August 30, 2021

GLO, TEL

A week ago GLO and TEL stock prices have surged but the spotlight is coming from GLO. Many were caught off guard as to what happened. Analysts are divided and here are 2 of the most common reasons they came up:

(1) It is within the constitution that public utilities and services are limited to foreign ownership up to 40% only. Last year and until today, senators are reviewing to amend and classify public service from a public utility. More groups are supporting the move to exclude telco companies from being categorized as public utilities. This will allow foreign ownership of up to 100%. Doing so will attract more competition that would benefit the consumers.

(2) GLO's GCash is now profitable and it is being valued at an all-time high. Some speculate that GCash will soon have its own IPO in the near future.

Here are my insights:

(1) The public service amendment is not much of a catalyst because this has been going on since last year not unless it is already close to being passed. Even so, I speculate that GLO does not have the interest of giving higher ownership to foreigners because they do not need additional funds. The last time I checked their foreign ownership, it remains at 27% not even utilizing the 40% maximum limit. TEL and DITO's foreign ownership level on the other hand is at 38% and 40% respectively. It makes more sense that TEL and DITO will probably benefit more from this. Nevertheless, the new amendment will benefit GLO in tapping foreign funds if competition is going to be rampant.

(2) With regards to GCash IPO, Ernest Cu admitted in a report that they do not need public funds at the moment and would focus on growth. GCash is not the primary vehicle that drives the earnings of GLO but its mobile broadband segment. GCash being profitable means it will increase GLO's overall earning but we don't know by how much.

We can probably conclude at this point that the surge of GLO stock price is aggressive such that investors are buying the speculative valuation, the possible future earnings, the IPO, and whatever positive things will happen to GLO in the future. Then the noise was further amplified by traders who want to make quick and short-term gains. Conservative investors on the other hand usually peg the stock price fair value on the current earnings of a company and they might see GLO's price right now as overvalued which is a good opportunity for them to sell. 

From a dividend investor's point of view who rarely sells, there are a few options to take advantage of such situations when the price is overvalued. (1) If the capital appreciation is "X" times greater than the annual dividend yield, we can probably sell or partially sell shares and use the proceed to buy other dividend stocks that give higher dividend yield taking into account the risks. (2) Hold the shares, enjoy the dividends and wait for a price to go back to its fair value before accumulating more shares. We will have to wait for the 3rd quarterly report if GCash indeed gives a significant bump to GLO's net income and by then we can set an updated price fair value relative to the earnings.

Other telco and telco-related stocks like TEL, CNVRG, NOW, and DITO have their stock price up as well but with little to no catalyst. Although PSE history shows that when one of the stocks in a sector surged in price, traders will play other stocks in the same sector.

Whatever is happening in the telco sector right now, one thing for sure is that there is still a lot of room for growth and competition. National Economic and Development Authority stated that 64 percent of barangays in the Philippines do not have telecommunication power, 88 percent are without free WiFi zones, and 70 percent have yet to be deployed with fiber optic cables.

SCC

Coal futures surged again by their daily limit last week because of reports that coal imports from Mongolia to China may be suspended for two weeks due to the pandemic. The resumption of Mongolia's coal production is supposed to cool down the coal prices but it seems like it's not going to happen sooner. The suspension has already happened several times since the end of 2019. China's demand for coal is still intensive even though its electricity usage peak is coming to an end. Such situations leave the door open as an opportunity for SCC to continue supplying coal to China.

RCR

RCR has been reportedly oversubscribed. AREIT and DDMPR which were oversubscribed did not do well on the listing date. Meanwhile, FILRT which has been silent did not end up below IPO price until this writing. It is going to be interesting how RCR will fare on the listing date. It could be that many investors are just attracted to RCR or maybe traders felt the missed opportunity from FILRT and would try their luck again this time.

Anyhow, what made RCR interesting and attractive in addition to the above-average dividend yield is the 442,000 square meters worth of assets to be infused. Jericho Go, the President, and CEO of RCR mentioned that there is a memorandum of agreement between RLC and RCR. The agreement mentions that there will be an infusion of 1 to 2 assets annually subject to market conditions.

