February 28, 2022

SPC

SPC continues to buy traditional power plants. They bought one of ACEN's power barge last September 2021, 51% of STEAG State Power a few weeks ago, and then now they're buying another power barge from ACEN. Sellers of these assets are disposing of traditional power plants due to the shift to renewable energy. SPC, on the other hand, is buying these assets because the power margin in our country remains thin thus there is still business opportunity. Indeed it does but we're not sure for how long traditional energy will remain. So far there are no new disclosures, plans, and progress with regards to their venture to renewable energy. 

From the looks of it, SPC doesn't seem to have a vision of being a leader or joining renewable energy actively. Let alone ACEN, AP, and the like do their thing. SPC will just ride the current economic state such that as long as more than 50% of our energy is traditional then they remain conservative and continue business as-is without taking too much risk. SPC's capital gains would probably ride the highs and lows of the inflation rate and investors earn through dividends.

RCR

RCR released their annual financial report a week ago and they were able to beat the revenue forecast thus the increase in dividend income as well for 2021. With that said, the dividend yield for 2021 is 5.7%. Their dividend projection for 2021 is 5.57% but during their IPO they were telling investors that the dividend for 2021 is 5.7%. The recent news did not excite the investors but would've been disappointing if the yield ended up at the projected yield of 5.57%. Sometimes these IPOs are hyping things up and far from reality.

Anyhow, the net asset value (NAV) of RCR based on the annual report is at 6.03 PHP/sh. Note that NAV/sh is one of those benchmarks if a REIT is trading at a fair value. Right now, RCR is trading at a price above the NAV/sh.

AREIT

AREIT declared a dividend of 0.47 PHP/sh which was an increase from the 0.44 PHP/sh last quarter. Last October 2021, an infusion of an asset has happened between ALI and AREIT right after they have declared their last dividend way too early. AREIT said that they intentionally released the last dividend early so that the income from the new asset will be fully realized for the 4th quarter. An increase of dividend income indeed happened but for now no new disclosure of possible infusion so we shouldn't expect the dividend yield to increase in the succeeding quarters. There are plans for growth but speculative plans for now it is.

DDMPR

According to some news sources, Double Dragon's (DD) strategy in the real estate business is to reappraise and revalue their properties annually. Doing so will make their financial report better overall such as an increase in profit and lowered debt-to-equity. According to some analysts, DD does not depreciate its assets because of such a strategy. We do know that properties depreciate over time which affects a property's value but the rate of depreciation is not transparent for DD.

DDMPR is currently trading below the NAV of around 2 PHP/sh. This catches the attention of investors because first, they look at stocks trading below fair value. Next, they will scrutinize the financial statement if the company's profitability is at risk and bad state of debt. With the tried and tested strategy of DD to dress up their financial statement, it will show that DDMPR is indeed profiting and has little to no debt. Investors then decide that DDMPR is undervalued. In reality, however, DDMPR is at high risk in the current economic state thus their financial statement is inconsistent with what's happening on the ground.

The above write-up is just a speculation of mine. If indeed it is true, then I guess financial statements are not enough for due diligence. The problem however is that financial statements are the most accessible information retail investors can only have to understand a company. Many retail investors do not know what is happening inside the company.

RCR, AREIT, DDMPR

During the rebalancing of (Financial Times Stock Exchange) FTSE index, AREIT and RCR have been added to the Small Cap category while DDMPR has been added to the Micro Cap category. We should expect an inflow of funds to these stocks. The rebalancing will take be implemented on March 18 and effective on March 21 giving enough time for institutional investors to adjust their portfolios. Unfortunately, DDMPR remained stable at the 1.7 and 1.8 PHP/sh range. Investors are still waiting for what kind of catalyst will make DDMPR move.

DMC, SCC

SCC just released a disclosure a while ago that they have set a 2021 earnings record up by 393% and it's the highest in its 41-year history.

I've been reviewing my writeups with regards to DMC and SCC for 2021 and I realized that every insight I wrote was positive for both companies. Coal, Nickel and Energy Sales, in general, did great for 2021 and both DMC and SCC released special dividends last December. With that said, we should expect sustained regular dividends this next coming declaration of dividends (probably this coming March).

When it comes to SCC earnings, we should always include DMC as part of the analysis for 60% of DMC's earnings are coming from SCC.

February 21, 2022

SGP

It's been 2 months since typhoon Odette left the country. Unfortunately, many of the places in the Visayas area have not yet restored their electricity due to the 2 special towers that have been destroyed during the typhoon. They are special since it is the only transmission line that allows the flow of electricity from one island to another and caters to 60% of the power demand. It will take time to rebuild the tower since they have to make it superior and can withstand typhoons. For now, they have temporarily set up towers but even so the problem isn't solved yet because 11,000 electric posts need fixing. According to data, 9 electric cooperatives of 7 provinces have not fully restored power and have not reached 50% of the population. In some areas, they are expecting the restoration of service this February, some will be on Holy Week, and some don't know when.

