March 28, 2022

ALFM Global Multi-Asset Income Fund (ALFM GMIF)

This is a mutual fund that has just been opened by ALFM. It is a mutual fund that pays dividends with an annual yield of 4% to 5% and distributed to investors in a monthly basis. It is fitted mostly for investors looking for consistent cash flow without risking capital long-term growth (that's what they said). We can avail of this via GInvest as well.

ALFM GMIF's fund manager is Blackrock, one of those well-known investment providers globally. To make it short, ALFM GMIF and Blackrock GMIF are the same and the difference is that the ALFM GMIF NAV (net asset value) price is adjusted within the Philippine setting. The movement of the price of both funds will be the same. This implies that we can use Blackrock GMIF historical chart as a way to evaluate the past performance of ALFM GMIF even though ALFM GMIF's inception date was only June 2021.

Unfortunately, the historical chart shows on average that there was minimal to no capital growth for the past 10 years. The NAV price is currently on a downward trend depreciating the capital of current and previous shareholders. The dividend income had no growth as well but at least it remained stable. Technically speaking, investors lost a value of their money if they did not re-invest the dividends since inflation has been increasing year-on-year. One would question what is going on with this fund.

The top holding asset of this fund is the iShares High Yield Corporate Bond ETF which has a ticker symbol of HYG. The historical price chart of HYG is closely followed by Blackrock GMIF. Moreover, HYG gives monthly dividends with a yield of 4% to 5% as well. This is mainly the reason why ALFM and Blackrock GMIF can give monthly dividends of the same range to shareholders. The other holdings consist of other bonds from emerging markets and some value stocks. To summarize, ALFM GMIF consists of 70% bonds and 30% equities (approximately).

If we're in it for the dividends anyway and the equities it holds in the portfolio are not performing well, then one would question why not just go directly invest in HYG instead. If we invest in HYG via GoTrade for example, our dividends are taxed at 25% and HYG has an expense ratio of 0.45%. However, we get to retain most of the 4% to 5% dividend yield if we invest through ALFM GMIF. The downside is that there's a 1% management and advisory fee for every fund we invest. The 30% equities in the fund are there to supposedly protect the NAV from depreciation and ideally should increase the NAV in the long run to offset increasing inflation rate. It is recommended to hold mutual funds for at least 5 years. This recommendation is by no means at random and is usually a rule of thumb because statistically, gains materialize or if not then losses are at a minimum after 5 years.

If we put things into perspective, we can probably say that ALFM GMIF is an HYG (a bond ETF). Investors are mostly investing in a basket of company debts in the form of fixed-income bonds. Investing in individual bonds is hard to come by and difficult to liquidate. HYG solves these problems in which it will distribute the investor funds to at least 1,000 high-yield bonds worldwide. The problem however is that more than 60% of these bonds are rated as B, C, and D. These are the kind of bonds that carries a higher risk of default (they're also known as Junk Bonds). Once a bond goes default, this lowers the value of HYG and eventually reflects it to ALFM GMIF depreciating the NAV. Most of the time, high-yield bonds equate to higher risk.

With at least 1,000 bonds on its portfolio, one might look at HYG's bonds as extremely diversified so the risks of default are mitigated. However, 80% of these bonds are from the US alone. This implies that the performance of HYG (which eventually reflects in ALFM GMIF) will rely on whatever is happening in the US. The value of a bond is usually pegged to the inflation rate and the yield. If the yield of the bond is lower than the inflation rate, then it carries a lower value because it is not making money. In this case, for investors that invests on bonds individually, it is difficult to sell for no one likes buying low-value bonds. However, investing through a bond ETF like HYG is not a problem because we can always sell the shares even if at a loss. Currently, the value of ALFM/Blackrock GMIF and HYG are all in a downtrend because the inflation rate in the US has gone up to at least 7% which is higher than the 4% to 5% dividend yield. To make matters worse, the US is hiking the interest rate which is the new baseline for new yields of newly offered bonds. This implies that the value of bonds that HYG currently and previously holds are now of lower value. HYG would be able to offset this by adding more newly offered bonds of higher yield to the ETF but many businesses are reluctant to offer new bonds because of high-interest rates.