AP, SCC, SPC

Malampaya, a natural gas facility in which the Philippines benefit to ensure a stable supply of energy is close to being depleted. The Department of Energy (DoE) prepares to shut it down this October and expects electricity prices to go up.

DoE's strategy is to rely on other plants using conventional fuel to cover the gap of power inefficiency. They are looking at Dinginin and other power plants. Dinginin is a coal-fired power plant under AP. Although DoE did not mention SCC, SPC, and other power sectors in the picture, it's obvious that AP cannot handle the power demand on their own. 

PLC

PLC released its presentation to investors this August. The following would be some interesting information with regards to this dividend stock.

PAGCOR reported that the gaming industry sector's revenue in the Philippines is down to 80 billion PHP in the year 2020 coming from 212 billion PHP in the year 2019. As we all know, this is due to the pandemic. 80% (or 65 billion PHP) of this revenue is coming from Integrated Resorts that are mainly located in Manila's Entertainment City. Within that area, there are only 4 companies operating and they are Resorts World, Solaire, City of Dreams, and Okada.

PLC is a holding company and one of the companies they own is PLAI (Premium Leisure and Amusement, Inc.) which holds a PAGCOR license allowing them to legally operate in the gaming industry. However, PLAI is technically not doing the operation themselves but through a partnership with a company called Melco. With PLAI holding the license and Melco doing the operation, they benefit each other through profit sharing. PLAI and Melco's operation is specific only to the City of Dreams Manila. Note that the owner of the building is Melco and BEL thus giving advantage to PLAI not to pay any rental lease or interest payments. PLAI just collects gaming revenue shares and they are not affected by the operating losses incurred by City of Dreams. One thing to note here is that BEL owns 79% of PLC so we shouldn't expect PLC to keep all the collected profits just for themselves.

With the above-stated facts, PLC is defensive against this pandemic not in the sense that they are going to be profitable but rather their expenses and costs are controlled. Nobody expected PLC to give a generous dividend payment this pandemic. With their strong cash flow and ample reserves, they were able to do so anyway even if they only netted a disappointing income of 324 million PHP in the year 2020. Note that PLC's income used to be at least 2 billion PHP before the pandemic. This year 2021 alone, they already have a net income of 570 million PHP surpassing last year's annual income and we haven't reached the end of the year yet.

PLC holds 50% of another company called Pacific Online Systems Corporation (POSC). This company leases its equipment for lotto and keno operations around the country. The annual net income from operations is still on the negative since 2019. However, it did not significantly go down further in the year 2020 up to date. According to news a few weeks ago, POSC is close to bagging the five-year Philippine Lottery System contract of the Philippine Charity Sweepstakes Office after the only other bidder was disqualified.

PLC as of this writing gives a dividend yield of 9.5%, they have no debt, and has a transparent dividend policy of giving at least 80% of the unrestricted earnings as dividends to shareholders. For now, the dividends are sustainable because of their strong cash position but it won't last long if the pandemic never ends and if they do not adjust their business to the new normal. However, their defensive position at the moment will last them long enough while waiting for things to get better or until an opportunity arises. For sure, like any other company in the hospitality and tourism sector, PLC is one of those stocks that will bounce up when the economy fully reopens. It was earlier reported that 95% of NCR tourism workers have been vaccinated against COVID-19.

August 23, 2021

DMC

In a recent disclosure, DMC's nickel mining business profit has soared to an all-time high in which both their mining assets are operating at full capacity for the first time. Most of the shipments are going to China. Nickel is a key component in manufacturing efficient and effective batteries for electric vehicles. The supply of nickel within China has been gradually depleting because of the boom of the electric vehicle industry. China now relies on nickel imports from other countries like the Philippines. DMC at the moment can maximize their nickel sales profit because of the ongoing Indonesian nickel ore export ban.

DMC expects that shipment remains strong in the 2nd half of this year. The nickel is coming from Berong mine in which they were able to extend its life in June until the 3rd quarter of this year. However, they did not disclose further information on where to mine nickel in the 4th quarter. For sure it is going to be an opportunity cost since the demand remains strong.