With that said, we can imagine the impact on NGCP's revenue. With less electricity to transmit, the lower the earnings. Moreover, NGCP is going to spend a significant amount of money to restore the towers. This could probably be the reason why SGP's stock price is down. Fundamentally, there is nothing wrong with the business and eventually, everything will go back to profitability since they monopolize the transmission service. It's just that earnings are forecasted not to do well for until who knows when. With much-needed spending for restoration, we shouldn't be expecting a good dividend income.

DDMPR

After the implementation of the POGO tax bill, the BIR was able to collect 1.2 billion PHP worth of taxes in the last 3 months of 2021. This is surprising since many POGOs have left the country. What's more surprising is that the BIR and the DoF expect an increase in revenue of up to 76.2 billion in the next 2 years. On the other hand, Collier, a property consulting firm, projected that there will be an increase of POGOs occupying office spaces by 2025. PAGCOR on the other hand however said that the pandemic, travel restrictions, and confusing tax rules are causing the exit of POGOs.

Some DDMPR investors are now confused about whom to believe whether they will continue holding or should be selling their shares. The future of Gaming-Related BPO and POGOs in DDMPR is not assured despite they being 60% of the tenant portfolio. A week ago, DDMPR disclosed their Fund Manager report and they are mum on the tenancy and the future of Gaming-Related BPO and POGOs. Their disclosure however emphasized that around 40% of the lease will expire in 2023. The good news is that the promised Double Dragon Tower and Ascott-DD Meridian Park have been mentioned in the disclosure. Double Dragon Tower construction is expected to be completed in the first half of 2022 while Ascott-DD Meridian Park will be completed in 2023. The expected date of infusion however has not been mentioned or assured. DDMPR disclosed in their 3-year strategy plan that they will only infuse properties that are already profitable thus we are not sure when will Double Dragon Tower and Ascott-DD Meridian park become profitable for infusion. Investors who bought DDMPR for "pamana" have got nothing to worry about.

FILRT

FILRT declared its 3rd dividend of 0.112 PHP/sh. Their occupancy rate has been reduced to 89% of which 90% of the tenants are BPO. The good thing is that they were still able to maintain the dividend income despite the reduction of occupancy rate. Their last disclosure mentioned that two office buildings totaling almost 70,000 sq.m. in the gross leasable area may be added within the year. This is probably a reason for some investors to stay invested with FILRT in addition to having quality tenants and PEZA-accredited offices.

MER

MGen Renewable Energy Inc., a power generation subsidiary of Meralco partnered with Vena Energy for the development, construction, and operation of a solar plant in Ilocos. Vena Energy is an international company whose business consists mainly of renewable energy all around Southeast Asia. Vena currently operates 4 solar plants and 2 wind farms in the Philippines. MGen partnering with Vena is right on time considering that the Philippines is targeting to increase renewable energy share by 35% by 2030 and 50% by 2040. Currently, our energy mix in the Philippines is 60% coal, 20% natural gas, 10% geothermal, 5% hydro, and 5% for others.

ASLAG (yes without the 'R')

RASLAG is a renewable energy (RE) company from Pampanga that is going for an IPO in the next coming months. It's not as big as ACEN but it's not as speculative as SPNEC. RASLAG is a company that is already operating, earning, and in need of public funds to expand the business. Them going for an IPO is a good time because RE is the talk of the town and the fact that energy demand is projected to increase yet supply is thin.

I went through the prospectus and the following are the reasons why I think RASLAG has the potential of being a good dividend-paying stock:

(1) RASLAG might not be as big as other energy companies like ACEN, AP, SCC, and the like. However, there will always be a business in the energy sector since our supply margin is thin in the Philippines. The energy market is not that saturated so competition is not a problem. The government gives incentives to RE companies and prioritize buying their output before other kinds of energy sources.

(2) They have a dividend policy of paying out 30% to 50% of the earnings. To back this up, I went through their earnings because after all, this is where dividends come from. To cut it short, they have an average gross profit margin of 75% and net profit margin of 45% within 4 years. Those margins are exceptional because the average gross profit margin and net profit margin in the energy industry are 30% and 8% respectively. At some point, this is understandable because solar plants are way more economical than traditional power plants. Infrastructure and maintenance are inexpensive, installation is fast and scalable. They are given tax incentives and they have a contract with the government that lasts for 20 years for selling their output with annual rate escalation. This implies that there is a secured and steady cash flow for 20 years.