With those said, buying ALFM GMIF might look bad because many odds are going against it. The good thing however is that lower NAV price means higher dividend yield. The dividend income remains consistent and stable as it was reported that the default rate of bonds remains low. Nevertheless, a US citizen might not find it attractive because of the 7% inflation rate in their country. However it might still be a good deal for dividend-seeking Filipino investors because the Philippines is averaging at a 4% inflation rate. It is true that we have alternative dividend-income assets that gives higher yield in the Philippines but ALFM GMIF is unique on its own right most especially in the exposure of bonds that are diversified globally, the liquidity of these bonds, and the monthly dividend payout. It would probably be a good addition to a dividend income portfolio such that when added, the risks are not concentrated locally in the Philippine market only. 

DDMPR

DDMPR is the only REIT that hasn't declared yet its first quarterly dividend for this year. A week ago, DDMPR disclosed that their parent DD is re-allocating the proceeds from the IPO to whatever and wherever deemed appropriate. It didn't matter before because DDMPR won't benefit anyway on any of those projects. However, one thing that caught some investors' attention is that DD will invest some of those proceeds to Ascott DD Meridian Park. It was surprising because Ascott will be infused to DDMPR later on as promised by Injap along with Double Dragon Tower. Ascott is expected to be completed in the year 2023. DDMPR investors felt delighted that some of their funds are for the growth of the company they invested in. Meanwhile, DD has been brandishing the opening of Double Dragon Tower a week or 2 ago. However, there are no updates yet of its infusion to DDMPR.

RCR

It was reported that there are 4 to 6 companies PEZA-Accredited BPOs that are willing to forego tax perks so that their employees can work from home (WFH). These companies admitted that losing employees yield more damage than the benefit of the tax perks. The stance of the Fiscal Incentives Review Board (FIRB) has not changed. They are not against WFH but the tax perks won't change and will only apply to PEZA-Accredited BPOs.

PEZA reported a year ago that 1,273 IT-BPO companies are registered with PEZA. With only up to 6 companies and not even sure if they're IT-BPOs shows that it might not be enough to give FIRB to change their mind.

This insight is not intended for RCR alone but generally for REITs who have BPO tenants. It just happens that RCR is concentrated on BPO in the IT sector which eats a bulk of the PEZA accreditation so they're the ones going to be mainly affected if the trade for tax perks for WFH trend continues.

CREIT, MER

The competition for offering renewable energy to companies is on the move. The benefits of companies going solar save them a significant amount of money. 

A month ago MER made a deal with Ajinomoto Philippines Corp (APC) and a week ago they were tapped by WLCON for solar rooftop installation. 

Meanwhile, CREC, the mother company of CREIT made a deal with Toyota in Cebu to supply renewable energy. CREIT is not directly related to the deal but because special dividends of CREIT will come from excess solar power energy sales then they would benefit as well from this kind of deal.

SGP

Despite the expense and difficulty of restoring power in places in the Visayas area, it was surprising that SGP was still able to give dividends which increased by 10% from a quarter ago. SGP stock price continued to drop in price reaching below FOO price due to the negative sentiment and uncertainty of the dividends. Many investors hold SGP for the dividends since this is not a growth company in which the opportunity to increase earnings is slim. If SGP's dividend yield goes down and becomes lower than the inflation rate then it's sometimes not worth holding in relative to the risk even how fundamentally defensive the business is. 

Nevertheless, SGP declared dividends a week ago and the stock price immediately recovered due to the above-average dividend yield that beats the inflation rate. Given such a scenario, we can probably tell at this point that it is the dividend income that is driving the stock price of SGP. This implies that if we want capital appreciation, SGP has to increase the dividend income that beats the inflation rate. Anyhow, there is still room for SGP stock price to grow because many analysts see its current price as undervalued relative to the earnings and assets.

GMA7

GMA7 declared an annual dividend of 1.45 PHP/sh a week ago which is a 7% increase from the dividend declared a year ago. Some investors were disappointed because it has been hyped in social media that the dividend would be reaching at least a 2 PHP/sh. Nevertheless, at the current price of 15.90 PHP/sh, it still gives a 9.12% yield which is rare to come by.

The question now is whether buying GMA7 now is a good deal or not due to some factors:

(1) There is a high probability that the dividend income will not sustain. A big factor why GMA7 is giving high dividends is because they are earning a lot from monopolizing the broadcasting industry combined with the upcoming election in which their services are mainly sought by politicians for advertising. After the election, we should expect earnings to subside. Whoever is the next president would probably give favors to another broadcasting industry that will challenge the monopoly. The market share will be divided and we should expect that income of GMA7 will be affected as well.