On the other side of their business, DMC is venturing out to be a major player in off-grid energy in which focuses on the use of renewable energy. For those unaware off-grid energies is a cost-effective solution to provide power to places that do not have access to electricity for some reason. In the Philippines, 10% of the population does not have access to electricity and is mostly in the rural island areas. DMC is currently building a hybrid-solar diesel plant in Masbate and Palawan.

On another side of their business, DMC is doing some small-time side hustle like opening co-working spaces in their condominiums as a way to adapting to the new normal during this pandemic.

DMC insiders have been bullish for the last few weeks. They've been buying millions of DMC shares and nobody has sold any shares since the start of this year. For this year 2021 alone, they have accumulated a total of 104,650,692 shares at an average cost of 5.93 PHP/sh.

DDMPR

On my last writeup, DDMPR declared a cash dividend that had a 38% increase as compared to the dividends they declared in the last quarter. During that time, the increase cannot be justified because the quarterly report has not yet been disclosed to the public. Injap claimed that the increase of dividends is because of the tax benefit applicable to REITs. The incentive allows them to be exempted from paying taxes if they give at least 90% of the distributable income to shareholders. Technically speaking, without that incentive, the dividend yield would have remained the same. Logically, infusion of assets and rental rate escalation is the way to increase the income of rental-based REITs. As of this writing, investors are still waiting for the promised Double Dragon Tower and Ascott-DD Meridian Park to be infused as part of DDMPR's growth.

The quarterly report has been eventually disclosed and here's an interesting fact. Last year in June 2020 the net income of DDMPR is 4.5 billion PHP while this year of June 2021 the net income is 2.24 billion PHP. That's almost a 50% decrease in income after a year. Many are confused as to what happened and it's not like there was a massive change in tenants or management considering that they have maintained a 97% occupancy rate. Many speculated that Double Dragon made the financial statement look good to arrive at a fair value IPO price of 2.25 PHP/sh and to be able to collect as much money as they can from the public. No wonder DDMPR is now trading at 1.7 to 1.8 PHP/sh which is relative to the decrease of income. I guess this gives a negative sentiment to Injap because it somewhat shows dishonest valuation to investors. This is one of the classic examples as to why some investors do not buy on IPO because they do not believe in the initial valuation. Once the shares are out in the market, it is the investors in the public who will put an unbiased valuation of the stock.

TEL

PLDT is building a new cable system in which they named the project Apricot. This will connect the Philippines to Japan, Singapore, Indonesia, Taiwan, and Guam. As of June this year, PLDT has 14 other international submarine cable systems and 1 terrestrial cable system. PLDT currently leads the fixed broadband segment business. Project Apricot is an addition to increasing the resiliency and speed of the internet in the Philippines. PLDT is ramping up its infrastructure for the following reasons: 

(1) The population is taking the digital transformation seriously because of the pandemic and there is an increasing rise in 5G. As reported by Ookla, PLDT currently claims the fastest and widest 5G network in the Philippines. They have more than 4,000 sites across the country and they have been rolling out 5G-ready SIM to certified devices. 

(2) PLDT aims to maintain its position as the major player in the fixed broadband and data center business. They currently operate 10 globally certified data center facilities spread across the country. With that said, international companies like AgotoZ made partnerships with PLDT to have leverage on their network facilities.

As of July this year, Ookla reported that the Philippines averages 71 Mpbs in terms of fixed broadband; an increase from 67 Mbps in June of this same year. However, the average global speed for fixed broadband is 108 Mbps.

FILRT

FILRT's number of POGO tenants has decreased from 3% to 1.5%. The overall occupancy rate now stood at 89%. The company however stated that new multinational BPO tenants and ROHQ (Regional Operating Headquarters) are taking up the vacated spaces. The take-over of the new tenants is delayed due to ECQ.

We can conservatively calculate the dividend yield to decrease by 1.5% with POGOs out and the new tenants not yet in. The dividend yield should be down to approximately 6.2% from the projected dividend yield of 6.3% at the IPO price of 7 PHP/sh.

