be a separate REIT (industrial REIT) which they plan to offer publicly in 2022. Many have speculated of course that the proceeds are going to be reinvested on real estate projects in which later on will be added to DDMPR as part of its growth. However, it seems like that is not going to be the case. It is just weird that the proceeds of DDMPR are being given to a project in which it will not benefit. Nevertheless, this is just my speculation and if true then I'm already seeing this as a possible negative aspect of investing in REITs. 

Central Hub might be out of the picture for now and the only thing left investors are waiting for is the infusion of the Double Dragon Tower and Ascott-DD Meridian Park. 

GMA7

It was recently disclosed that GMA is eyeing to become a conglomerate holding company. This is a move that makes sense since they're overflowing with cash and do not know what to do with it. For those unaware, a holding company is technically a company that puts its stake on other companies which they partially or fully own. A holding company is great like ANS and DMC which gives dividend yields of approximately around 7%. ANS has holdings from different businesses like manufacturing of electrical wires/cables,  aviation, industrial process outsourcing, resorts/leisure, business solutions outsourcing, realty, and so on. On the other hand, DMC has holdings in businesses like mining, water utility, construction, and real estate.  Conglomerates have diversified businesses, multiple sources of revenue, and reduced risks.

GMA however is new to this field. They plan to focus on having a holding on businesses focused on technology advancement. In short tech start-ups. This is just me but I see this as a negative sentiment given the fact that tech start-ups have a very high failure rate. The risk of DMC and ANS can't be compared to GMA because they are offering commodities or basic needs in life. Investing in a tech startup is a risky move and can burn cash fast. It happened before with Xurpass in which until today their stock is currently suspended. Xurpass is a tech-focused company that acquired and invested in companies like MatchMe, Seer Tech, Art of Click, Xeleb Tech, CTX Tech, Storm Tech, and so on. Their IPO stock price from 6 PHP/sh went to 22 PHP/sh because of these acquisitions and speculative earnings. However, when the financial reports were publicly disclosed quarter by quarter, it shows that they weren't earning, they were losing money, and the stock price dropped until 0.55 PHP/sh and finally thought of giving control of their company to Wavemaker through a backdoor listing which is the cause of their trading suspension.

While GMA's growth is speculative, we cannot ignore the fact that the dividends would somehow be affected. GMA is going to need all the cash they need to push through with their plans. Only the future can tell what will happen. The risks are elevated but to play it safe, better to buy shares when the insiders are buying as well. When insiders are buying their company's share, we can only speculate that they know the company is doing well. 

I've been collating data from insider transactions for the year 2021 (specifically on dividend stocks):

• DMC insiders have an average cost of 6.02 PHP/sh
• SCC insiders have an average cost of 15.85 PHP/sh
• AREIT insiders have an average cost of 30.31 PHP/sh
• TEL insiders have an average cost of 1,243.56 PHP/sh
• GMA7 insiders have an average cost of 8.67 PHP/sh
• GLO insiders have an average cost of 1,824.27 PHP/sh

Notice that these insiders have an average cost below the current market price on their respective stocks. If we buy shares whenever they buy, then there's a high probability of staying on the safe side of the business. Though to make it less riskier, it would be better to wait for quarterly report if business is indeed improving. Sometimes some of these insiders know for a fact that some investors buy whenever they buy and when the price peaks, they sell down and make quick profit. The stocks however I enlisted above have good insiders except for  GMA7 a week or 2 ago where they kept on selling and never let the price go above 14 PHP/sh.

July 17, 2021

JFC

Somewhere around May 2021, JFC decided to sell preferred shares to buy back their US-denominated bonds. A month ago they already released a prospectus on where they will be using the funds and in the next few months (somewhere around this September) they will be offering the preferred shares to the public upon approval of SEC.

In the last year 2020, JFC issued a US denominated bond amounting to $600 million with a coupon rate of 4.125% for 5.5 years and 4.75% for 10 years in which both are paid semi-annually. Surprisingly after one year, they are already buying back around $250 million out of the $600 million issued last year. Their prospectus mentioned that they will be using the proceeds from the preferred shares to buy back a portion of their issued bond.

JFC will be issuing 8 to 12 million preferred shares. The shares will cost 1,000 PHP each and at that price, they will be netting around 12 billion PHP which is almost equivalent to the $250 million they will buy back from their issued bonds. Technically speaking, JFC is passing its debt to Filipino investors.

I guess the reason why they are doing this is because of foreign exchange risk. The US dollar is getting stronger against the peso. At this time of writing 1 US dollar is floating around 50 PHP. I speculate that even though JFC has international branches, most of their earnings are coming from the Philippines and they will be at a loss when they pay for their bonds from their PHP earnings which would yield a lower USD value upon conversion.

Not only are they passing their debt but there is an increased risk for Filipino investors. I do not know why they choose to offer preferred shares and not issue bonds here in the Philippines. Preferred shares are just next to bonds when a company’s financials become sour. Bondholders will always get paid first, next to which are the preferred shareholders, and last are the common shareholders. When finance is unhealthy, sometimes nothing is left to be paid as dividends to the preferred shareholders and common shareholders because after all issuance of dividends is not mandatory. This risk however can be downplayed for now because JFC is a mature company, they are earning, and far from bankruptcy. They probably just chose preferred shares because it is easier and faster to get financed.

JFC will be releasing 2 series (A and B) of preferred shares. One will be redeemed after 3 years and the other will be after 5 years. There is no disclosure yet on what would be the dividend rate but we can probably make some projections based on the common rate of preferred shares that were released from companies a year ago.