(2) Fundamentally, many analysts see the current price as overvalued relative to potential growth, earnings, and assets. Analysts see the fair value below 15 PHP/sh and recommend a margin of safety to buy below the fair value of at least 10% or lower.

(3) Technical shows that the current price is close to the all-time high. It's never been a good idea to buy at the top only to find out later on that the price will drop in the future because of the uncertainty of the business and dividend income. Buying the stock right now mainly because of the 9% dividend yield and planning to hold it long-term might not be a good idea.  When risk factor number 1 (discussed above) materializes, we don't know when will the stock price go higher than the price we bought. Maybe on the next election season again which we won't see for the next few years or probably when GMA7 finds ways to increase their earnings and assets. The point is, it's all speculative so better to buy at a margin of safety if there are too many uncertainties.

SGP, MER, DMC, SCC, AP, SPC

The hot dry season is here and the demand for power in Luzon has breached but within the range of pre-pandemic. Daily, the demand of power spikes from 10 AM to 2 PM in which the sun is at the high and many of the population will require power for their cooling appliances. The heat index for the year is averaging at least 40 degrees celsius which is dangerously hazardous and the highest recorded index is 53 degrees celsius (extremely dangerous) in Dagupan City. 

Power demand is high and it's has not yet breached the supply however the supply margin is running thin. This implies that energy companies are working hard to meet the demand and expects energy sales to be high. This might seem like good profit but the Energy Regulatory Commission (ERC) has secondary price cap in place. This is imposed to mitigate high prices and protect the welfare of consumers. Energy companies however are petitioning to temporarily lift the secondary price cap because of soaring global oil prices which is a commodity they need to run the plants. With high oil prices combined with the secondary price cap, their concern is whether they can still make good profit margins. SGP however is not entirely affected from such since it profits only for transmitting energy produced by these energy producing companies.

March 21, 2022

LTG

This will be my first writeup for  LTG although not my first personal insight. I've been watching LTG before since then and I'll be sharing what I've known so far within the perspective of dividend investing. A few have requested to write about LTG and here's my take. 

LTG is a consistent dividend-paying stock. They are a holding company in the business of banking, distilled spirits, beverage, tobacco, and property development. They've been giving an annual regular dividend of 0.15 PHP/sh since 2014. Unfortunately, after 8 years, the regular dividends did not grow. The reason why LTG is on the high-yield dividend watch list today is that it has been giving special dividends combined with a drop in stock price since the start of pandemic. Unlike regular dividends, special dividends are usually given only when the business has performed exceptionally well. 

There is no disclosed dividend payout policy for LTG and the annual regular dividend of  0.15 PHP/sh is the only consistent information in the financial report regardless of whatever is the annual earnings per share (EPS). However, statistics show that they (1) do not give special dividends if the EPS is below 1 PHP/sh, (2) give a special dividend if the EPS is above 1 PHP/sh, and (3) gives more than one special dividends if the EPS is near or above 2 PHP/sh. The years 2020 and 2021 (pandemic season) are when they started giving out more than one special dividend because of exceptional earnings. For the year 2022, they have a current trailing-twelve-month (TTM)  EPS of 1.36 PHP/sh and have given out a special dividend a week ago. If the TTM EPS will increase in the next following quarters and nears the 2 PHP/sh, there is a high probability that they will give another round of special dividends for 2022.

On a 5-year average, LTG has a gross profit margin of 50% and a net profit margin of 24%. These levels of profit margin are exceptional and within the threshold of value investors. They have 350 billion PHP in cash which is multiple times higher than their 70 billion PHP debt. They only spend around 6 billion PHP for capital expenditures. This implies that they're saving more of their earnings than their expenses. With that said, they can maintain a positive free cash flow which can be the source for dividend payouts. We can assume at this point that LTG is giving out dividends safely due to healthy finances and without compromising the stability and growth of the business.

Dividend investing is for the long term. Dividend investors buy the business and not just the stock ticker. If we're in it for the long term, we should scrutinize LTG's business whether it could sustain itself in the long run and most especially the dividend payouts. The annual dividend of 0.15 PHP/sh has been proven to be sustainable but the sustainability of the special dividends is questionable due to some risk factors.