RCR

The IPO price of RCR has been reduced to 6.45 PHP/sh which is a 12% decrease from the 7.31 PHP/sh. The new projected dividend yield is approximately 5.5% which is up compared to the previously projected dividend yield of 4.9%.

Note that RCR has 3% POGO tenants.

AP, SCC, SPC

The average power spot market is down by 23% this month of August. This is due to (1) we're already in the wet season bringing in rains and colder weather, (2) varying levels of quarantine restrictions, and (3) backed by better supply.

The demand is seen to trend lower in which power sectors like AP, SCC and SPC will have difficulty selling their output in the market. The demand would probably be back next year when summer peaks because it has been known that increase in temperature eventually increases the demand in power.

This cyclical event is sometimes one of those things that are being taken advantage of by investors. The stock price fair value is relative to the income of a company. If the downtrend of power price in the market continues, chances are, AP, SCC, and SPC's income will drop this wet season and the stock price will follow. However, we know that power is a life-need commodity and would peak in the summer. Investors will take advantage of such situations to buy at a lower price this wet season and then sell when the dry season comes. Dividend investors on the other hand will simply accumulate more stocks on the lows and reap the dividends later on.

Note however that we shouldn't put solid assumptions that the stock price will go low this wet season but rather be prepared for possible buying opportunities. The future is always uncertain and we're just predicting the possibilities based on probability.

GMA7

Speaking of the cyclical event, GMA7 is hitting high sales in ad revenue because of the upcoming presidential election next year. Currently, their profit is already higher than the previous election and the difference is that election is still to come. The surge in profit, as we know, is because they're currently monopolizing the broadcasting sector.

What's interesting this first semester is that GMA7's profit is break-even with ABS. On a year-on-year, GMA7's profit is up 159%, meanwhile, ABS is down by 38.7%. What I can personally tell from here is that even though GMA7 is monopolizing the broadcasting sector, ABS is somehow resilient. This is probably due to the digital transformation taking place that many of our population are already ditching traditional media such as the use of television and radio. Telcos are aggressive in their expansion and sooner or later many of the provinces that are used to traditional media will have a stable internet connection.

August 16, 2021

SCC

A week ago Indonesia has suspended coal export from their coal mining companies because they failed to meet their domestic obligation where they should be selling 25% of their production to their local market. Ironically, the Philippines which is a coal-producing country imports 75% of its coal from Indonesia and Australia. Without Indonesia, SCC will likely be able to easily sell its coal locally in the Philippine market and given the fact that the Philippines' demand for power is increasing as previously reported. We also have to consider that SCC accounts for 92% of the country's coal production according to the Department of Energy thus if we exclude coal imports then SCC is the major local player.

SCC's profit has surge mainly due to the ongoing Australian coal import ban from China. Statistics show that Indonesia, Australia, and Russia are the biggest suppliers of coal transported to China. Without Australia and Indonesia, the opportunity for SCC has further widened.

AREIT

AREIT recently declared their 2nd tranche of dividend for this year at 0.44 PHP/sh. The interesting thing about AREIT's dividend is the continuous increase of the dividend amount:

• 0.28 PHP/sh in the 1Q of 2020
• 0.31 PHP/sh in the 2Q of 2020
• 0.34 PHP/sh in the 3Q of 2020
• 0.38 PHP/sh in the 4Q of 2020
• 0.42 PHP/sh in the 1Q of 2021
• 0.44 PHP/sh in the 2Q of 2021

The increase in dividends is understandable because of the additional assets that have been added to its portfolio. I am not sure whether the recent tranche of dividends has covered all the rental income of all the properties or there is more to come. Recently however there was no additional infusion of an asset so sooner or later the dividend income will stabilize and the dividend increase will solely rely on the annual rental escalation rate.

FILRT

The listing date of FILRT was interesting. The first few days did not move similar to AREIT and DDMPR where their stock price dropped below IPO and stabilizing agents had to use their powers to keep the price up. 

