November 21, 2022

DMC, SCC

As most analysts have expected, DMC delivered good 3rd quarter earnings and gave a record-breaking special dividend. For context, 79% of the earnings came from SCC, 15% of the earnings came from real estate, 4% from mining, and 2% from power. Except for their Maynilad Water holding, all other holdings of DMC are higher in earnings year-on-year. They have reduced their stake in Maynilad due to sluggish performance.

Given the breakdown of earnings, we can tell from here that DMC is dependent on SCC’s performance. If we look back at SCC, the bulk of its earnings are from selling coal. Currently, global coal prices have dropped which could be the reason for the drop in SCC’s share price as well. For context, for the first 9 months of 2022, 97% of the earnings are mostly from the coal business and the rest are from selling power in the electricity spot market. Even though DMC’s value is pegged on SCC’s performance, it did not drop much since it remains a speculative candidate for being added to the PSE index on the next rebalancing date.

With regards to the power business, they will continue to be profitable in that segment since at least 60% of our energy mix still relies on coal and a thin margin of energy supply. The business of selling coal however remains volatile but the Consunjis and other analysts see that coal prices will remain elevated in the next 3 to 6 months. 

MREIT

MREIT declared its 3rd quarter dividend at 0.2444 PHP/sh which is lower than the previous quarter. The annualized dividend is around 0.98 PHP/sh. Some investors got disappointed since they were banking on an annualized dividend of 1 PHP/sh. MREIT reported that their vacancy rate went down from 97% to 96%. This could be the reason for the decline in dividends. MREIT however said that the infusion of assets that was reported in April this year has not been added yet to the income since it has to be yet approved by the SEC. Analysts like April Tan see that MREIT might not achieve the 1 PHP/sh annualized dividend.

FILRT

FILRT’s fundamentals did not improve as per their disclosed quarter report. Their net income is slightly higher than the previous quarter but far from a year ago. Their average occupancy rate remains at 88%. FILRT was able to renew 86% of lease contracts, 4% of their tenants did not renew, and 10% is still under negotiation. This report however is not new because it’s exactly what they’ve said a quarter ago. Technically, nothing much happened from the previous quarter to the current quarter. That being said, there was no improvement in dividend income.

There’s a negative sentiment going around FILRT because the office vacancy rate in Alabang where FILRT assets are mostly situated has a high office vacancy rate. For vacancy rates to drop, landlords should have to drop their rental prices. FILRT can drop their rental rates in exchange for a higher occupancy rate but doing so will not improve the overall earnings and the dividend income. Property consultants do not foresee office vacancy rates in Manila dropping anytime sooner.

To counter such a pessimistic outlook and add value to shareholders, FILRT decided to purchase land from FDC (Filinvest Development Corp). The land is located in Boracay and is being leased by BSI (Boracay Seascapes, Inc.). After the infusion of the land to FILRT, it will increase FILRT’s overall occupancy rate to 89% and a weighted average lease of 6.83 years. The Net Asset Value (NAV) and dividend income will also increase but have yet to be determined. As per FDC’s quarterly report, they are earning approximately 40 million PHP annually from BSI. That said, that will probably give FILRT an additional annual dividend income of 0.008 PHP/sh with the assumption of a 100% dividend payout ratio. FILRT reported that the acquisition of the land will directly contribute to the income starting January 2023.

PNX4

From PNX’s last quarter report, they opted not to redeem the PNX4 preferred shares which are supposed to be done this coming December. This means that there will be a step up in the dividend rate of PNX4. As per PNX4’s IPO disclosure, the dividend step-up rate is based on the 7-Year BVAL plus 850 basis points. The 7-Year BVAL as of this writing is around 7% while 850 basis points equate to 8.5%. If we’re going to add all these together, the dividend yield is almost too good to be true.

PNX decided to rather use their earnings to recover rather than to redeem shares. Shareholders indeed get a high-yielding dividend income but the risk of not getting paid is high as well. Since 2017, their income is in a downtrend. For context, their financial statement shows that their income is in the negative territory and continues to do so until today. Their debt of 10 billion PHP last 2016 has now reached at least 40 billion PHP today. Their liquidity ratio is quite alarming if in case the company needs to be liquidated due to debt default. They are not liquid enough to pay all their creditors including the preferred shareholders.