Pegging the special dividends based on EPS thresholds means that we should focus on which business is LTG is prospering. Only the tobacco business is what's keeping it up by a huge margin as compared to other businesses it holds. LTG leads the tobacco business in the Philippines. Their worst holding that is dragging them down at the moment is PNB whose performance is negative due to losses from creditors. One of the largest creditors of PNB is PAL which many of us know is on the brink of bankruptcy due to the pandemic. With that said, there is a high probability that PNB won't recover soon and will continue to drag down LTG in the short term. Fortunately, the income from the tobacco business is still higher than the losses of PNB.

Of the 110 million population in the Philippines, 60% are adults. Statistics show that 30% of the adults are smokers making the Philippines the strongest tobacco lobby in Asia. This strength of LTG is also its weakness despite being a holding company. The idea of a holding company is to lessen risk through diversified business. Due to the unbalanced performance of LTG's businesses, many investors see LTG as not a holding company but rather a tobacco company. This implies that whatever will happen in the tobacco sector will greatly affect LTG as a whole.

The love of Filipinos to smoke is unquestionable and there will always be a demand. However, the demand is volatile due to many factors such as:

(1) Tobaccos (and alcoholic beverages) are taxed at a higher rate. The cost is passed to consumers by hiking the prices of their products.

(2) The cost to produce tobaccos (and alcoholic beverages) will increase. Oil, gas, electricity, and other commodity required for production have their prices increased. This cost again is passed to consumers by further hiking the prices of products.

(3) The wages of consumers remain flat but the inflation rate is increasing. This implies that consumers will prioritize budgeting their money for more important matters like food, water, electricity, gas and the like. Tobacco (and alcoholic beverages) which is already going to get more expensive will most likely be their last priority if still feasible.

There's a reason why the special dividends are not regular and most probably because tobacco is not an all-season high demand. It is uncertain what made the sales of tobacco spiked up a year or two ago and whether it can be replicated again or better yet be sustained. LTG however released a week ago that their 2021 earnings are lower by 4% year-on-year. LTG admitted that the cost for production has increased and has affected their earnings. Analysts have the same sentiment and forecasted lower earnings for 2022 due to the expected higher inflation rate and increasing production cost. They, however, projected at least 2 PHP/sh EPS by 2023 but no justification that leads to such a forecast.

There's no certainty if LTG will remain a high-yield dividend stock due to the nature of its business and the current state of economy. What's for sure is that it is not as defensive as dividend-paying utility and commodity stocks like DMC, SCC, AP, MWC, SGP, MER, SPC, TEL, GLO, and NIKL where products and/or services they offer are critical. Tobacco on the other hand has many foreseeable odds that are going against it that would lead to the instability of giving out special dividends.

March 12, 2022

MWC

Last October 2021, MWC stock price started to parabolically move upward from a low of 19 PHP/sh to a high of 27 PHP/sh. This was when there was a sign that the Senate is going to approve a new 25-year franchise for MWC. The following month they started to declare again dividends at 0.531 PHP/sh. Note that ever since 2011, they've been giving dividends consistently except on the year 2020 and the first half of 2021 because they have probably used their earnings to fix their service ever since they were scrutinized by the government. MWC usually declares dividends twice a year so the forward-looking dividend per share is 1.062 PHP. The annual dividend income has been growing by at least 6% on average year-on-year for the last 5 years.

Today MWC stock price is back to 19.40 PHP/sh which caught some dividend investors' attention because at that price point it gives a forward-looking dividend yield of 5.47%. The cause of the price drop is uncertain but they did disclose that the net income for 2021 went down by 18% due to low demand caused by the pandemic. MWC requires high capital expenditures to maintain its service. They leverage much on debt which ballooned to 52 billion PHP in the year 2020 from a low of 23.55 billion PHP in the year 2016. Their debt is increasing at an average rate of 18% year-on-year for the last 5 years. Nevertheless, the advantage of MWC is that water service is essential to the population thus their 25-year franchise allows them to continue making good profit margins. On a 5-year average, they make around 62% gross profit margin and 30% net profit margin. This kind of margin is at par with other utility companies. Good profit margins give positive free cash flow that can be given as dividends to shareholders. MWC however carries a higher risk as compared to other utility companies like MER and SGP. MWC does not cover the whole nation unlike MER monopolizing distribution and sale of electric energy while SGP monopolizes the energy transmission service. MWC however have recently expanded their service in Saudi Arabia and a few weeks ago they're setting foot in Mindanao by fully acquiring Davao Water. The demand for MWC's service might increase in the next few quarters since the government removed the 12% value-added tax imposed on water bills.