FILRT was never hyped which is probably the reason why the results turned out different. FILRT is the only REIT I know who had made sponsored advertisements of its offer on social media like Facebook and news media like Rappler. It is within my speculation that they had to do it because nobody was talking about it. If nobody is talking about it, FLI won't be able to maximize and collect money from investors. There was no news that FILRT was oversubscribed. Investors probably were skeptical about buying on the IPO because of their past experience with AREIT and DDMPR. They probably thought of waiting for the price to go down further to maximize the dividend yield. However, they probably noticed the silence of the hype and concluded that it's a safe buy because the tsupiteros are not around which makes the stock price volatile. Matt Cabangon an equity analyst of AAA securities guessed that REIT investors have matured and started to treat these stocks for what they really are that REITs are for dividends and not trading.

The IPO of RCR and MREIT is just around the corner. It would be interesting to see how the market reacts on their listing date.

GLO, TEL

GLO declared their 2nd tranche of dividends at 27 PHP/sh which have also increased because they made good earnings this pandemic similar to TEL. The future of both GLO and TEL however is being penetrated by new players.

As of June 2021, the following statistics on telco sector market share is something we should ponder upon:

• Mobile Broadband: GLO 58%, TEL 42%, CNVRG 0%, Sky 0%
• Fixed Broadband: TEL 48%, GLO 32%, CNVRG 13%, Sky 7%

TEL is still leading the Fixed Broadband but CNVRG is not a player they have to ignore. CNVRG has been consistently expanding and their last quarter report shows their profitability. The market is starting to respect CNVRG especially that they are now added to the index. On the other hand there was an interview with DITO TEL's Adel Tamano that they have the intention to enter the broadband space and are doing a friendly user test.

Meanwhile, GLO leads the Mobile Broadband by a significant amount with no potential threat. DITO TEL however has recently disclosed that they have already 3 million subscribers and further expanding to other locations. Ernest Cu of GLO downplays DITO TEL on such a report claiming that the increase of subscribers is not relatively parallel to the increase of revenue.

DDMPR

A 0.027 PHP/sh declaration dividend has been announced. This is a 38% increase from the last dividend declaration which is around 0.020 PHP/sh. We are currently at the second tranche of dividends but if we are to conservatively compute the annual yield then we should arrive at 0.108 PHP/sh as dividends. At the IPO price of 2.25 PHP/sh the dividend yield is around 4.8% which is still far from the 5.07% projected yield. DDMPR however is currently trading at 1.77 PHP/sh which gives a dividend yield of 6.10% using the conservative assumption stated earlier.

With the ongoing negative sentiment of POGOs and risks from gaming-related BPOs, it is surprising that DDMPR has maintained a 97.72% occupancy rate for the 2nd quarter. The company remains to have no debt and is not leveraging on anything for its growth.

August 9, 2021

Inflation

BSP reported that inflation has eased further to 4% which is in line with the consensus forecast.

The following are stocks that I have been keeping track of in my watchlist that (1) gives consistent dividends for the last five years, (2) the five-year average dividend yield is above the inflation rate, and (3) it is currently trading at a price that gives a dividend yield higher or at par with the inflation rate.

• PLC: 9.9% dividend yield
• GMA7: 9.7% dividend yield
• PMPC: 8.9% dividend yield
• DMC: 8.4% dividend yield
• SPC: 8.0% dividend yield
• ANS: 7.3% dividend yield
• SCC: 7.3% dividend yield
• TEL: 6.4% dividend yield
• SHNG: 5.9% dividend yield
• FLI: 5.7% dividend yield
• MER: 5.5% dividend yield
• GLO: 5.4% dividend yield
• PSB: 5.4% dividend yield

Meanwhile, REIT stocks are new and do not fit the five-year average criteria however they are also on my watchlist since they are mandated to give dividends.

• DDMPR: 6.3% dividend yield
• FILRT: 6.3% dividend yield
• RCR: 4.9% dividend yield
• AREIT: 4.6% dividend yield
• MREIT: 4.1% dividend yield

Disclaimer: The stocks above are not stock picks but to be treated as stocks of interest. If we wish to buy the stocks above, we have to study further the business since it has never been a good idea to rely on the dividend yields alone. Each company's fundamentals differ and how it reacts to the current and future state of our economy. For instance, PLC is a stock that is at risk of this pandemic because the business deals with casinos and gaming, GMA7 is a stock that is exposed to political risk, PMPC is an illiquid stock, SCC is exposed to regulatory risk because of the shift to renewable energy, some REITS have POGOs, and so on.