LTG

LTG posted a 20.4 billion PHP net income for the first 9 months of this year despite being in a high inflation environment. They also declared their 5th dividend for this year which is the first time this ever has happened. Historically LTG only declares dividends once a year but ever since 2020 they’ve been declaring multiple dividends up to 4 times a year. Unlike other dividend stocks, LTG does not have any dividend declaration policy as to how much of the income is given as dividends to shareholders. There is however a pattern that has been observed. The year 2019 is when they made a record-breaking net income of 23.12 billion PHP. The following year, 2020, and on-wards they’ve been declaring multiple dividends. From the year 2020 until today, they’ve been gaining a net income of at least 20 billion PHP annually. For context, there is still one more quarter to go for 2022 and they already netted 20 billion PHP. That being said, if ever LTG breaches a net income of at least 20 billion PHP, then shareholders are going to expect multiple dividend declarations throughout the year.

The fundamentals of LTG have not changed that much. 60% of the income is coming from the tobacco business and 30% is coming from Philippine National Bank. The rest of the income is from Tanduay Distillers, Asia Brewery, Eton Properties (their real estate arm), and Victorias Milling.  Their 9-month income for 2022 is 105% higher than the 9.95 billion PHP for the first 9 months a year ago. It was only during the Christmas season a year ago that allowed them to earn 10 billion PHP for the 4th quarter thus ending with an annual net income of 20 billion PHP for 2021. Now, this is not to say that inflation did not impact their business this year but it did.  All their businesses except the brewery posted a lower year-on-year net income. However, the Christmas season is here and dividend investors are hoping that LTG would earn as much as last year’s Christmas season to continue multiple dividend declarations the following year.

November 7, 2022

CREIT

For the last couple of trading days, CREIT's share price has been going down despite being a fundamentally sound company. It remains to have a 100% occupancy rate for the next 20 years, the renewable energy output is a priority, and our energy market still has a thin margin supply. That being said, one would question why is the share price still going down. In a recent interview with CREIT’s president Oliver Tan, he noted that it is mostly because of the rising interest rates brought by inflation. Many REIT investors find fixed-income securities like bonds more attractive at the moment. REIT shareholders are tempted to liquidate their position and move it to fixed-income securities and avoid the volatility and unpredictable move of the market. Meanwhile, REIT shareholders that stayed or continued to add more shares to their portfolio are bullish on the future of the energy sector and banking on capital appreciation in addition to the high dividend yield once the tide is over. As of the moment, inflation continues to rise both in our country and in the US. Our BSP does not have much of a choice but to increase the interest rate to balance inflation and to keep up with the US Fed’s increase of interest rate so as not to further weaken our currency. CREIT is now trading below its NAV (net asset value) of 2.12 PHP/sh making it an undervalued business. Oliver Tan, along with Jaime Del Rosario,  CREIT’s Corporate Secretary and CIO, bought a combined total of 3.5 million CREIT shares a week ago at an average price of 2 PHP/sh. 

A month ago, CREIT issued bonds to raise 3 billion PHP. These funds will be used to acquire more land and lease it to solar power developers. Oliver Tan said that this acquisition will result in an additional cash dividend of 0.03 PHP/sh or a 20% increase in dividends.

PLC

PLC’s quarterly report was released a week ago. For 9 months of operation, they were able to net around 1 billion PHP of income which is higher than the 900 million PHP for the same 9 months a year ago. If we add the net income to the available cash they currently have, then PLC ends up with 1.25 billion PHP of cash as of today.

The 0.05 PHP/sh dividends they released this year required them to shell out 1.26 billion PHP. With the current financial standing of PLC, there’s a probability that the 0.05 PHP/sh dividends might not sustain in the following year. PLC has a dividend payout policy of giving out 80% of the cash as dividends. With only 1.25 billion PHP in cash, 80% of it is 1 billion PHP that can be distributed as dividends. That said, the speculated possible dividend is approximately 0.03 PHP/sh. We still however have 1 more quarter of operations to go and PLC might be able to give at least 0.04 PHP/sh if earnings this holiday season are going to be good.

For context, PLC’s operation this year is better than the last 2 years. One would question why the dividend of 0.05 PHP/sh can’t be sustained. This is because PLC was able to save a lot of cash before the pandemic thus even if their earnings were significantly hampered by lockdowns and restrictions, they were able to give out dividends. Those savings, however, are starting to get depleted hence they need to rely on the re-opening of the economy and most especially the tourism sector to be able to earn more and give out better dividends.