With that said, MWC is something to keep an eye on as they bounce back as a dividend-paying stock. They continue to honor their dividend payout policy (30% of earnings). What's pulling MWC down is their increasing huge debt because it depreciates the fair value of a stock. Their current financial state shows their earnings is not enough to cover the debt for some number of years. Nevertheless, conservative investors see MWC right now as fairly valued but will buy below fair value as a margin of safety. Meanwhile, COL's fair value of MWC is at 27 PHP/sh but they recommend buying below 19.20 PHP/sh.

MWC might not look that great to some but unfortunately it's the only dividend-paying stock that is in the water service sector. Dividend investors who want to diversify on this sector does not much have of a choice however news came a month ago that Maynilad Water Services (MWSI) is expected to undertake its mandatory initial public offering but it will not be this year.

RCR

RCR is planning to infuse 2 assets this first half of 2022. This is in line with their disclosed 3-year strategy to infuse 1 to 2 assets annually. These two assets are Cybergate Bacolod and Cyberscape Gamma with a combined total leasable space of 55,000 square meters. After the infusion, investors should expect an increased dividend yield of 5.96% at the IPO price of 6.45 PHP/sh.

RCR disclosed a year ago that they will be infusing a total of 442,000 square meters worth of assets. After infusion, around 392,000 square meters worth is left to infuse in the next few years. Moreover, RCR would have already attained 480,000 square meters of leasable space after infusion reflecting a 13% increase.

The current NAV/sh of RCR is at 6.03 PHP/sh as per annual report. If we increase it by 13% as well, then a forward-looking NAV/sh is at 6.81 PHP/sh which we can use as the new fair value of RCR. Note however that this is just an inaccurate, quick, and dirty way of estimating the future value because the actual NAV/sh will be released on the next quarterly report. Cybergate Bacolod is going to paid through cash and debt while Cyberscape Gamma will be through asset-for-share swap and it will affect the computation of NAV. 

The dividend yield of RCR increased by a rate of 3% after the infusion of 50,000 square meters of leasable space. If we put an assumption that every infusion of 50,000 square meters gives up to a 3% rate of increase in dividends, then we can roughly estimate a forward-looking dividend yield when infusing 392,000 square meters of leasable space. By how much? I don't know. 392,000 square meters will take years and the longer we estimate then the less accurate a computation will become since there are many unforeseen events will come along the way.

Sometimes, estimating future value gives investors an edge by having a target fair value before the price goes up (or down) in the future. The price might be overvalued today but buying at a price today could be a discounted price when infusions have been made in the future. A conservative investor will usually stick to the most recent NAV/sh until the updated financial report is released but the opportunity might have already passed when that happens. Being conservative has its merits as well since there is no guarantee that the management will commit to their 3-year strategy plan. Every forward-looking prospect are subject to market conditions.

On the other side of the news, Fiscal Incentives Review Board (FIRB) rejected the proposed extended Work From Home for IT-BPM firms. Beginning by April 1, workers are required to return for on-site duty otherwise they will lose tax perks. This is bad news for the firms but good news for landlords for they know that their occupancy rate will remain stable.

AREIT

AREIT is planning for another round of "property-for-share" swap with ALI. In exchange for the shares, AREIT will be infusing 6 office buildings in Cebu. After the infusion, AREIT will have a total of 673,000 square meters of leasable space from a low of 549,000 square meters. That will be a 22% increase in leasable space.

How the shares will be funded is not yet known whether it will be through debt or a follow-on offering (FOO). It will still be talked about at the next stockholder meeting. If financed through debt, the balance sheet is affected where the net-asset-value (NAV) will depreciate. If financed through FOO, then new shares will be introduced that cause dilution in which an investor's ownership decreases and dividend income is spread out to more shares.  Both kinds of financing might look negative but we have to trust AREIT management that they're going to infuse an asset in which the investors will have gains that outweighs the risks. The last infusion was financed through debt and yet the dividend income increased a quarter later.

