July 31, 2023

PLC

PLC has maintained its earnings momentum this 2nd quarter of the year. PLC earned at least 600 million PHP in the 2nd quarter after earning more than 500 million PHP in the 1st quarter. This brings a total of around 1.25 billion PHP for the first half of this year as per their disclosure. What’s interesting is that they have earned all this in just 6 months whereas the 1.25 billion PHP is their annual net income a year ago. That being said, there is a high probability that they would hit at least 1.5 billion PHP at the end of the year.

PLC needs at least 1.5 billion PHP to sustain the annual dividend of 0.05 PHP/sh. For the first half of this year, they already have saved 1.3 billion PHP in cash and they’re getting close to the dividend target. If the earnings momentum continues for the next two quarters, then the dividends for 2023 are secured. PLC is currently benefitting from the reopening of tourism hence the improvement in casino operations. The Philippines however failed to be the preferred destination for Chinese tourists as per recent studies and historically they’re the ones who drive the gaming segment earnings. For this year, it is the rapid return of the Koreans that is driving the recovery of the gaming segment. Tourist arrivals from Korea are nearing pre-pandemic levels as per an analyst report 2 months ago.

The dividends are probably secured for 2023 but PLC’s performance in 2024 is something we have to watch out for. PLC mostly gets their dividends from saved cash hence even if they have been earning less than 1 billion PHP since the pandemic, they were able to sustain the dividends amounting to more than what they earn. The 1.3 billion PHP cash that PLC has right now is from the recent earnings and earnings since pre-pandemic which used to be around 3.7 billion PHP. That said, we can see the trend that PLC’s cash is on a downtrend and it was just fortunate that COVID-19 restrictions and quarantine have eased which would at least give time for PLC to recover.

July 17, 2023

FILRT

FILRT share prices have been dropping continuously in the past few weeks. It started when their recent dividend payout has been declared out of the usual schedule. A year ago, the first quarter dividend was declared in April. For this year, the first quarter dividend was declared in June which made it unusual since it was a 2-month difference from a year ago and it was already the first half of the year. This situation has happened before in DDMPR where they missed to declare a quarter of dividends hence causing its share prices to drop. FILRT has not disclosed any information that is surrounding the negative sentiment towards the share price so investors are left to speculate that the delay in the dividend declaration is due to financial issues. It is a safe assumption that investors had to make because FILRT’s occupancy and lease renewal rate is not looking good to start with. To make matters worse, when there is an unusually large selling volume of shares happening in stock, many traders and investors are poised to sell as well. This is because insider trading is rampant in the PSE market where institutions who have insider knowledge with regards to a company have the advantage to dump or pump the shares before information is officially disclosed to the public. Nevertheless, nobody knows if FILRT has insiders, but some shareholders who have no insider information, they’d rather follow and sell instead of incurring more losses. What’s holding FILRT's share price not to drop further is that the annualized dividend yield is reaching at least 8%. The share prices however could still go lower if the dividend income is not sustainable since FILRT’s occupancy rate remains volatile.

In a move to calm investors, FILRT disclosed a week ago that they are in talks with major BPO firms looking to expand their current leases. Moreover, FILRT is going to introduce co-working spaces to meet tenant needs to at least improve their occupancy rate. Having said that, FILRT expects to add 12,400 square meters of new leases if everything goes as planned. The said 12,400 additional square meters of new leases is a significant number but still below the average gross leasable area for all of FILRT’s assets which is at 17,000 square meters.

The addition of the new leases might not offset the expiring leases this year. Looking back in 2021, FILRT disclosed that 18% of leases will expire this 2023. A quarter ago FILRT disclosed that they were able to renew 32% of the 18% expiring leases without mentioning figures in terms of square meters. The recent disclosure however said that around 10,300 square meters were renewed earlier this year. Having those as given, we can calculate from here that a total of 32,000 square meters of leases are going to expire this year. If we sum up the renewed 10,400 square meters of lease and the expected 12,400 additional square meters of new leases, then we get a total of 22,700 square meters of lease which is still not enough to break even with the 32,000 square meters of expiring leases. This gives a low probability that the dividend income will increase. The best situation that investors could hope for is at least for the dividends to sustain.

FILRT investors will have to take a deep breath because next year is going to be a more challenging year where 21% of the leases will expire.

July 3, 2023

SGP

2 months ago, NGCP has been in the hot seat due to power outages and shortages which should not have happened if many of their transmission projects has not been delayed. Another issue that irked the lawmakers is that NGCP has been collecting charges from consumers for projects that have yet to be completed and that they’ve been giving fat dividends to shareholders instead of allocating them for the completion of projects. That being said, the government wanted to nationalize NGCP and continue operating it. A few lawmakers however oppose the idea since the government is not competitive enough to run it. NAPOCOR, the government entity that operates NGCP before it was privatized in the year 2009 racked up billions of debts which are still being paid until now. Moreover, there were more transmission outages before it was privatized. After NGCP’s privatization, transmission outages have dramatically decreased in the country by at least 77% and have reduced power rates. On the other hand, President Ferdinand Marcos Jr. is not keen revoking NGCP’s franchise unless there is a good reason to withdraw. Some lawmakers are giving warnings that taking NGCP back without good reasons might send a wrong signal to existing and potential investors.

NGCP’s performance since privatization is no doubt has passed many of the key metrics. With regards to the fat dividends, NGCP in their defense said that they have spent more money in capital expenditure than the dividends hence it is unfair for them to be accused of milking cash from consumers as their top priority. It was also legal to collect charges for projects that has not yet been completed and it was the government themselves that allowed it. NGCP’s delayed projects were due to many unforeseen technical aspects, right-of-way issues that should have been addressed by the government, and the pandemic.

The probability for NGCP to be nationalized is probably low. However, what is going to happen to NGCP’s earnings from hereon is uncertain. For sure they will still earn due to the monopolistic nature of the business, but we have to take note that the ERC (Energy Regulatory Commission) controls the transmission charges set by NGCP, hence the profitability will be affected. There is also a possibility that the ERC will reprimand and fine NGCP due to the delayed projects. 

Due to the above-said issues, SGP share prices have tanked by a huge volume. They’ve also been giving out lower dividend payout for 2 consecutive quarters but it’s not due to NGCP’s profitability. The last quarter’s financial report showed that revenue from transmission charges is up by 9% compared to the same quarter a year ago. Nevertheless, SGP is expected to continue giving out dividends quarterly with a dividend payout ratio that can be as high as 100%. Due to ERC being able to affect NGCP’s profitability, NGCP’s dividend payout to SGP might get affected. The better news is that SGP is currently sitting on more than 10 billion PHP in cash as of March 2023 which is enough to cover the 0.1737 PHP/sh quarterly dividend for the next 2 to 3 years. Though we shouldn’t make the mistake to assume and guarantee that whatever cash SGP currently has right now are for dividends for the next few years since things can change. For now, it is safe to assume that it can sustain the dividends since SGP does not have any significant capital expenditure to spend on. Banking on SGP for capital appreciation might not be a good idea in the short term due to risks from lack of certainty. What’s probably holding SGP share price not to tank further is the dividend yield which is competitive relative to fixed-income interest rates. The inflation rate is now on a downtrend and interest rates are forecasted to decline next year.