Meanwhile we can get tax-free and consistent dividends higher than inflation rate from Pag-IBIG's regular savings and Pag-IBIG's MP2 which have dividend yields of 5.6% and 6.1% respectively.

AP

This dividend stock used to be on my watchlist but had to be removed because it didn't meet my five-year average criteria. However, with the easing of the inflation rate and high earnings report, I have high hopes that AP will be back to giving dividends on levels which it used to. Many analysts are bullish on the power sector this year like Edmund Lee from Caylum Trading Institute, Aaron Say of First Metro Securities, and April Tan of COL Financials. Coincidentally they all have their eyes on AP because of its cheap valuations.

In light of the PSEi rebalancing, PSE has disclosed that they are increasing the free-float level requirement to 20% for a stock to be included in the index. Free-float level are just one of those requirements. AP's current free-float level is 19.70% so there are chances of being replaced next year. The chances, however, is lower because we have SMC and FGEN which have the lower free-float levels of 15.81% and 18.75% respectively. Who knows, maybe sometime next year some three or more stocks will suddenly have good free-float level and be used as replacements. It's possible and unexpected things can happen. Nobody knew CNVRG is going to be added in the index and it hasn't even been a year since its listing date. Meanwhile, nobody expected EMP to be removed since it was not even on the candidate as per analyst report. Nevertheless, we all know that sudden price drops happen when a stock is removed from the index similar to like what is happening to DMC. If AP follows suit, then it'll be a bargain price for dividend investors with higher dividend yield.  Just this month of May this year, AP has been removed from the MSCi and there was a huge price drop since many foreign entities had to sell their AP shares but the price eventually recovered. This cyclic index rebalancing event is always being kept track by investors for opportunities like it's some sort of a Black Friday sale.

MWC, DMC

Utility stock like MWC used to be on my watch list but had to remove it as well. This is a company that has a dividend policy of giving 35% of its net income to shareholders. They have been consistently giving dividends since 2007 however was cut in the year 2020. Utility stocks have low business risk because the service they offer are commodities and have long contract agreements. However, It was this time that they were exposed to political risk because their water concession contracts with the government turned sour. Until then, MWC had to do a lot of fixing on their side and never gave any dividends for the year 2020 and none so far this year.

A few days ago the House of Representatives approved measures seeking to grant franchises to MWC allowing them to continue their development and operations. The franchise is said to last for 25 years unless revoked by Congress. It is within my speculation that they will continue to honor their dividend policy in the succeeding years. MWC's dividend yield was good before because it gives an average dividend yield of 4% higher than the inflation rate which was around 3% during its time. It might not be that attractive today since the inflation rate is higher, but MWC is something to look out for when the inflation rate continues the downtrend.

MWC wasn't alone at that time they were being scrutinized by the government. DMC has been affected as well because they have holdings with MWSI (Maynilad Water Service Inc). Both MWC and MWSI will benefit from the recent disclosure coming from the House of Representatives.

August 5, 2021

TEL

The last tranche of dividends for this year has been declared. Shareholders will receive 42 PHP/sh. TEL gave a total of 82 PHP/sh for this year which is higher compared to last year at 77 PHP/sh. Many were expecting a declaration of special dividend because they made good earnings this pandemic but I guess a dividend increase is already something special.

DMC

PSEi rebalancing has been finalized and indeed the analysts were right. DMC has been removed from the index along with EMP and they were replaced by ACEN and CNVRG. Many expect DMC's price to go down because fund managers that use PSEi to balance their portfolio will have to sell their DMC and EMP shares and replace them with ACEN and CNVRG. 

DMC's sister company SCC used to be in the index but got removed in the month of August 2020. Looking at the historical chart, price dropped suddenly on the next day. SCC's fundamentals weren't affected nevertheless, business still pushed through and the price eventually recovered to its fair value.