On average, the dividend yield of AREIT has increased at a rate of 6.8% quarter-on-quarter. The last declared quarterly dividend is 0.47 PHP/sh and if we are to use 6.8% as our guide, then there is a probability that the next forward-looking dividend is around 0.50 PHP/sh quarterly or 2 PHP/sh annually. At the current trading price of 47 PHP/sh, this gives a forward-looking dividend yield of 4.20% for the year 2022. AREIT however mentioned in their 3-year strategy that they will grow the portfolio at an average of 100,000 square meters of leasable space from 2023 to 2024. If we are to continue our computation by increasing the dividend yield quarter-on-quarter by 6.8%, then we should get a dividend income of 2.45 PHP/sh annually in 2023 or 2024. At the current trading price of 47 PHP/sh, this gives a forward-looking 2023/2024 dividend yield of 5.20%. 

The current NAV/sh of AREIT as per disclosure is at 33 PHP/sh. If we are to increase it by 22% as well because of the next infusion, then the forward-looking NAV is 40 PHP/sh for 2022. Since an additional 100,000 square meters is to be added in the year 2023/2024 then that would give a 13% increase in leasable space. If we are to increase the NAV of 40 PHP/sh by 13% then we get a NAV of 45 PHP/sh for the year 2023 or 2024.

Similar to my discussion with RCR, we can use this forward-looking NAV and dividend yield to take the opportunity at what price to buy tat gives value. The computation above implies that even after 2 years of growth, AREIT is currently trading way above fair value. The math used to do the computation is a rough estimate, biased, and pegged purely on statistics. This is to re-iterate that forward-looking statements are not guaranteed because everything is subject to market conditions.

CREIT

CREIT has declared its first regular dividend of 0.035 PHP/sh. This came from last year's operation. The regular dividends will come from the rental lease which is given out quarterly. It is uncertain if there will be a special dividend that will come from energy sales. It was disclosed by CREIT that special dividends are given annually while the regular dividends are given quarterly. Nevertheless, we should expect a higher dividend income this 2022 because assets are going to be infused. The projected dividend yield of at least 6.5% and a NAV of 2.51 PHP/sh will not however increase because the about-to-be infused properties were already priced in during IPO.

NIKL

The 2021 earnings per share (EPS) exceeded the analyst forecast. They ended up at a an EPS of 0.57 PHP/sh from a low of 0.30 PHP/sh a year before. Their profitability is due to the strong demand for nickel which is widely used for the production of Electric Vehicle (EV) batteries. With that said, they have declared a regular dividend of 0.17 PHP/sh and a special dividend of 0.05 PHP/sh. NIKL continues to be a dividend-paying stock in which they have a dividend payout policy of giving out 30% of earnings. NIKL however has always been generous in paying out more than 30% if the business is profitable. Historically, they have a 75% average payout ratio within the last 5 years.

The trading price of nickel has soared ever since the start of the Ukraine-Russia war. London Metal Exchange (LME) had to suspend nickel trading because of the surging price. The price is not making sense anymore relative to the economy and trading it became too risky. It is rare for LME to suspend metal trading and ever since traders knew that "that" is possible, many started to sell their position thus the sudden drop of nickel-related stocks such as NIKL. 

The price drop of NIKL has got nothing to do with its business fundamentals but rather going to a correction phase. Due to the demand for nickel, NIKL recently acquired more shares from Coral Bay Nickel Corporation, one of the world's largest producers of nickel. Moreover, NIKL is acquiring more shares from its Renewable Energy (RE) subsidiary known as Emerging Power Inc. (EPI). It seems like NIKL is going to ride the trend of RE, a perfect complement for its nickel product which is widely used for producing batteries. Right now, the challenge of most RE companies are the development and use of energy storage in which the use of battery could be a viable solution.

TEL

PLDT is building another submarine cable connecting to Dipolog City in Mindanao. They have a cable landing station in Davao and adding more cables will boost network performance in the region. They could've done this before but the reason why they are probably doing it today is that more and more of our population are going digital. Due to the pandemic, the population is forced to experience the digital world even when it comes to livelihood. Now that COVID is becoming part of the new normal, it seems like we will never be going back to how we do things in the past. The shift to digital is becoming the norm but requires a good network infrastructure that delivers reliable performance. 

Outside Manila, the next largest population density is in Mindanao as per the population report this 2022. Due to the pandemic and the possibility of doing livelihood digitally, people aren't expected to travel outside but will live and work in their respective provinces.