TEL

TEL is planning to sell another batch of towers in 2023. This time around they are going to sell around 3,000 towers to raise cash. These are still plans and so far, there is no indication whether a portion of the sale will be given as special dividends. TEL already gave 28 PHP/sh as special dividends on the last declaration date and investors are waiting for another 13.9 PHP/sh of special dividends on the next declaration date from the previous tower sales.

There is a high probability that TEL would decide to sell more towers since the dollar is getting stronger. TEL is highly leveraged on foreign debt, they import and use foreign resources for their projects. That said, a strong dollar technically means that they’re going to need to raise more pesos to pay for those debts and project expenses.  Recently, they’ve been testing space-based internet and have going around checking out satellite providers whether it is economically viable in our country. They’ve been preparing after knowing that Elon Musk’s Star Link made a partnership with Henry Sy Jr.’s Data Lake to launch a nationwide satellite broadband service. In addition to TEL’s satellite project, they are also going to launch another cable project to boost Asia connectivity which will cost them 75 million USD just after launching the Jupiter and Apricot cable systems months ago, the construction of additional data centers for hyperscalers, and continuous investment on cybersecurity and broadband capacity. With rising interest rates, it is difficult for TEL to further leverage on debt hence would be better to sell their tower assets to raise cash and repay their debt at a faster pace. They currently have a net debt of 4 billion USD which is now lower than the 4.5 billion USD a year ago. 

So far TEL is doing fine for this quarter. As per their recent earnings report, their 9 months' earnings are 10% higher year-on-year. It’s not that high but at least gives certainty that the usual dividend income is sustained or could be higher since the Internet is a commodity and costs are passed on to consumers. The problem is that inflation is moving up at a faster pace hence most dividend investors aren’t profiting from the dividend gains. 80% of TEL’s revenue is still coming from data/broadband services such as mobile data, home broadband, and corporate data. Analysts however are seeing that the data/broadband service is reaching its peak since around 25% of that market segment is left to penetrate and competition is stiff with GLO, DITO, and CNVRG. TEL is venturing out on other businesses like their recently opened Maya digital bank and hyperscalers but we still have yet to see how much revenue will this contribute to TEL in the future. Investors however remain positive on the upside of TEL’s share price since their S&P Global score has recently increased, they have been included in the FTSE4Good index, and their MSCI ESG rating increased from BB to BBB. That said, investors are expecting more foreign funds to flow to TEL.

SCC

SCC has released its 3rd quarter financial report and it was above analyst estimates. Their 9-month net income of around 36 billion PHP is 3 times higher than the 9-month net income of 10 billion PHP they have gained a year ago. Their capital expenditures however remain flat hence most of the income is given as dividends to shareholders. 

SMPC, their coal power plant, is seen to continue to sell coal at elevated prices due to the import ban on Russian coal by the EU and the reactivation of coal plants in developed countries to reduce reliance on Russian energy. Countries in Southeast Asia have been increasing their coal-fired plant capacity in preparation for heating in the winter season. Meanwhile, extreme flooding is happening in Australia’s Newcastle, one of the leading coal suppliers. That being said, with high demand and disrupted supply, analysts see that SCC’s coal business will continue to prosper in the next 3 to 6 months.

SCPC and SLPGC, the power arm of SCC also contributed a significant amount of gains. They were able to sell power in the market at elevated prices and improved the availability of their power plants. Electricity prices have increased from 4.77 PHP/KWh to 8.02 PHP/KWh in the 3rd quarter because of higher fuel costs. SCC sees electricity will continue to sell at elevated prices due to sustained fuel costs and a thin margin supply of electricity in the country. Fortunately for SCC, they are the only power generator in the country that mines their fuel and will not rely on import.

Things are looking great for SCC at the moment but many investors are not positive that earnings will sustain. SCC’s Maria Cristina Gotianun said in an interview that historically, the 3rd quarter is the slowest due to the rainy season and sluggish demand. Most analysts know that the war in Ukraine is mostly the reason why the coal business is up. If the war did not happen or if sanctions are lifted, SCC’s coal and coal-fired power plants are heading a downtrend. SCC isn’t expanding any of its coal and coal-fired power plant at the moment due to investor’s negative sentiment towards the effect of coal to climate change. For now, they only do maintenance and the rest of the cash is given as dividends. Last September of this year, they reported that they were looking to venture into solar and LNG (liquified natural gas). They are currently in the preliminary stage of the study and no new updates at the moment.