Meanwhile, dividend investors are going to use the price drop as an opportunity to buy more DMC shares at a bargain price. DMC has a dividend policy  of giving a minimum of 25% of its net income. At this time of writing, DMC is trading at 6.10 PHP/sh that gives a dividend yield of 7.8%. If the price starts to go down in the next few days, we should expect a higher dividend yield. 

SCC

SCC's profit has surged as seen in their quarterly report. However, analysts are having a different take on SCC's future. COL Research believes that SCC will continue the trend because of the lack of power supply and the constant increase of demand brought by rising temperature. Abacus Research believes that "that" is how far SCC will go since the prices of power are likely to fall and will impact SCC's future earnings. 

Both research teams are true in their ways. Their claims are supported by Power Philippines, an independent journalism website that focuses on power-related news. They reported that prices were down in June and the downtrend is expected to continue however the power sector is bracing for the year 2022, especially in the peak demand months of summer. 

Besides power, SCC's profit increased because the demand for coal from China surged due to the ongoing Australian coal import ban as claimed by COL research. Abacus however claims that the demand and price will likely go down because Mongolia started to produce coal for China.

RCR, MREIT

A few days ago SEC gave a green light for RLC and MEG to offer their REIT.

RLC REIT is priced at 7.31 PHP/sh with a projected dividend yield of 4.91% this 2021 and 5.26% in the year 2022. Meanwhile, MREIT has been firm with 22 PHP/sh price having a projected dividend yield of 4.1% for the year 2022 and 4.5% on the following year.

MEG has previously disclosed the properties they will offer however there is still no prospectus available that would give finer details. RLC, on the other hand, has a draft of its prospectus available. RLC will offer 13 properties distributed in Pasig City, Makati City, Mandaluyong City, Quezon City, Taguig City, Cebu City, Tarlac City, Naga City, and Davao City. All properties are PEZA-accredited, have a high occupancy rate of 99%, and tenants having an average lease of 4.3 years. 68% of the tenants are from the BPO industry related to IT-BPM (Business Process Management) and as we all know BPOs are one of the resilient businesses in this pandemic. The problem however is they have POGO tenants of around 3%. If we put an assumption that POGO has left as tenants of RLC, then we will have a reduced dividend yield of 4.7% for the year 2021.

Similar to MREIT, the good thing about owning an RLC REIT is the diversification of location but not in terms of diversified business. All the REITs being offered currently are heavily weighted in the BPO industry. It will greatly impact an investor's REIT portfolio if there is an unforeseen event that will happen in the BPO sector.

MREIT will run its IPO from August 23 to 27 and be listed in the PSE on September 6. On the other hand, RLC REIT will be offered from August 31 to September 8 and will be listed in the PSE on September 20.

August 3, 2021

TEL

Bloomberg recently reported that there's a rise in transactions where some companies buy data centers and telecom towers. TEL has plans on selling its towers for around 1 billion USD and then lease those towers back. The decision is not yet final but the deliberation is still ongoing. 

I am not aware of how costly it is to own and maintain a tower rather than lease it out. Though the closest I can relate to this is the usual debate whether it is more costly to own and build a house rather than renting an apartment. Many say it is cheaper to own a house because you don't have to pay anything but the maintenance is costly, the value of a house depreciates, dealing with taxes, regulations, and whatsoever. On the other hand, some say it is cheaper to rent because you leave all those problems to the landlord, just pay the monthly dues and leave if you're not happy.

Nevertheless, whatever TEL decides to do, I guess their aim here is to lower down their operational cost. Lowered operational cost means they get to save more of their income. Higher net income gives better free cash flow. TEL has a dividend policy that pays 60% to 75% of its net income as dividends to their shareholders.

This is not only for TEL but in general one of the things that dividend investors look for in a company is free cash flow because not only excess cash is a sign of good earnings but it is also used to pay as dividends or their debts. Though it is wrong to fully assume that free cash flow is meant for dividends/interest payments because it can be used by the company in ways they see fit. It would be safer to say that free cash flow can be used as a supplementary tool for analyzing whether a company can pay dividends and/or interest to investors.