March 7, 2022

SCC, DMC, NIKL, SPC, AP, MER, SGP

Commodity prices have been volatile ever since Russia invaded Ukraine. Russia is one of the top suppliers of gas and oil. Western countries rely on Russia's gas and oil for their energy production. The west has already placed heavier sanctions against Russia and is ready to cut Russia as a supplier. The west will have to look for an alternative source of energy. There was an energy crisis a few months ago in the EU. This is evidence that renewable energy is not yet sustainable and they had to re-activate their coal plants. If the west decides to cut Russia for supplies, they might go back to using coal. When war broke between Ukraine and Russia, coal prices parabolically went up in which SCC is benefitting from selling coal.

With coal and oil prices up in the market, this would mean that the cost of traditional power plants that uses coal and oil for producing energy will increase. The cost will eventually be passed on to consumers through hiking power rates. In addition to that, summer is already approaching in which historically power demand is increasing. With that said, there's a high probability that energy (AP, SPC, SCC) and related (MER, SGP) companies will likely increase their revenue in the next coming quarter.

Russia is also a top exporter of nickel. If the world cuts off Russia for nickel supply, this lessens nickel suppliers. Nickel however remains to be in demand due to its importance on the development of batteries for Electric Vehicles. With fewer suppliers but high demand, we should expect nickel prices to go up which is happening already. With that said, DMC and NIKL are benefitting from selling nickel. 

The negative impact of increased prices on commodities results in a higher inflation rate. The cost of goods and services is expected to increase so our investment return on these energy and commodity stocks is going to hedge the inflation rate or if not better.

PLC

Gross Game Revenue in the Philippine Casino sector has improved by at least 20% quarter-on-quarter. The contribution came mostly from Manila's Entertainment City where PLC's Okada is located. A week ago, PLC disclosed their unaudited 2021 earnings and they have indeed performed much better as compared to a year ago. For the year 2021, the Earnings Per Share (EPS) is 0.0387 PHP which is higher than the year 2020 0.0168 PHP but still lower than the year 2019's 0.0724 PHP. With that said, dividend investors are expecting a sustained or better dividend income which might probably be declared this or in the next coming month. PLC's dividend policy remains unchanged in which at least 80% of the earnings are given as cash dividends.

From their financial disclosure a week ago, PLC remains financially healthy. They have assets 9x bigger than their liabilities, they have minimal to no debt, a 6.81% return on equity up from 1.87% a year before, a 6.44% return on assets up from 1.72% a year before, and a net profit margin of 65% up from 34% a year before. These metrics add conviction that PLC can sustain dividends without business compromise.

This 2022, many analysts are looking forward to "alert level 1" in which casinos are allowed to operate at 100% capacity. PLC will continue to benefit from such and hopefully achieve pre-pandemic profitability. 

TEL

A year ago there were plans for PLDT to sell some of their towers. A week ago, it seems like it is going to push through in which they will be selling 11,000 or 50% of their towers to tower companies who will be operating and maintaining them. With the government pushing the "common tower policy", it just makes sense for PLDT to sell these towers and lease them back. It is probably more expensive to maintain a tower in which they are forced to lease it to competitors. TEL will be making 50 billion PHP from the sales and use the proceeds to strengthen their balance sheet by paying their debt. They are also lowering their capital expenditures for 2022 down to 76 billion PHP from a high of 80 billion PHP. Doing so should increase their cash flow and improve their valuation.

Those said are some signs dividend investors are looking for. Lowered debt, lower capital expenditures, and increased cash flow eventually increases the dividend coverage ratio or the probability that dividend income is sustained. TEL declared a sustained 42 PHP/sh dividend a week ago which is good and their net income was up by 8%. These aren't all that bad but some investors find the current stock price of 1,850 PHP/sh a bit expensive for that kind of return. The last dividend declaration is also 42 PHP/sh but during that time the stock price was floating at 1,300 PHP/sh. Similar to GLO, conservative investors are waiting for a slight pullback but probably not as low as 1,300 PHP/sh. Their stock price fair value is expected to increase after strengthening their balance sheet. On the growth side, TEL disclosed that it will deploy the much-awaited Maya digital bank this March. TEL also has plans to offer satellite service to far-flung areas in the Philippines after a successful test run with a satellite operator from Canada.