(3) RASLAG has been paying dividends since 2018 up to date with varying rates but the key here is they have been consistently honoring their dividend policy even during the pandemic.

(4) They're not going to use the proceeds of the IPO to refinance debt but rather be used mostly for expansion. This implies that the objective is to increase profit margin because energy is in demand and they have to move quickly otherwise it is going to be an opportunity cost. They have RASLAG-1 and RASLAG-2 plants currently operating. RASLAG-3 is under construction. Meanwhile, RASLAG-4 and RASLAG-5 lands are being secured in which future construction of solar plants will happen.

(5) They are positioned in Central Luzon in which the average demand for power is increasing by 5% to 6% annually. This gives them the potential to scale their profit.

(6) They are a subsidiary of Angeles Power, Inc. This implies that RASLAG consists of management that is tenured in the energy sector. They have the right people, connections, and resources to run the business.

(7) Besides profit margins, they have good key metrics in their financial statements in just 9 months of 2021. (a) The Current Ratio is 0.9 which is almost at par or better than the average of 0.8 in the energy industry. (b) The return on assets is 4% which is better than the average of 2.6% in the energy industry. (c) The return on equity is 8% which is at par or better than the average of 7.4% in the energy industry. (d) The asset turnover is 11.4 which is better than the average of 0.27 in the energy industry.

RASLAG has value but we know that every business carries risks. The following are risks that are worth noting: 

(1) Their business is heavy on solar. When solar is not already the go-to source of energy then the business is affected.

(2) They are concentrated in Pampanga in which they thrive and most probably because they are well-known in that area. However, they might have difficulty expanding outside for they will be facing competition for resources against power generation companies owned by conglomerates.

(3) Natural calamities like monster typhoons and deadly earthquakes that could affect their operations.

Disclaimer: This is not advice or recommendation to subscribe for RASLAG IPO. Everything I wrote above is based only on my due diligence and interpretation of the prospectus.

February 14, 2022

RCR

March 31 is close which is the expiry date of the extended Work From Home (WFH) arrangement specifically for IT-BPO firms. We have to recall that BPO firms renting PEZA accredited offices will continue to receive tax incentives for as long as 10% of the employees should be on-site. The Philippine Economic Zone Authority (PEZA) asked for a 100% WFH arrangement previously which was denied by the Fiscal Incentives Review Board (FIRB). A week ago, PEZA is again reviving its call for a 100% WFH arrangement for IT-BPOs.

It seems like the population is accepting the fact that COVID and its variants will be part of our lives. Many of the businesses have already adapted and WFH is becoming a viable strategy for business continuity. Mobility survey shows that the majority of the movement of population in Manila is in the Grocery, Pharmacy, and Residential sectors. Meanwhile, mobility in the retail and recreation, transit stations, and workplaces remain negative. 

With that said, a permanent WFH arrangement is possible. RCR is heavy in the IT-BPO sector and could be affected but we'll have to keep an eye on what the FIRB would have to say on this, how the IT-BPO will react to it, and what would be RCR's strategy.

SPC

SPC is buying 51% of STEAG State Power Inc. (SPI), a coal-fired power plant in Misamis Oriental. Despite having said that they are looking to venture out to renewable energy, they ended up adding more coal power plants in their portfolio in addition to the diesel-based power barge they purchased from ACEN a year ago. It can't be helped since our country's demand for power is increasing but the moratorium on developments of traditional power plants is still in place. In addition to that, many of the power plants are on unplanned outages due to maintenance and fixing. One of SPC's plants has been fined by the Energy Regulatory Commission (ERC) for being down because it's been out for almost 100 days. The purchase of SPI will increase the value of SPC and this would probably be their first to expand outside the Visayas.

GLO

GLO declared a cash dividend of 27 PHP/sh a week ago. There is no growth in the dividends if we were to get the trailing twelve months (TTM) declared dividends. The annual earnings for 2021 disappointed some investors. It's not that the earnings are bad but rather it's because it reached the pre-pandemic level but the stock price is currently high as compared to what it was during the pre-pandemic level. GLO's stock price has continuously gone up the past few months due to many positive developments such as more towers being put up, GCash being profitable, an increase of subscribers in the broadband sector, adapting to technology that lowers the operational cost, and many more. The financial report however says this development did not do much for the earnings of the company so it makes sense that GLO's stock price valuation has to go back to its pre-pandemic level as well. Since there is no increase in dividends, many dividend investors would like the stock price to dip some more that is closer to the pre-pandemic level to achieve a good dividend yield. 