AP, SCC

A few weeks ago I wrote about the lack of supply in power in the Philippines. This can be further elaborated by George Ching a senior analyst in COL financials for the power sector.

The report shows that there was high demand for power from 2019 until today because of the rise of temperature. Every 1-degree rise of temperature will require an amount of power.  The power demand is forecasted to grow 4% to 5% annually in the next 20 years. However the supply is uncertain because of (1) ageing baseload capacity, (2) suspension of building  of coal plants, and (3) competitive selection process set by the government in terms of supply agreements.

AP and SCC has been affected during the move to shift to renewable energy because of their stance in coal. However given such situation, it seems like AP and SCC is here to stay for the many more years to help supply the increasing demand of power. 

SCC made a disclosure as of this writing that their profit soared 279% for the 2nd quarter and 181% for the first half of this year. Earnings was attributed mainly due to record-high coal sales and prices, and contribution from their power subsidiary SLPGC. Meanwhile AP disclosed that their consolidated net income was up 136% higher than same quarter last year because of the high demand of power.

AP has a dividend payout policy of giving no more than 50% of the net profits as dividends to their investors, dividend yield is currently around 4%. Meanwhile SCC has a dividend payout policy of giving minimum of 20% of the net profits as dividends to their investor, dividend yield is currently around 8%.

FILRT, DDMPR

Colliers, a respected real estate agency in the Philippines has released a report with regards to tracking office spaces occupied by POGOs. Unfortunately, it is down from 11% to 6% in Metro Manila as of the first half of 2021.

Here's a timeline of the drop of occupancy as per the report:

• 2020 1st Quarter: 1.34 million square meters occupied.
• 2020 2nd Quarter: 1.34 million square meters occupied.
• 2020 3rd Quarter: 1.23 million square meters occupied.
• 2020 4th Quarter: 1.18 million square meters occupied.
• 2021 1st Quarter: 883 thousand square meters occupied.
• 2021 2nd Quarter: 790 thousand square meters occupied.

AREIT is safe from this risk since they have 0% of POGO tenants. Meanwhile, FILRT and DDMPR are not saved since they have approximately 3% and 10% POGO tenants respectively. This will affect the projected dividend yields of FILRT and DDMPR. If we assume the worse that FILRT and DDMPR have no more POGO tenants then FILRT will have a reduced dividend yield of 6.1% coming from a projected yield of 6.3% at IPO price, meanwhile, DDMPR will have a reduced dividend yield of 4.6% coming from a projected yield of 5.07% at IPO price. DDMPR's stock price has been going down lately and I speculate that the analysis of Collier has greatly impacted investor's sentiment.

MWIDE

The company will be offering their Series 4 Preferred Shares and has already paid for the filing fee on July 27 of this year. It is expected to be listed in the PSE on October 2021 this year. MWIDE plans to redeem the shares from the investors after 3.5 years from the listing date.

The proceeds from the offer will be used primarily to redeem their Series 1 Preferred Shares (MWP) which they have offered in the year 2014. They will redeem it because if they don't, there is a step up due in December of this year. For those unaware, a step up happens when a company did not redeem its preferred shares after the expected buy-back date. This means the dividends to be paid by the company to the shareholders will increase in which they do not want to do that. In short, they're going to pay their old debt with a new debt while avoiding the step-up plus the option to offer new preferred shares at a lower dividend yield as compared to their Series 1 Preferred Shares which have a dividend yield of around 7%. 

Currently, MWIDE has Series 2 (MWP2A) and Series 3 (MWP2B) preferred shares with a dividend yield of 4.75% and 5.75% respectively. I speculate that the dividend yield of their Series 4 Preferred Shares is lower than their Series 1 Preferred Shares since most Preferred Shares that have been offered since 2020 have dividend yields between 4% and 6%. 

For an investor, we might have different opinions and insights about what they are doing but for sure the preferred shares they are offering are not meant for business expansion but just gaming the financing system to their advantage.