From 2020 and year-to-date, we have (1) CEBP at 6.00%, (2) 8990B at 5.50%, (3) SMC 2-K at 4.50%, (4) SMC 2-J at 4.75%, (5) MWP2A at 4.75%, and (6) MWP2B at 5.75%. I am speculating JFC’s yield will be around 4.50% to 5.50% considering that their coupon rate from the bonds is at 4.125% and 4.75%. It’s just fair that they should give a dividend rate higher than the their US bond's interest rate since the investors are taking more risk. Anyways we’ll see this September how things will be played.

DMC, SCC, TEL, AREIT

The PSEi is moving again in another downtrend because of the news about the new COVID variant known as "Delta". Currently, the new variant is more infectious and known to be more effective at evading vaccines. I do not know how low PSEi will go down but I speculate not as low as what happened in March 2020. Most businesses have already adjusted and tweaked their business model.

Despite the negative sentiment, dividend stocks like DMC and SCC are unfazed. The Consunjis and Gotianuns are on a buying spree for almost a week increasing investors' confidence. When insiders are buying their company's share, we can only speculate that it is because they think business is doing great since, after all, they have first-hand knowledge of what is going on inside the company. August is almost close in which the next fiscal quarterly report is going to be released. It makes sense for an insider to buy shares earlier before the publication of the quarterly report since the new fair value is re-computed in which they are confident that it is higher than the current price.

TEL had insider buying which isn't that much but along with DMC, SCC, and AREIT, they remained resilient on today's market crash. Probably because TEL had a history that they did well during the pandemic. If in case the "Delta" variant becomes rampant, TEL and AREIT have already proven themselves.

DDMPR

There was a short positive sentiment with DDMPR when Leechiu reported that the POGOs are on a revenge comeback since the easing of the quarantine. Leechiu is a respected property consultant who has first-hand data and knowledge when it comes to real estate. However, just today, DDMPR dropped to 1.94 PHP/sh because of the "Delta" variant news in which investors speculate that business is again going to be affected by heightened restrictions and quarantines. The current price drop now, however, gives a better dividend yield but if "Delta" will take over then this would be the time we'll see the resiliency of DDMPR's business model.

July 09, 2021

FLI REIT

IPO this July 19 to 28 at a maximum price of 8.30 PHP/sh which would give a dividend yield of at least 5% and to trade under the ticker symbol FILRT.

MONDE

A week ago there was an interview between April Tan (COL Financial Group's head of research) and Henry Soesanto (Philippine Monde Nissin's CEO). One of the topics that were discussed is dividends. Henry pointed out that the board agreed to have a dividend policy in which they would give 60% of the net income as dividends.

There is no public financial report yet for MONDE to look at since they are new in the PSE. BPI Trade Research data however shows that MONDE has around 1.12 EPS during the year 2020. This means we get around 0.672 PHP/sh as dividends using the 2020 EPS if following the 60% payout dividend policy. MONDE is currently trading somewhere at 16 PHP/sh which would give a dividend yield somewhere around 4%. BPI Trade however forecasted MONDE to have a dividend yield of 1.5% but I am not sure if they have taken into account the dividend policy mentioned by Mr. Seosanto or maybe they have forecasted that the EPS for the year 2021 is lower.

Fundamentally, MONDE has a PE ratio of 30 while the PB ratio is at 9 as seen in BPI Trade's valuation table. If those valuations are close to accurate then MONDE is expensive and overvalued considering that 25 is the average PE and 2 is the average PB in the food industry.

The dividends and fundamentals might not be that attractive but they have good upside so personally, MONDE will be more on speculative growth play but lowered risk since it is a matured company. The growth play makes sense since Henry unveiled where and how they will be using the funds they got from IPO to develop new products for the market and not just for repaying debts.

MEG REIT

A few weeks ago Megaworld released a few details with regards to their REIT offering for this year under the ticker symbol MREIT: (1) 10 key office assets in their Portfolio distributed in Quezon City, Taguig, and Iloilo, (2) shares are offered at a maximum price of 22 PHP/sh (3) the projected dividend yield is 4.1% for the year 2022 and 4.5% for the year 2023, (4) 95% occupancy rate, and (5) tenants are mostly BPO with an average lease of 5 to 10 years.

MREIT is going to be the largest REIT in the Philippines in terms of the gross leasable area however they are aiming to be the largest in Southeast Asia and to do that they have to infuse additional assets. MEG claims they have 70 buildings and I speculate that sometime in the future any of those buildings will be added to their REIT portfolio.

Personally, MREIT at the current glance is not that attractive because it will take years before we reach an above-average dividend yield (5+%). However, given the fact that MEG is planning to be the "largest" REIT in South East Asia means there is a potential for a huge increase in dividend income and capital appreciation once assets are infused later on. It can happen because it was similar to what happened to AREIT a year ago. Another thing to look at is that MEG's properties are all around the Philippines and once they are added as an asset to their REIT portfolio then it makes it diversified. All looks great on paper but these are all speculative and we do not know when it will materialize or whether it will materialize since many things are uncertain that can happen in the future. I guess maybe it's not that bad to keep MREIT as part of the portfolio because it gives an average dividend yield but it seems like most of the benefits are on the speculative side and I have no info on how committed is MEG in keeping up with their plans and promises. For now, they're trying to make their REIT offering attractive with these speculative plans but for a conservative investor, we put more weight on the assets they currently have in their portfolio.