February 7, 2022

MER

Spectrum, Meralco's subsidiary solar power firm made a deal with Ajinomoto Philippines Corp (APC) in which they will install solar that would generate 1.3 million kWh in a year. With that said, APC is expected to save 700k PHP annually while saving 1.95 million trees. Looks good at it may seem but one would question why aren't other companies shifting to solar? That's because the cost required for installing and maintaining solar is expensive. It will take years to feel the return on investment.

The good thing is that our law gives incentives to companies that are in the renewable energy sector. Meralco's subsidiary Spectrum will enjoy things like income tax holidays, tax exemption from imported spare parts, tax deduction from income, tax credits, and so on. In short, they will save a lot of money and they can give better pricing and deals with companies like APC. 

This would probably just be a start and we'll see how things will develop whether more partnerships will take place since this seems like a good business opportunity.

TEL, GLO

Recent reports show that TEL is still leading the broadband and 5G sector in terms of speed. 5G might be the new tech being rolled out but it's not accessible to everyone yet. GLO is leading the mobile space in terms of connectivity and they continue to accelerate and build more cell sites across the country. GLO claims that the majority of the customers are using 4G LTE SIMS and devices.

Meanwhile, the Public Service Act (PSA) amendment which allows up to 100% foreign ownership of telcos is nearing. DITO Tel admitted that they are open to tapping foreign investment to support its nationwide rollout and challenge the duopoly and that is if the local market cannot provide the funds. DITO offered an SRO (Stock Rights Offering) to raise funds. The SRO, however, was deferred due to weak demand from investors so instead, they chose to take foreign loans instead for their capital expenditures. With that said, it seems like there is a high probability of them increasing foreign ownership despite them telling that the current 40% of China is good enough.

GLO and TEL meanwhile remain neutral to the PSA amendment as there was no present need for added foreign investments.

RCR

RCR would be the first REIT to declare cash dividends for the year 2022. With a cash dividend of 0.092 PHP/sh, the annual yield is 5.7% at the IPO price of 6.45 PHP/sh. The projected dividend yield of RCR for 2022 is supposedly 5.9% as reported a year ago. Anytime within this year, an infusion of assets is going to happen which should increase the dividend income. RCR however disclosed that 49% of the lease is going to expire between 2022 and 2024 so we'll have to keep an eye on the occupancy rate in the next disclosures as to see if the dividends will sustain.

SSS, SSS Provident Fund, GSIS

A few weeks ago many of the companies have released their top 100 shareholders. Within the list, I look for stocks where the government is involved. The involvement of the government means they would do their part to protect their investment and them having large shares over a company gives them significant voting rights to steer the future of the company. I as an investor ride the dividend stocks where the government is involved because after all, I believe a part of the dividend income is what they distribute to our fellow pensioners. This is not investment advice but something I would like to share to add conviction to one's decision when buying the stock.

• SSS has holdings on NIKL, SCC, DMC, TEL, FILRT, DDMPR, AREIT, GLO, AP, RCR, GMA7, MER, MWC, and FLI.
• SSS Provident Fund has holdings on NIKL, SCC, DMC, TEL, FILRT, DDMPR, AREIT, GLO, AP, MER, MWC, and FLI.
• GSIS has holdings on SCC, DMC, TEL, FILRT, DDMPR, MREIT, AREIT, GLO, AP, RCR, GMA7, MER, SGP, and FLI.

PSE

February is already here and the expected high-yield dividend index is not yet in sight. A year ago they mentioned it will be this January of 2022 and then they moved to February. Anyhow, PSE reported that the average dividend yield of public listed companies increased from a low of 2.50% to 2.58% per annum. I speculate that the increase is due to REITs which are mandated to pay at least 90% of their income.

The criteria for an inclusion of a stock in the high-yield dividend index has not been disclosed. PSE knows for sure that it is not wise to use dividend yield as the sole criteria when investing in dividend-paying stocks. This should be combined with value because dividends cannot be considered an income when the invested capital depreciates thus we're just technically using the dividends to offset the capital loss. When the high-yield dividend index list comes out, most probably those stocks that are listed will become volatile since many investors will jump in. Where there is volatility, traders will come in as well, stock prices might spike up, and we know that when the price is up then the dividend yield is lower.

Personally, some investors want PSE to include a dividend growth index instead. These are consistent dividend-paying companies but increase their dividend income on an annual basis. This makes more much sense for a conservative investor because even if the dividend yield is low right now but if we are assured that dividend income will increase annually, then for sure after 4 or 5 years our investment today will have a good dividend yield in the future. As good as it may seem, the question however is whether we have those kind of dividend stocks similar in the US in which they are known as the Dividend Kings and Dividend Aristocrats.